You already know it’s a good idea to track your spending to keep up with your budget. But the big question is: how? Here are five of the best practices you should get into the habit of if you want to be better about knowing where your money’s going.
Set Clear Goals First
Before you get into the nuts and bolts of tracking your spending, you need to have clear financial goals. Whether you are saving for a vacation or new car (or for retirement), having a clear goal will make tracking your spending purposeful.
Your list of goals should include both short and long-term plans, and you’ll want to actually make the list and put it somewhere you can see it.
Choose the Right Tool for the Job
Just like you wouldn’t use a hammer to screw in a nail, you wouldn’t use a budgeting or tracking tool that doesn’t suit your lifestyle. There’s everything from mobile apps like Mint and YNAB (You Need A Budget) to tried-and-true spreadsheets — the options are practically limitless.
That’s exciting, but it also means there’s probably going to be some trial and error along the way; expect to switch things up when they don’t work out and don’t view it as a setback.
Categorize Your Spending
You should categorize your expenses once you have chosen your tool for tracking. Organize your spending into categories like housing, groceries, transport, entertainment and savings. Breaking it down like this helps you visualize where your money is going and pinpoints where you might be overspending.
If you see that you are spending a lot of money dining out, you can simply adjust your budget to account for that: it doesn’t necessarily mean you have to stop going out to eat. Make it a habit to review these categories periodically to keep yourself mindful about what, where, and why you’re spending.
Be Consistent With Your Tracking
Whatever you do, remember to track your expenses consistently, whether that’s every day or once a week. It’s so easy to fall off track and be left with a confusing pile of purchases that leave you with more questions than answers.
If you go the everyday route, just spend a bit of time entering expenses from yesterday or setting up automated payments, which you know will come out of your account. But if you’re doing weekly, this is also an excellent opportunity to review the week, keep you accountable, and see if there’s any spending trends you should be aware of.
Celebrate Yourself
Remember to reward yourself for accomplishing your financial goals, even the small ones. Whether you’ve managed to cut back on how much you eat out or put extra money away for your vacation, reward yourself with something you love or you’ve been looking forward to.
It’s best to make these rewards clear in advance so you have the metaphorical “carrot on the stick” to help keep you motivated. But either way, rewards are absolutely essential for reinforcing good habits, so don’t forget to appreciate yourself for showing up for yourself like this!
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