Everyone always talks about tracking all the money that comes in and out of your accounts, but where do you start? We want to teach you how to track your spending.
You may have decided that your financial situation is no longer where you would like it to be. Maybe you’re making a healthy salary but still living paycheck to paycheck or you know you’ve been shopping at least twice a week but haven’t the slightest clue how much you spent in the last year, let alone the last month.
The first step is always to start tracking your expenses. Categorize where your money is going each month. Trench recommends it in his book, Set for Life (check out our review of it here), Grant Sabatier recommends it in his book, Financial Freedom, and it is talked about on countless podcasts and articles.
Tracking your spending is the first step towards financial independence.
So where do you start?
Starting is always the hardest part, but, as with anything, it will only get easier with time. This new habit may not come naturally to you. And it may make you sick to your stomach seeing how much you really spend every month. Especially on that quick weekend getaway last month.
Lucky for you, many people have helped guide the way in personal financial tracking. And we have a few ways to start tracking your finances right now, too. These are things that everyone can do and everyone should! You may prefer one over the other or maybe you make a twist on one of these to fit your lifestyle and learning preferences. See, I am cuckoo for coco puffs about Excel Spreadsheets, so my way might not be the best way for you, but that’s okay! You just need to find one that fits and it may change 9 times before you find the one you like. That’s exactly what happened to us.
Why is tracking your spending important?
Being financially aware of your habits and lifestyle will allow you to change those habits into whatever you want them to be. It’s that simple.
Money is always seen as this crazy, complicated mess of numbers to most of the world, so maybe you understand getting in shape better.
If you want to get in shape, you need to take a look at your exercise and eating habits. If you know how much you are exercising and what foods you are eating, you are able to develop a plan to control those variables and get you on track to getting that six pack you were aiming for.
This same concept applies to your personal finances. If you ever want to reach financial independence or even save up for an emergency fund, you have to know where your money is going already and where you are able to control the variables. This works for what’s coming in and what’s going out. For now we are just focusing on the outward bound money, aka tracking your spending.
Preventing Lifestyle Creep
Lifestyle creep is a common detriment to many. Often, when you get a raise, you “find room” in your finances to upgrade your home or your car. Your expenses are still taking up the same percentage of your income as they were before and you are just as broke as you were before. This is why people making $200,000 a year are still living paycheck to paycheck.
If you know where your money is going every month, you should be less likely to blow a $1,000 bonus on a shopping spree. And less likely to get the fancier car because now you have a longer commute.
Tracking your Expenses
Let’s get started on tracking your expenses! You don’t want to end up living paycheck to paycheck forever.
I just want to mention a few things before we jump in:
1. Don’t dive into making a budget first
You need to see where your money is going before you can even think of budgeting out your money. Once you become familiar with your expenses, then you can work on cutting those expenses back to a reasonable amount that works for your lifestyle and income/savings levels.
Lots of people on the Path to FI don’t even have budgets, but they can tell you how much they spend in a year. The budget is a tool to help you get to your ideal spending, but not the end goal. And it certainly is not the first thing to focus on.
2. If you have a lot of credit cards, consolidate the transactions
If you have a lot of credit/debit cards, you may need to either consolidate your spending to fewer cards or find a way to consolidate those transactions all to one place. Mr. TTF is a credit card hoarder (a “hacker” as he prefers) and is always on the prowl to find the best new sign up bonus.
Since we have so many cards, we use an app to consolidate all our spending to one place. We also stop using a card once we get the sign up bonus most of the time, so it wouldn’t be too challenging for us either way.
We both use the site/app Mint. This will connect to all your credit cards and bank accounts to track every single transaction that goes through your hands. This way, we only have to go to one place to get our spending on the table.
3. No Tracking System works without Meetings
No matter how good you are at tracking your spending, none of it will matter unless you have consistent meetings to review it. This was hard for us. We are great at ensuring Mint is connected and updated to all of our accounts. We are consistent in updating each transaction with our notes, categories, etc. But this is only half the battle.
Reviewing and analyzing exactly what you spent and where is the key to tracking your spending. Simply setting up your Mint and walking away will not work.
