To reduce debt we need to know where our money is going.  We know this by tracking our spending.  Tracking our spending helps us in several important ways:

  • Know where our money is going - This one seems obvious but is often over looked.  Most of us think we now exactly where our money goes every month.  Then we are surprised when there is still 1/3 of the month to go when we run out of money. 
  • Identify cash leaks - Cash leaks are things we do or buy that take money out of our pocket without giving any tangible return.  Cash leaks can be small or large.  These leaks could be getting a coffee from Starbucks everyone morning, eating lunch out every day, or replacing your car every 2 - 3 years.
  • Setting Goals - Once we have an idea where our money is going we are able to develop goals for making better use of our money.  We set short term goals for eliminating cash leaks.  Then set short, medium, and long term goals what we want to accomplish with our money.
  • Basis for spending plan - By tracking our expenditures we are able to determine how much we spend in different categories such as auto fuel, groceries, housing, etc… These various categories can be used to as the basis of a spending plan or budget.
  • Saving money - After we start tracking our spending it s usually easy to identify one or more areas where we can save money by cutting or eliminating spending in some area. 
  • Identify areas of under spending - This one may seem out of place but it is important.  If you are not setting money aside for an emergency fund you could be setting yourself up for trouble.  The main area for underspending is insurance.  Most of us have either no or too little insurance.  This includes all categories of insurance; life, health, property,aand auto just to name a few.

To track your spending start by keeping all receipts no matter how you paid.  Ask for a receipt if you did not receive one.  Don’t rely on checks you’ve written as a receipt.  It could be a month or more before you get that check back from the bank.  And we want to know the details of the check now.

At the beginning of each month set up a worksheet or your favorite spreadsheet for recording your receipts.  Make a column for who you paid and the total amount paid.  Then make a column for every category of spending you think you will need.  Leave room for additional categories in case you’ve forgotten some.  It doesn’t matter whether you use an electronic or manual method.  And it doesn’t matter what categories you use as long as they are meaningful to you and that they are used consistently.  Now, at the end of each day go through each receipt for the day entering who you paid, the total amount you paid, and enter the amount paid under the appropriate category.  If the amount falls under more than one category then split the total between the appropraite categories.  At the end of the month total each category to see what you spent during the month.  You may be surprised at how much you actually spend on some things.

Keep a record of each month’s expenditures.  Record the total of each month’s expenditures on a separate worksheet.  This second worksheet is so you can easily compare each month’s totals.

Start right now.  The earlier you start tracking your spending the better equipped you will be when you start setting your goals and developing a spending plan.