“Track your spending!” they say. “It’s so important!”
And so maybe you dutifully add up all of your expenses at the end of the month. (Or maybe you don’t.)
But here’s the thing:
- Do you know why tracking your spending is so important?
- And do you know how to track your spending so that it makes a difference in your life?
If your answers to those questions are no, you’re not alone.
Most people have no idea how to track expenses in a way that’s helpful.
That’s because it’s not usually taught in schools, or explained in any reasonable way.
Sure, you want to know if you’re sticking to your budget or living above your means — both reasons it’s important. But adding things up doesn’t always feel like an urgent thing to do.
And if you dig through past purchases, add up what you spent over the previous month in the various categories on your budget form, and end up feeling bad about all the money you spent, well…
You’re not going to do that for long.
Beating yourself up month after month isn’t fun or helpful. On the other hand, not tracking your spending at all just leaves you in the dark.
I’ve got good news though. It turns out that you don’t have to feel badly and beat yourself up after an end-of-the-month spending recap.
But you should still track your spending — just in a more useful way.
Here’s why it’s important to track your spending.
There’s no point in doing something just for the sake of doing something, so here’s why tracking expenses is helpful.
You see, the vast majority of people have no idea just how much money they’re spending on various things.
For example, you don’t want to spend a small fortune each year on food without realizing it. If groceries and eating out are huge priority for you, and you have the money for it, no problem! But do it on purpose.
Because spending without tracking is a little like eating cake everyday as often as the mood hits. The impact is hard to notice in the moment, but huge over time.
You don’t want that. Instead, you want to know what’s going on as it happens.
And you want to make sure you’re using your money for the things that matter.
Plus, have you ever heard the saying that what you focus on is what you get? Tracking your spending puts the focus on making sure you get the things you want. (Because you’re paying attention to what you’re doing.)
In fact, paying attention is the first rule of personal finance. Why? When you’re not paying attention, it’s awfully easy to just let things slip right on by without noticing their true impact.
It’s easy to pile up debt or let your spending get out of control. To forget that things like Christmas and car tag renewals are coming, and get caught short when they sneak up on you. Or to get so busy with today that you don’t make building up your emergency funds a priority. Then you scramble when the inevitable happens, and turn to debt instead.
Then the credit card statements come, and of course you’re not thrilled to look them over. Who wants to see a big list of things you bought? So maybe you put those statements on the desk, thinking you’ll get back to them later. But because you’re not paying attention, you miss the due date for paying them. Suddenly you’ve got late fees too, and it just keeps getting worse.
But pay attention to your money, and you’ll get things in order. That means starting with tracking your spending. Tracking your spending keeps you from giving up what you want most for what you want right now.
Basically, tracking and paying attention in the moment can help you reach the goals you have for your money. (Such as getting out of debt, saving for retirement, taking a trip, etc.)
So how do you do that?
Track your spending in a way that will make a difference in your life.
Most people who track expenses do it at the wrong time. (At the end of the month, or sometimes even later.) This isn’t really productive, because it’s too late to make changes.
So the best time to track your spending is as you’re doing the spending.
Add up how much you spent in various categories later too of course (or use an expense tracker or budgeting tool) but know that paying attention in the moment matters most.
In fact, doing that exact thing is what completely changed my financial life. It put us on the path to paying off over $147K in debt.
I like to call this method of tracking your expenses value-based spending, because it’s all about making sure that the things you use your money are what matter to you.
Here’s how using value-based spending works.
It’s pretty simple, but it’s very powerful.
Step one: Whenever you buy something or pay a bill, write down what you bought and how much it was.
(If you’re in a store, flip the receipt over and write it right on the back. Ideally right away.)
It may seem silly to do, but the act of writing it down matters. So don’t skip it, at least not until you feel like you have a very good handle on what you’re doing with your money.
It’s the very first part of how to track expenses.
Step two: Ask yourself these 3 Value Questions for whatever you got or did with the money:
- Did I get enough value or enjoyment from this?
- Was it worth the time and energy it took for me to earn the money I just spent?
- Is this purchase or expense in line with my values and what I want out of life?
Side note: If you find the 3 Value Questions useful, you may want to read (affiliate link alert) the book that inspired them. It’s called Your Money or Your Life.
If your answers to the questions are “no”…
That’s a sign that you don’t need to spend on that thing in the future, or maybe you want to reduce the amount.
In that case, stop! Use the money toward one of your goals instead.
If it’s a monthly expense, call the provider and cancel that puppy to reap the biggest savings. (There’s no reason to keep things that aren’t worth it.) Stay strong when they offer you a deal to keep you, because a deal isn’t a deal if you don’t want or use what’s being offered…and you’ve just determined that you don’t.
If your answers are less clear or leave you feeling yucky…
Such as a gym membership that you do believe is valuable but aren’t using, be honest with yourself. How long has it been since you did you use it?
If you can’t remember or it’s been more than 6 months, cancel it or at least put it on hold. You are not a failure because you stop paying for a gym membership. You’re being proactive by saving money, and you can always change your mind later after you’ve been consistently exercising at home for months.
Chances are good that you can undo anything you do now if you really want to.
If your answers are “yes”…
Good, assuming you have the money. Your spending is in line with the things that matter to you. You still might be able get a deal on those things so you can pay less, but the important thing is that you’re getting enough value.
It’s a powerful combination.
Tracking in the moment with the 3 Value Questions, plus also doing a monthly review will make such a difference. You’ll adjust your spending over time as you track it, and you’ll feel good about it in the process!