Tracking expenses is a key part of sound money management. It’s a good way to understand your spending habits and help you gain control of your personal finances. The goal is not to create busy work — it’s to help you improve your personal financial life by building savings and getting rid of debt payments.
There are lots of ways to start tracking your expenses. The trick is to find the one that works best for you (and your spouse or partner, if you have one). Once you decide upon a system, try to keep at it for at least a year to start. Here are four simple steps that could help you get started.
1. Categorize your expenses
In order to track your expenses, you’ll need to know exactly what those expenses are. You’ll need to understand and categorize where your money is going — a “reality check” about your spending habits.
Here are some suggestions for expense categories, which you can adjust and expand as you go along.
These are your fixed monthly expenses that are necessities. They typically include mortgage or rent, car payment, phone, and utilities. The number of expenses here might surprise you. Paying monthly for things like car insurance, childcare, loans, school tuition, or a homeowner’s association all adds up.
Flexible but necessary
These aren’t fixed expenses, but they’re inevitable. Think groceries, clothing, home maintenance, prescriptions, health care copays, automotive maintenance, and personal expenses like haircuts.
Here, you are spending money on things you choose. Personal expenses like mani-pedis and gym memberships fall into this category. It also covers entertainment, such as concert tickets, streaming services, cable TV, eating out, hobbies, and leisure/recreational activities.
Savings and emergency fund
Hopefully, you are already saving money in a bank account, investment account, retirement fund, or some other way. If not, tracking expenses and identifying what to eliminate can help you free up money for starting savings.
Many Americans say they couldn’t handle an emergency expense of $1,000, so the first thing to save money for is an emergency fund. That way, if the family computer suddenly dies or the kitchen faucet leaks, you have the resources to pay out of pocket rather than with credit.
2. Where can you find your expense information?
Finding the information you need to track expenses and keep a monthly budget is easy.
- Checking account and bank statements. It’s convenient to whip out that debit card to pay for something without much thought, but that money is coming from somewhere. Log expenses like these in a paper checkbook (yes, they still exist!) or a spreadsheet. Download and review monthly statements to make sure you’re not missing anything. Most banks offer tools to help you analyze your spending, so check to see if your bank offers a tool you can use.
- If you use credit cards or cash, be sure to track your spending with electronic or paper receipts. Some sellers may even offer to email or text your receipt to you. Some people put their receipts in an envelope or container before transferring them to digital or real file folders.
- Credit card statements. Chances are your credit card statement already categorizes groceries, gas, entertainment, and other expenses. That gets you off to a good start!
3. Pick a system to track expenses
Now that you’re aware of all your expenses, you just need a system for creating a monthly expense tracker that you’ll actually make a habit of using. Depending on the complexity of your finances and your level of comfort with technology and data security, you have options. Most of these options offer free introductory trials, so feel free to experiment with different trackers. If you don’t like it, delete it and try another.
Remember that old slogan “There’s an app for that”? Personal finance apps and budgeting apps for tracking expenses are plentiful, with different features and benefits. Some are free and some require a subscription. Some expense tracker apps sync to your bank accounts, credit cards, and other financial accounts, while others require you to enter expenses by hand. Either way, you can enter expenses on the fly with your smartphone. Here are a few of the best expense tracker apps based on app store rankings and user reviews:
- Mint (free). Highly rated in the app stores, Mint syncs with your accounts and categorizes your expenses. You can set limits for categories, and Mint will tell you if you’re approaching these limits. Plus, it includes credit monitoring.
- Personal Capital (free). Personal Capital does what Mint does, plus it provides access to financial advisors and a retirement planning tool. It offers 24/7 service, whereas Mint has chat support.
- CountAbout ($9.99 to $39.99 annually). CountAbout imports data from Mint and Quicken and then works its magic. Features include automatic transaction downloading from many financial institutions, customizable spending categories and tags, and the ability to upload receipts.
- Simplifi ($47.99 annually or $5.99 a month). Simplifi creates a spending plan by analyzing your income and expenses, including recurring expenses and subscriptions. It also includes a calendar of upcoming expenses. The New York Times Wirecutter gives it high marks for useability and its clean interface.
Quicken ($35.99 to $103.99 per year) and QuickBooks ($25 to $180 per month) are both great options. Quicken is mainly for managing personal finances with some business functionality. If you have a small business or rental property, Quicken may be a good choice. QuickBooks is full-blown accounting software. If you’re running a business and need to track inventory, income, invoices, expense reports, mileage, 1099s and more, consider QuickBooks. Popular alternatives are Xero, FreshBooks, Sage, Zoho, and Wave.
If you already have the Microsoft Office Suite, you have Excel, the granddaddy of spreadsheet programs. Templates include personal and family budget planners and Money in Excel, which connects to your financial accounts, tracks expenses, and gives you spending breakdowns.
Pencil and paper
There’s something powerful about keeping track by writing things down. It can be intimidating to start with a blank sheet of paper, though, so a ledger or budget journal may be helpful. Make it fun with stickers and colored pens – anything to get you into the habit of tracking things regularly. Hard-copy expense trackers are also easy to share with family, so you can make it a joint effort!
4. Put the information to work
Now that you’re able to effectively track your expenses, you’re well on your way to developing a budget, setting financial goals, and paying off debt. You’ll be able to identify nice-to-haves versus must-haves, see how much you’re really spending on eating out, and determine whether a side hustle would help you meet your obligations and save more money.
Flex your financial muscles
Financial fitness goes a long way. A budget tells you where your money should be going, but without expense tracking, you don’t know where your money is actually going. The process of expense tracking may feel strange at first, much like starting anything new. But with time, patience, and the right expense tracker app or tools, it will eventually become a source of knowledge and empowerment. With an honest spending habit analysis and a little market research, you’ll be wielding that power in no time.