I think it’s safe to say most of us know the importance of tracking your spending. How many of us actually do it, though? The process can often seem intimidating and tedious, but as someone who has been tracking her spending since college, I can assure you it’s worth it.
Tracking your spending is (arguably) an activity every single person can benefit from, especially young adults.
It’s entirely too easy to blow a bunch of money on a night out with friends, a weekend away, or by hosting a party. If you’ve found yourself three days away from payday wondering where the heck your money went, then you can definitely benefit from knowing where it’s going.
Tracking your spending also forces you to look at your financial reality, and that’s not a bad thing. Ask anyone older than you if they regret not getting a handle on their finances sooner. Most would say yes.
Take advantage of your younger years – start tracking your spending now to have more security and freedom later. Your future self will thank you.
By the way – tracking your spending can go hand-in-hand with budgeting, but that’s not what I’m talking about here. The simple knowledge gained from recording your expenses is enough to make a difference in your financial situation, especially if you don’t feel ready to take on budgeting yet.
Still not convinced? Here are 7 reasons to track your spending, starting today!
1) You Need to Know Where Your Money is Going
I’m a huge proponent of spending in line with your values. How do you know you’re doing that if you don’t track your spending?
For all you know, you’re spending an exorbitant amount on groceries, when you really want to be saving for travel. The “extra” money going toward food could be going toward your dreams.
You’d only know that if you were actually aware of how much you’re spending on groceries, though.
In fact, if you don’t know what your monthly expenses look like at all, you’re at risk for living way above your means.
Most of us work relatively hard for the money we do have – it deserves our attention!
2) How Else Will You Meet Your Goals?
If you don’t know where your money is going, and you’re blissfully ignorant of your financial situation, you might not be able to save for your goals. At least, not efficiently.
If you want to save for a down payment on a home in 5 years, and know you’ll need $20,000, then you’ll need to set aside $333 every month.
How do you know if you can afford to put $333 away if you don’t know what your monthly expenses are? You might find that you don’t have the $333 to put toward your down payment fund. You then have three options: cut back in other areas, earn more, or come to terms with the fact you might have to spend more than 5 years saving.
Another example – if your goal is to pay off student loan debt, you’ll have to crunch the numbers and figure out how much extra you can afford to pay. Knowing your expenses will help with that.
3) It Forces You to Prioritize
You have a finite amount of money to allocate to certain categories, based on what you earn. Laying out your expenses will force you to prioritize where you want your money to go.
Mindlessly spending on things isn’t going to get you where you need to go. You need a plan, and tracking your spending is one way to create that plan.
If you want to accelerate saving or paying down debt, having a clear picture of your finances will also help you to determine how you can make either a priority.
4) It Shines the Light on Spending Habits
By figuring out where your money is going, you’ll also be aware of how you’re spending it.
When you pinpoint what your spending weaknesses are, you can make changes to overcome them.
For a while, my weakness was cosmetics. Whenever I went to Target, I would leave with some sort of beauty item. When I realized just how much this weakness was costing me, I implemented a few measures to combat that spending.
Your weakness might be clothing, fast food, sale items, or impulse items at the register. When you total up your spending, it can be eye-opening. Maybe you didn’t think you spent a lot at the time, but the numbers show otherwise.
This reality check might be enough to correct your spending habits, and when you consider a purchase, you might be more inclined to question if it’s truly necessary.
Sometimes, this takes a little digging – you might have to actually look through your receipts, especially if you see a charge and wonder how you managed to spend that much in one store. Don’t be afraid to look!
5) It Keeps You Conscious of Your Bank Balance
It goes without saying, but you have to be tracking your expenses for a reason. Usually, to keep yourself accountable.
If you’re making X, and spending Y, then X – Y should hopefully be a positive number. If it’s not, you’re in trouble, and your bank account might be, too.
When you track your spending, you want to make sure you’re spending less than you earn, or at the very least, less than what you have saved. Otherwise, you might encounter some nasty overdraft fees, and end up in the red. Those fees are not worth paying, so stay on top of your expenses and know what’s left in your account when you go to make a purchase.
6) You’ll Be Aware of Questionable Charges
If you’re not checking your bank account or your credit card statements, there could be fraudulent charges that you’re missing.
Imagine your hard earned money being siphoned away because your card information was stolen. Not good!
You could also potentially get double-charged for something. If you have any of your bills on auto-pay, you should check in just to make sure the correct amount is being debited.
Additionally, if you’ve waited a while to track your spending, you might have some recurring charges that you’ve forgotten about. While they’re not questionable, you’re essentially throwing money out the window if you’re being charged for a random subscription you no longer use.
7) It Allows You to Take Control
Tracking your spending ultimately allows you to take control of your financial situation. Knowing where your money is going is empowering.