Now that we have that out of the way, let’s get started tracking your spending. There are essentially 2 ways to do so. Now there are many, many, many different routes within each category and we’ll dive into those, too.
- Pen & Paper
Pen & Paper
This is how we first started tracking our expenses together. It was a great way for us to start because it forced us to focus heavily on each and every transaction. Writing down each amount for each transaction and category can be both alarming and embarrassing. THAT’S OKAY! There are few methods behind the pen and paper that you can use:
Tracking every transaction manually
I love this method as it has a direct and instantaneous impact as you make every purchase. This consists of carrying a simple notebook around with you EVERYWHERE.
Every time you spend money, you write down the transaction immediately.
This method forces you to have an immediate consequence as you spend each dollar. From your morning cup of coffee to your monthly rent payment.
You could have a page for every date so that way you can visually see what days you had no spend days or what days you went way above any sort of reasonable point. I’m looking at you, impulse shopping mall spree. Or you can just keep a continuous list, each day right after the other. For any way, you will want to write down:
- Transaction Category
- Store (for quicker identification)
- Amount Spent
Often times at department stores or discount stores, you may buy from multiple categories. To keep the categories more accurate, I would format it like this:
3/15 Walmart $37.00
That way you have the total of your Walmart trip and can split out each category for later referencing. It seems tedious to have to do this every shopping trip, and it is. But hopefully this will train your brain that not every impulse buy is going to be worth it.
At the end of the day, put a total spent so you can see what you spent for that day. And at the end of the month, I would have a “meeting” with yourself or your partner to review the entire month’s expenses (as with any method of tracking your expenses).
Tracking the Categories Weekly
Mr. TTF and I have two very different perspectives on organizing. I am a mad organizer, both digitally and physically. Everything has a place, from every cup to every email. Mr. TTF on the other hand, can sometimes forget that organization is even a thing. He’s the guy that has 36,875 emails and has the notification bubble on. So working to find a system that works for the both of us can be challenging.
However, we found that this method did work for us for a while, when we were first getting to know our expenses. We would use our digital transaction tracker, Mint to gather all of our transactions in one place. At this point, we didn’t have any shared credit cards, so my cards were on my account and Mr. TTF’s cards were on his account.
Every week, usually on Sunday nights, we would sit down together (most likely with a couple of beers) and go over our finances.
First, we would each go through our Mint transactions’s and look at every transaction for the last week. We would ensure the category was coded correctly and split any transactions appropriately (like the Walmart example above).
Mr. TTF would also add in the comments what the purchase was actually for. I did not do this, but looking back, I definitely wish I had. I now do it for all of my transactions. Because if you are looking at your expenses for 1 week, you probably know what you spent $50 at Target on but 1 month later, you haven’t the slightest idea.
Then, we organize by category, add up each category, and write it down. We would do this on a large white board we made in the kitchen. This posted our numbers, ugly or pretty, somewhere we would have to see them each and every day. We did our expenses weekly for our variable expenses (food, shopping, household, restaurants, etc.) as we could compare each week a bit easier. At the end of the month, we would go over all of our expenses, variable and fixed (rent, bills, subscriptions, etc.). Since the monthly expenses only hit once a month, potentially in any week (or worse all in one week), they would skew our weekly numbers quite dramatically.
I don’t highly recommend this method, but if you are more of a visual learner, this may be better for you. You need to print out all your statements and highlight each transaction according to its category. As you can imagine, this can get pretty messy. You will need a LOT of different colors to categorize all your expenses. You will also need to print this out for all of your cards and bank accounts. If you only have 1 or 2 cards, this could work for you, but upwards of 5 or so accounts can be a lot.
It will also be pretty difficult to split out your charges for those Target and Walmart runs. Lastly, you will only be able to look at your statements monthly and those are often released at various points throughout the month.
This may be a great method to go back to months passed, if you wanted to start from the beginning of the year. In fact, this is probably the only method you could use to go back in time, as Mint will only start tracking transactions from the moment you sign up for it. But moving forward, tracking your transactions should be a much larger part of your day and week, allowing for all the other methods listed to be better options for you.
