Money is an important tool, and you should know where yours goes. Getting a better handle on your expenses can lead to having more cash available and less stress for you. Join us as we walk you through how to track your expenses as well as why tracking your expenses is essential for your financial future.
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Knowledge Is Power
One simple problem that can easily break a budget is not knowing where your money goes. When you know how much money you are paying for groceries, gas, your phone bill, and the many other assorted expenses that come out of your bank account regularly, you can begin to change your spending habits toward a healthier future. This is still true even if you feel you make enough money and have well-stocked savings and retirement accounts. Everyone could use improvement, not just you!
How to Track Expenses
Decades ago, it was common to balance your checkbook using a simple ledger, a well-sharpened pencil or pen, and check copies. Today, most people use a phone app or a website that connects to their bank account. Sometimes, your bank will provide a free tool that separates your expenses for you and even gives reminders and, if needed, warnings. These programs can help track your income and break down how much you spend on a multitude of spending categories. Having this information in front of you becomes a great start in acknowledging where you can cut back if you need to.
You might also find that you are paying for a subscription for streaming or delivery services you thought you canceled or one you don’t use anymore. Dedicating money to entertainment may come up, too, in which case you can decide which mobile-only games that you can enjoy the most might be worth spending on.
Note that some expenses are more difficult to track with an app. For example, the app doesn’t know if you purchased groceries, clothing, or sporting goods from a big retailer. If you want to get as detailed as possible, you’ll want to enter some of these dollar amounts manually.
The Cash and Envelope System
While apps and websites offer plenty of help, some people might prefer a different form of budgeting. It’s not unheard of to first write down all your expenses and income, then use a cash and an envelope system to pay your bills and buy what you need. A cash and envelope system is a bit more work, but it also helps you acknowledge what your budget and money look like in reality. Using a debit or credit card causes an emotional disconnect between you and your money, but paying cash for gas or at the grocery store makes you notice every dollar you spent and how far it went.
For some people, spending a couple of months with detailed tracking and a cash and envelope system is just the motivation they need to truly track their budget and start to save money.
Tracking Leads to Smarter Everyday Decisions
Your expenses and budget don’t need to have obvious problems for you to make improvements. For example, you could look at how much money you’ve spent on food at grocery stores versus eating out at restaurants and decide to cook at home more often. Seeing the grocery bill also motivates shoppers like yourself to join a warehouse club where you can buy food in bulk for your family or buy fewer name-brand products to save a dollar or two per item.
When you begin tracking your money more effectively, you’ll discover many small changes to make that could lead to a better financial future.
Worry Less and Retire Earlier
When you start tracking your expenses better, you open up opportunities to improve the future for yourself and others. Tightening your budget means putting more of your money towards savings for an emergency, the vacation you always dreamed of, and a more relaxing retirement. Knowing where your money goes helps you have a clearer idea of what funds are available to put away for a rainy day.
Small amounts add up big time when it comes to retirement and savings accounts that accrue a good kind of interest over the years. Sending an extra $50 per month to a 401k means sacrificing just a little now and enabling yourself to retire a little earlier or having more cash available every month when you retire. These are the wise kinds of retirement decisions to make!
For parents especially, having more money saved means worrying less about paying for weddings, college, and the wide variety of long-term costs associated with having kids. And while you can certainly teach your teens how to save money, it’s always a good idea to have a reserve saved up for your kids just in case.
Avoiding Debt
Most kinds of debt are not your friends. This statement especially applies to credit card debt. Many credit card users will swipe their credit cards when bank account funds become low, leading to paying interest on things that could have been purchased with cash. Becoming more aware of your overall expenses is a big step toward eliminating credit card debt and overall credit usage.
When you stop using credit cards, you’ll feel great when the interest you paid goes toward something more worthwhile. You may have heard that using a credit card is important to building a good credit score, which is somewhat true, though you should keep careful track of its use so that you can pay it off in full every month. Treating your credit card like cash can help you secure better terms on vehicle loans and a mortgage, which also becomes a big money saver.
Conclusion
Keeping track of your expenses is the beginning of a better understanding of your budget. When you know where your money goes, you are better empowered to make everyday decisions that can positively impact your financial future. We suggest you start the process by downloading an app or using a website that offers expense tracking so you can gain knowledge of your current bills and costs and then make improvements from there.