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Studies show that people are surprisingly bad at estimating how much money they spend, with a strong tendency to underestimate. One study showed that consumers in the UK, US and Canada tend to underestimate their annual expenditure by about £3,900 ($5,250), mainly because they use typical expenditure to estimate overall expenditure, rather than factoring in extra, unexpected and emergency spending.
Tracking your spending can be a real eye opener. Many of us simply don’t pay attention to where our money is going, which is why even some relatively high-income Americans are still living paycheck to paycheck. Simple lifestyle inflation means that, often, the more money we earn the more we spend, meaning we never really get our finances under control.
When you track every cent you spend it becomes much easier to see where you can economize, how you can save money, and even which situations you need to avoid if you’re trying to combat overspending. So what’s the best way to track your spending?
Choose a Method that Works for You
Apps, a paper spending tracker or something as simple as using Notes in your phone can all work well, depending on what you’re most likely to use consistently. Apps like Mint, You Need a Budget, and Plum can be linked to your bank account to help you track your spending effortlessly.
Some people actually like a paper spending tracker that they have to fill in as it makes them feel more connected to their money and spending decisions. You can make your own, download a digital version, or buy one.
Try a Personal Finance Journal
Again this could be digital or physical. A personal finance journal is more than just a spending tracker. It’s a place to write about your money, your spending, and your emotions around your personal finances.
Keeping a detailed journal is how you’ll find out about spending patterns. Do you spend more in a specific circumstance? When you’re with certain people? At certain times of the month or year?
The key with this kind of journal is you don’t just record your spending in it. You also review it regularly. This gives you a chance to reflect on how you’ve spent your money, if you’ve overspent, and what you can do about it.
I love the Kakeibo journal, but you can adapt any blank notebook to be a personal finance journal if you know what you want to track and how you want to record details around your spending.
Consider More Novel Approaches
There are all kinds of novel ways to track your spending. If you’re a fan of personal finance advice on TikTok for example, you may have come across the idea of cash stuffing.
This is when you switch all or most of your discretionary spending to cash payments and literally stuff cash into different sections of a wallet, allowing a specific amount of cash for each category. When the cash runs out, you can’t spend on that category any more, until the next month or pay cycle, when you restuff your cash holding envelopes.
Think about novel or unusual things you could do that would help you to not only track your spending, but also motivate you to spend less. Maybe you’ll come up with the next big trend in personal finance.
Ultimately, tracking your spending is vital so you know where your money is going and where you can adjust or save. It’s an important part of designing a budget as without it you’ll likely underestimate expenses and leave stuff out, so your budget won’t work. Consider tracking spending carefully for a while to help you make or tweak your budget.
About the Author
Karen Banes is a freelance writer specializing in entrepreneurship, parenting and lifestyle. She writes articles, website content, ebooks and the occasional award winning short story. Her work has appeared in a range of publications both online and off, including The Washington Post, Life Info Magazine, Transitions Abroad, Brave New Traveler, Natural Parenting Group, and Copia Magazine.
