Tracking Your Expenses – Money Saving Tip.
Welcome to the next in our series of tips for saving money. This month we’ve got five tips for recording your expenses. Tracking what you spend money on may sound painful, but it is exceptionally helpful for managing your budget and therefore increasing your savings.
Why is tracking your expenses important?
Knowing what you spend is important because it gets you familiar with your spending and income. This can help you spot fraudulent activity quicker because you will have a greater awareness of how much money you should have in your accounts.
Getting down into the details of what your money goes to, might identify outgoings you’d forgotten to cancel, or highlight subscriptions you can go without. With a clearer picture on where your money is going, you can start making changes to send it where you want it to go.
Do I need a budget to track expenses?
Tracking what you spend is most beneficial when you have a budget as well. The budget does not need to be exactly accurate to begin with, but as you track what you spend, you will be able to make changes to your budget to make it more accurate.
Your budget is always going to be evolving but if you do not understand what you are spending money on, a budget won’t be very helpful. A budget and tracking what you spend, work together to improve your financial situation. Once you understand what you’re currently spending, you can start making adjustments to reflect your goals.
As an example, say you want to start saving £150 a month so you can go on holiday. Looking in detail at what you are saving and spending now, might highlight that realistically you can only save £75 a month. Delve deeper and you see that you’re spending £75 each month on coffee, lunches, bus fares and a gym subscription. If you gave up the coffee and subscription, packed your own lunches and walked to work instead of getting the bus, then you can save the £150 a month. You wouldn’t know you could do that, if you didn’t look deeper into the details of your spending.
What is the best way to track my expenses?
Tracking expenditure doesn’t have to be done in a specific way. Some banking apps do it for you, some people prefer a journal, others a spreadsheet. There are also dozens of money tracking apps available for free, and with fees. Here are five key points to look at in more detail:
- Keep a spending journal,
- Save your receipts,
- Set limits that are achievable,
- Don’t beat yourself up about it,
- Review and analyse.
Keep a spending journal
A spending journal can refer to apps, spreadsheets, notebooks, and anything else you use to track your spending. There are plenty of budgeting apps and software available that can help you easily track and categorise your expenses.
Many apps can sync with your bank accounts and credit cards, making it convenient to automatically track your expenses and see where your money is going. To help you decide what to choose, you may find this article by Forbes on the best free budgeting apps of 2023 in the UK helpful.
Save your receipts
If your tracking is directly linked to your bank account, and you only pay on your card, you can ignore this step. For everyone else, saving receipts for each purchase means you won’t forget any outgoings. This is especially important if you spend cash. When you’re tracking what you spend, you want to track that you took £20 in cash out. Then you also need to track what you spent that £20 on.
If you regularly take cash out for the barbers and then spend the change on different things, you are not really tracking where you spend the money if you don’t keep the receipts and record them.
Set limits that are achievable
Choose reasonable spending limits for different categories of expenses, such as groceries, dining out, entertainment, and travel. When you make a purchase, compare it to your spending limits and record it accordingly. If you go over or under whilst you are establishing your budget and spending goals still, that’s okay. The reason you need to choose a limit that is achievable is because otherwise you will never stick to it.
For example, if you want to limit how much you spend on petrol, but petrol prices increase drastically, unless you can find a different mode of transportation, you’re unlikely to achieve that limit. If you are trying to cut back on how much takeaway you buy however, that is more easily achieved by setting a limit as you can easily cook at home instead for cheaper.
Don’t beat yourself up about it
As I said at the start of this blog, tracking your spending can be painful. It can force you to evaluate your bad habits and stop things you enjoy doing. Just remember all the work you put in is for a good reason, saving money and becoming responsible with your finances is a fantastic reward. You’ll be so proud of yourself when you get there.
It can take time, there can be setbacks and it can be very hard. So, give yourself a break and don’t judge yourself for how you’ve spent your money in the past.
Review and analyse
Regularly review and analyse your spending patterns to identify areas where you may be overspending or where you can make cuts. Look for trends, such as unnecessary expenses or particular occasions you always go overboard at.
Use this information to make adjustments to your budget and spending habits as needed. Before long, you may start to analyse your spending before you make the purchase as you weigh up the pros and cons of spending the money or saving it.
Tracking your expenses is important to develop an understanding of your finances. When you delve into your spending patterns and behaviour, review and track even the small details, you will really get to know your finances well. It will help you stay accountable and avoid overspending, enabling you to reach your financial goals. Saving up for a mortgage? Find out how we can help.