The summer after I graduated college, I read a book by David Bach called Smart Women Finish Rich. This is where my personal finance journey began. Since then, I’ve read a TON of other books on personal finance (and I highly recommend David Bach) and learned quite a bit. One of the greatest lessons I learned when it comes to money is the importance of tracking your spending.
If you’re like me, you track many aspects of your life: what you eat, how much water you drink, how much sleep you get, and where your money goes. In this post I want to focus on tracking your spending and how that can significantly help you.
Why should I track my money?
You should know where your money is going. Period. If you don’t have a handle on where, how, what you’re spending money on, you are putting yourself at risk for hardship. Maybe you didn’t realize that you’re spending 40% of your monthly income on eating out. Or, you’re still paying for that gym membership that you never set foot in.
How should I track my money?
The method that you choose to track your finances is totally up to you. I don’t think there is one way that is better than the other-you know what is going to help you the most.
- Fixed expenses : rent, mortgage, insurance, etc
- Income : how much money is coming in
- Daily transaction s: groceries, eating out, shopping
When I track my spending, I’m looking at the following:
You may find that a hybrid approach between these options is what works best for you. My personal approach to tracking my finances is a hybrid of a spreadsheet and an app (which I’ll talk about next).
#1 — Old-fashioned pen and paper
Back in 2006 when I read Smart Women Finish Rich, there was an exercise in the book where we were to write down what we spent money on and how much for 7 days. I grabbed a small notebook and wrote everything down for a week. Afterwards I grouped transactions into categories that made sense for me: eating out, gas, shopping, etc.
Depending on how much spending you do with cash versus credit/debit cards, this could be a good option for you to start tracking where your money is going.
#2 — A spreadsheet
I keep a spreadsheet with all of my fixed expenses and income. This is a great way to get a big picture look at money in and money out. I don’t reference it often, but I like to go in a couple times a year and adjust values as needed. It’s helpful for planning and determining how much money I can tuck away in savings and retirement.
My spreadsheet includes: gross income, net income, insurance costs (health, dental, car, life), loan payments, internet, subscription fees (Spotify, Netflix, etc), retirement contributions, and saving contributions. Add whatever you think would be helpful to track moving forward and adjust as needed.
#3 — Apps
There are many apps out there that can help you successfully track your spending, especially if you use a credit or debit card for the majority of your purchases. I put EVERYTHING on my Chase Sapphire Preferred credit card. The points and customer support are phenomenal. Anyway…that’s another post.
I recommend having your bank and credit card apps on your phone to easily track spending in real-time. I also keep my retirement and brokerage account apps on my phone as well. I check all of my finance apps at least daily to make sure there are no fraudulent charges.
The app that I really love is: Clarity Money.
Clarity Money keeps all of your spending in one place and allows you to categorize your spending based on pre-set groups. You can’t customize any spending groups, but they have quite a few categories to choose from.
What’s awesome is that you can see in real-time how much you’ve spent on groceries this month, how long until you get paid again, how much you’ve spent at Amazon this year, and so much more. You can connect your bank accounts, credit cards, retirement, and brokerage accounts. Most institutions are compatible.
Mint is another popular app with similar features, but I have not used it in several years (pre-smartphone days).
Are you already tracking your money?
What’s your experience? Any recommendations?
Originally published at https://jamiepittman.com on July 21, 2020.