The benefits of tracking your spending are myriad. Only when you carefully watch how you spend money can you see where your money really goes. You might think you're putting only a few cents into that parking meter, but a month of closely tracked spending might reveal that those coins add up to $20 or $30 over the month. That could be enough for a night out!
By seeing what and where you spend, you are on the first steps toward controlling your finances and savings. You can be empowered to make decisions about where you'll put your money that benefit you the most.
If you want to save more, tracking your spending will help you find places to cut down on your expenses so you can meet your savings goals. Often, you'll be surprised at what leaps out at you when you start tracking. Whether it's a shocking $60 a month on lattes or an unused gym membership that's been quietly siphoning off $90 a month from your checking account, many of us have big expenses we can easily cut to make room for savings.
It helps to automatically save this money once you've cut the expense. If you give up lattes, don't wait to collect that $2 a day. Stuff it in your piggy bank each day that you don't go to the cafe, and put it in the bank at the end of the month. You want to save that money before you have a chance to spend it on something else. What's more, you want to get it into the bank where it can start earning interest for you right away.
Get out of debt
Tracking your spending can be critical for paying off debts, especially consumer debts. Keeping track of what you spend is the only surefire way to uncover the spending habits that led you to live beyond your means in the first place. Without knowing exactly what you spend, you can't take a realistic look at what you need to cut back on in order to save.
Also, paying more attention to your spending can show you where you can free up money in your budget to make your debt snowball finally melt. The more you can cut back on expenses, the faster you'll be out of debt.
Change your habits
Perhaps the most subtle reason tracking your spending matters is that keeping track of what you spend changes what you spend. People who start tracking their spending typically see their spending fall about 20 percent.
Tracking every cent puts you into the mindset that every penny matters. You'll become less prone to impulse buying. You'll stop shrugging at small or unnecessary expenses, and you can start avoiding small fees that add up quickly. Soon, you'll be saving money without even trying.
How to track
If there is a golden rule to personal finance, it is this: track every penny you spend. Keep track of every dime you put in the parking meter, as well as big-ticket items like the money you lay out for after-school programs and car payments.
Tracking is easier than ever. There are several personal finance programs out there for mobile devices and desktop computers. Choose one that's right for you and get started. Your bank or credit card also has online records of all transactions available; you should be able to see these on your statements.
You'll want to keep a record of cash transactions as well. Some programs, like Mint, allow you to manually enter cash transactions. If the software you choose doesn't have this feature, keep a notebook or spreadsheet where you can enter all the data as you spend money.
Whatever you do to track your expenses, be sure to go over your spending records at least once a month, and compare them to your budget or spending plan to see how you're doing.