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Five reasons tracking your spending can improve your finances
Shoestring Jane looks at how tracking your spending can keep your finances in check.
If you want to take control of your finances, tracking your spending is a great way to start.
It may seem like a lot of time and effort, but it soon becomes a habit and the benefits outweigh the small amount of work involved.
Five reasons for tracking your spending
1# You will understand where your money goes
Regularly tracking your spending will create an awareness of where your money goes. If you always run out of cash before payday, this habit will prevent you from blindly hurtling towards your overdraft each month.
2# It will help curb impulse spending
By becoming hyper-aware of your spending habits in this way, you will be able to curb impulse purchases. Recording each expenditure will make you more mindful of your money, and identify and cut back on unnecessary and wasteful expenditure.
3# It will allow you to make a realistic budget
Once you eliminate unnecessary spending, you will be able to create a plan for your money each month. Making a budget that works for you is key to taking control of your finances.
4# It will alleviate anxiety
Constantly running out of money, sitting in your overdraft or spending on your credit cards can create an underlying anxiety that is constantly in the back of your mind. Tackling your situation head-on, understanding your spending and sticking to your budget will alleviate financial anxiety and help you avoid getting into debt.
5# It will help you prioritise and reach your savings goals
Once you get rid of most of your unnecessary spending, you will be able to redirect your money towards your longer-term goals. For example, you could begin to build an emergency fund, pay off your credit card or other debt, add to your savings pots, or start investing.
How to track your spending
A key part of tracking where your money goes consistently is to find a method that suits you and your lifestyle. It doesn’t matter how you do it; what’s important is that you review your spending regularly.
Check your spending history
A good starting point can be to look back on your past few months’ spending. Three columns can be helpful: Essentials, such as rent, fuel and utility bills; Discretionary spending, like eating out, clothing and entertainment; and debt repayments and savings.
This allows you to set a sensible budget based on past spending and what you want your future spending to look like.
Decide what suits you
After that, consider whether you prefer to go old-school with a pen and paper, make a spreadsheet or use a spending app.
For years, I kept paper receipts to track my spending in a book every few days. This worked well at the time, but these days I prefer an app. I like Koody, because it is free, easy to use and doesn’t require you to connect it to your bank account.
If all else fails, consider cash
These days it’s so easy to spend using contactless technology, that we barely register our purchases. If you are still struggling to control your spending, consider using the cash envelope system instead. This allows you to withdraw a budgeted cash amount either weekly or monthly and deposit the money into envelopes for groceries, fuel, entertainment, coffee, food out, etc. If you pay by cash, it feels much more real to be parting with your money!
Nicola at the Frugal Cottage has found the cash envelope system a life-saver and explains how she uses it here.
As you spend the cash, be sure to include it in your tracking system.
If you want to understand where your money is going and stick to a budget, prioritise your spending and reduce impulse spending, then the time you take to track your spending will help you regain control and reach your financial goals.
Photo credits: Pexels
