You could have sworn you did not spend that much, but once again, you get to the end of the month, and the numbers in your bank account are not quite adding up. So, what gives? There is one easy way to get to the bottom of this mystery: expense tracking. By taking note of every time you spend throughout the month, you can more easily see where you might be overspending and where you might be able to cut back.
What are the benefits of tracking your spending?
Tracking your spending is effectively an exercise in attention. When you get into the nitty-gritty of your day-to-day expenditures, you can quickly start to see where exactly your money is going and identify patterns in your spending.
That noticing is only the first step, however — “pairing action with that attention is what really makes a difference,” said Nerdwallet. With increased awareness, perhaps you can figure out what is causing you to veer off budget each month and then make adjustments there. Or, maybe you will spot spending you did not even totally realize was happening, such as on subscriptions or other recurring purchases. Once you cut those out, you free up room in your budget to put towards building your emergency savings account, paying off debt or inching closer to your long-term financial goals.
Ultimately, “not only is tracking spending fundamental to understanding where your money is going, but it also ensures that your spending truly aligns with your goals and priorities,” said Daniel E. Milks, certified financial planner and co-founder of Fiduciary Organization, to Fortera Credit Union.
Is expense tracking the same thing as budgeting?
Expense tracking and budgeting certainly can go hand in hand, but they are not one and the same. Tracking your spending simply refers to the act of “monitoring where your money goes,” whereas “budgeting is more of a proactive approach to managing your money,” said Chase.
You can think of expense tracking as an information-gathering step, with the data you gather there informing the budget you create and adhere to.
How can you track your spending?
There are a number of ways that you can go about tracking your spending. The best option will be whichever feels easiest to you.
A “notebook or printed tracker,” for instance, can be “good for people who remember better by writing things down,” while a spreadsheet can work well for those who “like totals, categories and monthly comparisons,” said MoneyFit, a nonprofit financial education and counseling organization.
There are also a variety of budgeting apps and tools available. “For those who prefer the convenience of automation, linking checking and savings accounts to a budgeting app can often simplify the process,” said Milks to Fortera Credit Union.