Why? If you haven’t noticed by now, there’s a lot that tracking your spending can do for you.
It can curb impulse spending, help you achieve your financial goals, cut unnecessary purchases out of your budget, force you to focus on what is worth spending your money on, and overall, will make managing your money easier. It will also help you stay out of debt, as you (hopefully) won’t be spending more than you earn.
Once you piece together your expenses and know where your money is going, you can move it around and adapt your spending if and when your situation changes. You are in control.
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Hopefully some of these reasons inspire you to start tracking your spending. Even though it’s the end of the year, it’s never too late to get a picture of your spending. If you don’t use cash, you can always go back through credit and debit statements to fill in the blanks.
If you’d rather not track your expenses manually using a spreadsheet, there are always tools like Mint.com and YNAB that will help you out and take the effort out of it. Just make sure you actively check it!
Do you think tracking your spending is important? How do you track your spending, and how long have you been doing it?
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I think tracking spending is the absolute first step in gaining control of your finances. Like you said, if you don’t know where your money is going, how can you manage it/save it/invest it? It really is eye-opening to go through our expenses line by line every month. Even though we’ve tracked our expenses for a long time, it’s still illuminating!
Total agreement! I plan then track all of my spending using a tried and true excel spreadsheet, and it’s made a HUGE difference in my ability to pay off debt. Number 4 and 1 were the biggest for me…areas I didn’t think we’re my weakness were (grocery store) and I didn’t know until I wrote it down.
These are all good reasons. We track our spending and it makes all the difference. It’s much easier to stay on budget when we check in with our spending in “real time” throughout the month and see how we’re doing.
I like number three the best. When you track your spending you learn how to prioritize by allocating money to what is most important to you. With the new year right around the corner, this is a perfect time to get organized and start tracking. Great lis!
These are all great reasons Erin. We track our expenses as well and have done so for a number of years. I know where it really helps us is in #4 & #7. Since we do it regularly, we’re able to see what’s going on which only helps us further as we make financial decisions.
Number 7 is exactly why I love tracking my spending : ) Now that we have a mortgage, student loans and car loans, I need to track everything. There’s a lot of transactions each month that need to be monitored. Tracking my spending really helps me feel in control and helps me understsand our financial position. Yes it’s work but there are some excellent apps and software out there to make it easier. I can’t say enough good things about Quicken myself : )
I like #3. It seems to be my major focus right now. I think other than marrying some rich dude or dude-ette, these ideas can definitely benefit the rest of us! :)
I recently purchased YNAB after doing the 30 day trial. I can tell this is going to be life changing. I love it!
I think the biggest reason to track spending is that it creates a mindfulness around your money habits. Most of my clients have NO idea where their money goes and as soon as they start tracking it’s comings and goings, they are more mindful when they make decisions. It’s like being asleep at the wheel and deciding to wake up, you will definitely avoid more accidents when you are wide awake.
Mrs. Frugalwoods Agreed. I’ve always tracked my spending as well, but there’s always something you can take away from it, especially when you total everything up at the end of the year.
bnwilliams500 That’s great to hear! I think groceries are a pain point for a lot of people. I know I personally check the prices of everything I put in my cart, but so many people just toss in what they need without any consideration. It’s important to take stock!
Holly at ClubThrifty Same here, Holly. I didn’t always check in, but it’s made a big difference in having wiggle room at the end of the month.
theFinancegirl Thanks Natalie! Prioritizing can be just as eye-opening. So many people have an ongoing list of things they want, but when we sit down to figure out what it is we truly want to focus on, it’s going to increase the odds of making it happen.
FrugalRules Spending habits are a big one! I know it’s cliche, but so many people don’t consider how the smaller purchases add up, and those smaller purchases are the ones that will probably become habitual.
BudgetforMore That’s true – the more accounts you have, the more you need to have a hold on things. I know I’m weird and like to update everything manually, but I do think it’s beneficial to use *something* to get a snapshot of your spending if you don’t want to be bothered with a spreadsheet.
kay ~ lifestylevoices.com Ha, that would be nice, wouldn’t it? ;) Prioritizing has been our focus the past few months as well. It really helps to cut down on the unimportant purchases!
yooperamongtrolls I’ve heard a lot of good things about YNAB! Glad you’ve found it to be helpful.
blonde_finance I like that analogy! I actually told my parents they need to start tracking their money, and my mom has been absolutely thrilled so far. It’s kind of amusing how happy she is to be tracking everything, but I’m glad they’ve finally woken up.
Tracking your spending is very important. I have been tracking my spending since college. I use a register and I also keep my receipts. At the end of each year I put the info from the receipts into a spreadsheet. That way I can compare my spending from month to month.