And if you are super visual and colorful, you can always track every transaction manually and then highlight at the end of day/week/month!
Now, I am a huge pen and paper person (I have 2 notebooks in my purse at all times and 4 notebooks for various things at work). However, I am not a huge math-in-my-head type, or trusting-myself-to-correctly-use-a-calculator type, and that makes a huge difference in the way I want to track my money.
Luckily enough, I also LOVE Excel Spreadsheets. It’s a crazy weird love affair. They can just do SO MUCH. I previously worked as a administrative assistant and revamped the entire office with new spreadsheets to track their current numbers, their sales funnels, past clients and accounts, bonus potential, hours, etc., etc.
So as we start out on this FI journey, I am transitioning my professional use of Excel into the personal finance world.
First, off everything we just went over for manual tracking can easily be transitioned into a digital format. Maybe at the end of the week you take all the hand-written transactions and transfer them into a spreadsheet for review. Or if you are savvy enough, you can have your notes open on your phone and enter them as you shop as normal. You could also review your automated transaction tracker and enter those transactions/categories into a spreadsheet. There are also a few other ways to start tracking your spending with spreadsheets:
Export to Excel
Don’t get us wrong, our online expenses tracker is fantastic and we wouldn’t be able to do what we do without it. But the Trends aren’t exactly everything we are looking for. So after reviewing all of our transactions in Mint, we will export them all to an Excel document. Here are the exact steps you can use to Export and organize.
- Export Transactions to CSV
- Add Filters to the top row
- Filter Dates to only reflect the month of review
- Organize by Category
If you are combining two transaction lists for couples, I would download both, insert a column, and add the Name of the person on each list all the way down. Then copy one entire spreadsheet and add it to the other. Now, you can organize and categorize while still having each other’s transactions separated and in one place.
Now, I know that seemed all crazy and technical, but through trial and error, I knew there had to be a better way and there is! This next method make that whole process 100X easier for you!
Pivot Table – Excel Template
Now, I told you I was cuckoo for spreadsheets, so I went down the Pivot Table Rabbit Hole. I made a template for you to simply copy and paste your transactions into. You just need to plug in a few additional pieces of information and VIOLA!
Another note, Mint will pull all the transactions on your account, meaning like back 10 years if you’ve had Mint that long. So we pull the CSV once a month and copy and paste each month’s data into our annual spreadsheet.
In order for the template to work to the best of its ability for you, here are my recommendations on how to use Mint:
You should review every transaction even if it looks right because you should be checking the following:
- Description is accurate
- Mint simplifies the transaction name that shows up on your statement. Sometimes it pulls the wrong combination of names or will infer incorrectly
- Category is accurate
- Sometimes I pay my Southwest Credit Card and it will think I bought Airline Tickets
- Add a label
- We use: Fixed Expenses, Varied Expenses, Savings, Income
- Add notes
- Like I mentioned before, I have no clue what I spent $200 at Target for months ago. Adding notes helps jog your memory when reviewing expenses
Once everything is ready to go in Mint, you can download the CSV. You can open that guy up and copy and paste. Be sure to only copy the transactions you are looking to add to the Expense Tracker. If this is your first time, go ahead and copy all of them. However, you’ll want to only copy one week/month at a time from here on out so you don’t have duplicates.
Paste them into that first cell in that transactions sheet and boom all that automatic calculation magic will occur. All you need to do is add the name to the Person Column if you are adding more than one list of transactions together.
Now you can review your transactions by Category and by person. We use the Month to Month Tab quite often. This helps to see, for example why January was so high in booze vs. February. Honestly, it’s a common issue for us, but we’re optimizing, we promise.
We know that these aren’t the only way for you to track your spending. One way or another, you need to track your spending. Find a method that works for you and your lifestyle. But no, you can’t slack off. You have to spend the time to do it.
So now that you know it’s not enough to simply set up you transaction tracker and walk away, and that you need to review it and analyze it; how are you going to track your expenses?