Finance Talk: Tracking Your Spending

Finance Talk: Tracking Your Spending

My last blog post was an introduction to tackling personal finance. Today, I would like to talk about tracking your spending. There are many useful apps out there and different methods to track spending. You can find a list of useful apps here.

The approach that has worked best for us is three-fold:

  1. Simplifying my budget to have only 4 categories
  2. Reviewing my bank accounts twice a day to assess spending
  3. Monthly review of spending

Simplifying Your Budget

My approach to budgeting completely changed after reading the book “Money-Free Money” by Shannon Lee Simmons. Before, I had endless rows of categories in my budget, feeling pained every time we went over budget in a particular category. It was almost impossible to stick to because each month had variations in spending that were sometimes out of our control. Without further ado, here are the 4 categories to simplify your budget:

  1. Monthly Spending: this is the money you will use for things that generally occur every month, yet are variable in amount. This includes things such as groceries, gas, kids’ activities, dining out, books, entertainment. You will get to this amount by adding up all the amounts in these categories and arriving at the total amount that you should try not to exceed every month. If any is left over at the end of the month, you could transfer to savings or leave it in your account as a reward for something special the next month.
  2. Short Term Savings: This is for “spikes” in spending that occur in the course of the year. This can include clothes, gifts, donations, birthday parties, vacations.
  3. Emergency Savings: This is for unanticipated expenses that may crop up in the course of the year. This can include things such as house and car repairs and maintenance.
  4. Fixed Expenses: these are expenses such as phone bills, subscriptions, electricity, mortgage etc.

There are different ways of keeping track of the above 4 categories. For us, we use the following:

  1. Four different bank accounts: our bank allows this with no extra fees. This makes it easier for us to track our different categories of expenses and savings
  2. Excel spread sheet: this helps me to keep better track of individual items in each category if I so choose. For example, if I have set aside $500 for clothes for the family for the year, then I use an excel formula to subtract from $500 every time I make a clothing purchase. This can also be done with apps of course.
  3. Our banking app has an inbuilt function that breaks down spending in each category. This is not always accurate depending how the app chooses to categorize things, however it gives a general idea of spending

Reviewing Your Spending (Daily)

It’s important to review spending regularly as we often spend more than we think and little amounts add up quickly. Over the last several months, we were able to reduce our spending by several hundred dollars by tracking our spending regularly. I soon discovered that spending in certain areas was not matching up with our budget.

I choose to check my bank account once in the morning and once in the evening mainly because many of our bills and purchases come out of our credit card (yay, reward points!) and our goal is to pay back the credit card the same day that an amount is drawn from it. I find doing this twice a day works best for us as I sometimes forget if I paid off an amount or not and there is sometimes a lag between when you pay off an amount and when it shows up on your credit card.

Reviewing Your Spending (Monthly)

Finally, I like to do a monthly review in order to tweak my budget if there are some areas I actually spend less or more in. This is also a good time to assess if any further expense cutting can be done. Haven’t used a paid subscription all month? Perhaps now is a good time to unsubscribe!

I hope this post has been helpful. If you have any questions or comments, feel free to comment below or you can also reach me at thepotentialdoctor@gmail.com