How often do your expenses get away from you? If you feel intimidated by your own bank account, it might be time to rethink how you track expenses. Contrary to popular belief, tracking your expenses isn’t limited to when you’re struggling financially. This is a habit everyone should have to make sure they’re always attuned to their financial situation.
Taking a look at your monthly financial picture isn’t always easy if you don’t know where to begin. Just looking at your bank account balance at the end of the month isn’t enough. You need to keep accurate track of your spending and expenses as they come and go.
What are the benefits of tracking your expenses?
- Create financial awareness
- Identify spending issues
- Keep to a budget
- Meet financial goals
A staggering 86% of Australians don’t know how much money they’re spending each month. This means they can’t effectively save for the things that matter to them and they can’t keep to a budget. No matter what your long-term and short-term goals are, you need to track your expenses. Keep reading through this guide to learn the 5 steps for tracking your expenses so you can get started today.
1. Look at Your Accounts
The first step is to simply take inventory of all of your bank accounts. This includes your checking accounts, savings, and even credit card statements. Many people find this process intimidating since it’s hard to look at your accounts if you’re not confident in how much you have.
The good news is that this is a fear you can overcome. The more you expose yourself to your financial status in real-time, the better you’ll understand it. More importantly, the better equipped you’ll be to improve it for the better. Now that you have an inventory of your accounts, write down your balance on paper or a digital spreadsheet.
2. Organise Your Expenses
Now we’re going to get into the nitty gritty of what you’re spending your money on. You need to group your expenses by category. Your bank might do this for you, especially if it has an expense tracker tool. Otherwise, you’ll need to do it manually.
There are two types of expenses you’ll encounter: fixed and variable. Fixed expenses don’t change from month to month. This includes things like your rent payment, utilities, insurance, and so on. Your variable expenses are the expenses that likely change, including things like food and travel.
Categorise your expenses using the fixed and variable terms above. You can divide them even further by organising them by use. For instance, you might have a handful of categories like food, travel, entertainment, car and so on. This will help you identify if there are any things you should stop paying for or if you’re spending too much on, say, your morning coffee trips.
3. Set a Tracking Time Limit
Next, it’s time to start tracking your expenses in real time. You have a few different options for keeping track of this. The easiest option is to use a budgeting app. Apps like Mint automatically track and organise your expenses by using your bank account information. This makes it simple to know exactly what you’re spending without having to manually keep track.
Another option if you’re opposed to apps is to create a spreadsheet. You can use an online budget template or even just a notebook in your pocket. Just make sure no expense is going unnoticed. Challenge yourself to track all of your spending for a set period of time, whether it’s a week or a month.
4. Review Your Spending
Once your tracking period has ended, it’s time to dig into your spending. Take a look at your app or spreadsheet and ask yourself a few different questions about how you did.
- What categories did you spend the most money on?
- Are there any expenses you can lower or get rid of?
- What fixed expenses are costing you the most?
- What fixed expenses do you not use?
- Are you falling for any bad money habits?
- Are you spending more money than you bring in?
All of these questions are important when tracking your spending, but the last question is the most important (that’s why we’ve made it bold). Too many people spend more money than they have and the only way to sustain this sort of lifestyle is with debt.
If you find yourself spending from credit cards to get from day to day, it’s time for a change. Luckily, now that you’re aware of the problem, you’re on the road to better financial wellness.
5. Create a Budget
The ultimate goal of tracking your expenses is to create a budget for yourself. Now that you’ve tracked your spending, you know exactly what needs to be included in your budget and what you can do away with.
A budget is a spending plan in which you spend less than you earn. If you’re currently spending more than you earn, this is how you turn things around.
To create a budget, start with your income. From there, start allotting a certain amount of money to each category of your budget. Start with expenses that are must-haves like housing and transportation. From there, add in other things like groceries and insurance. Leave room for some flexible spending on the things that pop up each month.
Last but not least, pay yourself. This means you dedicate a percentage of your income each month for your savings. If you can, “pay yourself” at least 10% of your income, or more if you can afford it. This is how you avoid spending more than you earn.
Start Tracking Your Expenses Today
It’s not too late to start tracking your expenses. A reported one in two Aussies don’t have any savings at the end of each month. This means they’re spending all of their income before their next payday. As we’ve learned, this is a recipe for a financial disaster.
Start tracking your expenses today to learn just how much you’re spending on. You don’t have to do this process alone. Debt Busters is here to help you organise your own expenses, identify any problems, and create a budget that works for you.
Budgeting doesn’t have to be complicated or restrictive. In fact, when done right, it’s liberating to know that you’re handling your money in a responsible way. Contact an expert at Debt Busters on 1300 368 322 today to get started.