I think tracking your spending is one of the most vital things you can do in order to have success in your finances. It’s a pivotal step in starting on that path to true financial freedom.
Holy Yes to #4. Happens all the time. Sometimes wife and I just go to Target or the grocery store and we buy what we think we need, then a month goes by and I’m wondering why we spent so much at Target and Shop-Rite, what did we do.
I’m definitely a huge proponent of tracking spending. Even when you believe you spend mindfully, you will be surprised by some of your regular spending habits, especially those relatively small purchases that never seem like a big deal in the moment, but are add quickly. I want to spend my money on what matters most so that is why I budget and track spending and it makes a huge difference.
Jason @ The Butler Journal I do the same, Jason. I keep our receipts in a draw until I know I have everything entered for the month. It’s great to compare over the year – you might find you’re more prone to spending during certain seasons or months!
Laurie TheFrugalFarmer You put it so well, Laurie! I completely agree. Financial freedom is only attained if you have a good handle on your finances; that can’t happen if you don’t know where your money is going.
Derrick_Horvath I think it happens to just about everyone who goes to Target. =) I know it’s happened to me! That’s why I like to keep my receipts – I can at least see what went wrong on a microlevel.
ShannonRyan Exactly! My fiance thought he was doing just fine with his “mental accounting”, but when I started tracking his spending, he saw that his little trips to get food during work were adding up. There are so many purchases that can fall through the cracks.
Great article here Erin, as always :)!
Tracking spending is important and I usually focus by having a conscious eye on my credit card every week or so and also consciously thinking about whether I actually need a product or not before I buy it..
Also important is tracking how much and where you are investing and #2 is a great reason why this is important..
Have a great day!
This is something I really, really need to start doing. I always say I’m going to track every penny and I never do. I have a terrible habit of making small purchases even when I “don’t have any money” and don’t even want to consider how much I’ve thrown away on stupid things instead of travel.
Those are allnexcellent reasons. It’s easy to blow off spending. When we first started tracking, I was amazed at how much money we were wasting on stupid stuff. I don’t think your money will ever work for you unless you know how it’s being spent.
This is how I started. Even if you’re not budgeting, just tracking gives you an awareness and at least subconsciously affects your spending habits for the better.
mycareercrusade Thanks! It’s great that you check your credit card throughout the month; I used to leave it to the end, and by then, there wasn’t much I could do to adjust anything. Knowing where your money is going definitely includes where you’re investing it!
skyvsworld It might help if you don’t think of it as tracking “every penny.” If you have an idea of where your spending troubles are, try tracking just *that* spending at first. I know some people think it’s tedious, so it’s important not to overwhelm yourself. That’s also why I included the recommendations for software at the end. =)
My other suggestion would be to have a firm travel goal in mind (like wanting to go to England), this way, whenever you’re tempted to buy something small, you can think about going to England and (hopefully) stop yourself from spending.
Eyesonthedollar Agreed, Kim. You really can’t put your money to work when it’s scattered all over the place! You need to take control of it first.
Mark@BareBudgetGuy Yes, exactly! I didn’t start budgeting until this summer, but before that, I was still tracking my spending, and there’s definitely value in that alone.
This was the first year that I’ve been diligently tracking my spending. It’s been real eye opening. While I’m frugal in nearly every aspect of my life, going out to eat is my huge Achilles heal. It’s hard to deny that when you see it on paper and see how much you are spending! I think it’s a great exercise and can help you re-frame your goals.
Erin @ Journey to Saving Because of using YNAB, I discovered last night that when using our credit card to pick up a $12.71 pizza the other night, we were actually charged $14.71. I had logged into our account when it was pending, and it was shown as $12.71, so my guess is that they added a $2. What the heck?? I would have never noticed that prior to tracking my expenses.
deardebt I definitely agree that it helps to re-frame your goals. There’s no denying the numbers!
yooperamongtrolls That’s horrible! I’m sorry they did that, but glad you caught it because of YNAB. That’s why tracking your spending is crucial!
I think tracking your spending is one of the most important things you can do to improve your finances. We’ve been tracking our spending for quite a few years using Quicken, which not only gives us a clear picture of our finances, but also lets us compare against previous years. If you’re going to track your spending, try to be specific. I’m not saying you can’t have a miscellaneous category for what is truly miscellaneous (ours is under $25 total for the year), but a relative of mine new to tracking ended up with over $1,000 in “miscellaneous” spending this year, and that doesn’t tell them enough about where their money is going.
I’ve been using Mint.com for about a year now and love it. It really makes me think twice about wasting money.
This line from the article really got me “Ask anyone older than you if they regret not getting a handle on their finances sooner. Most would say yes.” I wish I could go back in time and give my self a kick in the @$$, lol.