Now that you have your goals clear of where you would like to get to financially, we are first going to look at what happens to your money and how you are spending it. Once you know what your current spending patterns are, you can evaluate whether they align with your financial goals and whether you need to set aside more or less money for your goals.
Obviously your spending changes from week to week and month to month as you don’t always need new clothes, a car that needs fixed and even your weekly shopping bill is different every time you go to the supermarket. Therefore, in order to find out where your money goes, you are going to track your spending. By registering your expenses you are furthermore becoming more conscious of spending your money, which is likely to result in a slight decrease in your expenditure in general. 🙂
There are various tracking options available. There is the good old notebook that you can carry around with you to register all your expenses in, but there are also (paid and free) online options and apps, such as YNAB (You Need a Budget), Mint and EveryDollar. You could also create your own spreadsheet in a programme such as Microsoft Excel. The advantage of the online programmes / apps is that they will allow you to plunk in any expense at the very moment that you are making a payment and some allow you to import your bank statement too. They can often give you reports depending on how you’ve set up categories, so have a look around and decide what you prefer and what you feel works best for you. That said, don’t use “having to find the best option” as an excuse not to start. If you don’t have time to investigate the options today, just start registering your expenses on paper and transfer them once you’ve made a decision on your definitive method of tracking.
Step 3 – Track your expenses – in detail
- Starting today, keep track of everything that you spend, no matter how small or insignificant the expense might seem. This is not just cash, remember to also include any debit or credit card payments, standing orders and any other form of payment.
- Record your expenses in one place, don’t worry about whether or not it is the perfect system and whether it is set up in the best way possible. The most important thing for now is to just start and then with time find out what system works for you.
- When you get a chance, investigate alternatives to register your expenses, be that digital or in analogue format. Remember that if you want to use a digital expenses tracker on different devices, such as your computer, tablet and / or phone, you’ll want to make sure that it works on all of them and that any updates get synced automatically.
- Settle for an option that you feel is easy to use and that fits in with what works for you. If you choose a system that you don’t feel motivated to use, you are unlikely to update it and you will most likely stop tracking your expenses after just a few days.
- Log your expenses for at least three months, although it is a good habit to keep up in general even after these initial months, to see how your expense patterns change with time and to keep track of your money in general. Especially yearly expenses and emergency expenses might otherwise not become clear.
- Add this step to a post-it, card, your mobile phone or journal, so you are reminded of your new task. You might also want to set yourself an alarm to remind you to write down your expenses twice a day to do it there and then, as if you leave it until the next day, you are likely to forget some of them.
If you ever forget to register an expense, don’t worry and most importantly: don’t give up on this entire step. Just accept that you forgot and continue again the next day. It requires quite a bit of time to get used to this new habit to keep a record of everything you spend, so it is likely you will forget now and again. That’s okay, just keep going!