Three Ways to Track Your Spending

Many Americans have little control over their finances.  They simply spend until they run out of cash – a recipe for disaster.  Instead, an accurate system of accounting for expenses is key to a healthy financial life.  Here are three easy ways to track your spending to control and manage your finances:

Envelope System – This basic system is great for those with a tendency to overspend.  Simply cash your paycheck and place the dollar bills in envelopes corresponding to your budget categories (such as housing, food, clothing, entertainment, etc.).  Cash is removed as expenses occur.   

For instance, if you budget $50 for entertainment, put $50 cash in your monthly “entertainment” envelope.  As you entertain (attend movies, concerts, play sports), pay with money from this envelope.  When the envelope is empty, no more spending!  If you find yourself tempted to “rob” another envelope, re-evaluate your budget.  Put receipts from your spending in each envelope to later analyze your spending patterns.

Ledger System – This system requires more accountability and time, but will give you better spending information.  Similar to a checking account, deposit your paycheck and use a ledger or a notebook (less than $5 at an office store) to record your spending.  On separate pages, write the monthly budgeted amount for each category.  Expenses are subtracted and deposits are added to this figure in a continual increase and decrease to the account.

Using the above example, “$50” is written on your entertainment page.  If you spend $10 at the movies, write “movies -$10”, leaving a balance of $40.  Do this with each expense.  Next month, write “deposit +$50” and add it to the current balance.  If you have a negative number, you need to re-assess your budget – are you spending too much in this area?  Can you spend less in another area to compensate?  If you can’t find a solution and you’re consistently in the red on several of your accounts, consider using the envelope system.

Electronically – If you’re technologically minded and own a computer, tracking your spending electronically might just be your cup of tea.  Quicken and Microsoft Money are two good financial programs that not only track your spending but also help with extras like recording your household inventory for insurance purposes.  Their versatility allows you to analyze your spending in a variety of ways, even providing a “net worth” graph as an incentive for saving and reducing debt.  Both programs are relatively easy to use and are inexpensive (about $30).  And though you still need to record your data regularly, this method can be less time consuming than the ledger system. 

Any of these three methods will help you track your finances and manage your money.  Choose one that works best for your temperament and lifestyle, and stick with it.  The payoffs will be a greater understanding of your spending patterns, freedom from worry, and ultimately the realization of your financial goals.

Comments

[X]

The best thing about Quicken is that you can synchronize it with Pocket Quicken on a Palm PDA-- it's a great way to make sure you enter transactions when they happen, so you don't have to bring home receipts and try to catch up later. I believe Microsoft Money also has a PDA-based version.

[J. Richard Peck]

I would like your permission to reprint the article "Three Ways to Track Your Money" in the United Methodist Men magazine. This is a quarterly publication sent free to members of United Methodist Men.
If this is possible, could you please provide the credit line you would prefer.
Many thanks.
Richard Peck

[Jared Franz]

I've started using a basic spreadsheet in excel to track our spending. We've got different categories (Month fixed bills - same payment each month, Monthly Variable bills - same bills each month different expense ex. utilities, and a couple other misc categories that track our Needs, Repairs, and entertainment) in one column, the amount we have budgeted for in the next column, then a column for each month where we track our actual costs. We update it every sunday, taking the expense from our online banking account, or online credit card accounts. We add whatever we spent onto the amount already in there. We've set up a simple formula that lists all the costs, but shows in the cell the aggregate total. We love it because we can see trends in our spending, make notes to remind us what we bought and why, helps us plan for future spending, and what to expect.

[aleish]

I use a calendar with large spaces to write both when i receive money and when expenses occur to determine a match or mismatch between income and expenses.

[Ken]

This is what many people are lacking, a way to track spending. Of all the methods I like the envelope system best. The reason is, if you are simply tracking your spending, you will know where your money went! If you plan your spending with the cash flow plan, you have even more control. You are telling your money where you want it to go.

[Jordan Moore]

What do you think of the free budgeting service offered at www.mint.com?

[FMF]

Jordan --

Don't use it. I use Quicken and have for years.

[F]

I use a variation of method2. I use a credit card to log expenses. At the end of the month I compare actual expenses to my budget. If I see a deviation I either change my budget or come up with a solution to keep expenses within budget in the future. Works pretty well.

[F]

oh and I use OpenOffice Excel (which is free), putting the expenses in categories.