If you regularly check the calendar for when your next paycheck will arrive or if you feel like you always run out of money faster than you earn it, you’re really not alone. Countless Americans live paycheck-to-paycheck and even earn annual increases yet continue to spend while maintaining very little savings. It can be a cycle that is hard to break. “It’s just $20,” might sound familiar, but $20 three times per month, times twelve months per year adds up. Plus, consider the investment growth that you aren’t earning on that extra money spent. Tracking your spending requires some effort but has the ability to lessen stress and help you build a more secure financial future.
If the sound of tracking expenses sounds more like losing freedom forever, you don’t have to commit to tracking your spending from now until you retire. Start with committing to just two months. It is ok to take steps toward evaluating your spending and toward long-term changes. What you find when you write down all expenses for two months might surprise you. When every cent is logged, this creates consciousness about cost and value and forces you to consider how and why you are making buying decisions. After you reach the two-month mark, then you can reevaluate and determine what permanent changes may be needed.
When you organize your spending into categories, it becomes more visible what specific areas might need attention. Organize your spending into fixed expenses, including rent, mortgage, and student loans, variable expenses such as gas and groceries, unnecessary expenses like concerts or dinner out, and unplanned expenses such as car repairs or doctor visits. If your unnecessary expenses are high, then you might realize you are allowing emotion to drive purchasing decisions. If you can see the various buckets of expenses, it helps prioritize and to recognize where changes are needed.
There are countless apps available with all kinds of features, making it easier and more fun to track spending. You can even input your paycheck amounts and autopay bills such as the electric bill or gym dues. Top expense tracker apps include Mint, QuickBooks Online, and Expensify. In general, these apps are easy to navigate, full of convenient functionality, and provide an easy way to manage expenses, bills, and receipts. Since these apps are right in your phone, there is little excuse for not tracking every cent as you spend it.
Once you have tracked and evaluated your spending, you can set up a plan to make sure monthly income goes where it should. For example, take the dining out amount you were spending and set a smaller limit for the future, then stick to it. You’ve surely heard the term, pay yourself first. This definitely applies to your budget, as you should set an amount to go directly into savings to only be spent only in an absolute emergency. Although, don’t forget to allow a small amount to treat yourself now and then. It is your goal to increase savings and monitor spending but not give up fun all together. Creating a budget or long-term financial plan cannot be done without first tracking your spending.
Tracking all of your spending is not a complete strategy to bettering your finances. If you find a pattern of buying impulsive items, or if you are surprised at your restaurant total at the end of the month, the awareness step is only the beginning. You will still need to review what you are tracking, make conscious decisions that will save more, and then take action. Tracking spending, taking charge, and making changes is the only way to achieve financial health.
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Bayntree Wealth Advisors provides comprehensive financial planning and wealth management. The Bayntree team specializes in all aspects of financial health, including retirement planning, risk management, investment advice, tax strategies, estate planning and insurance.
Bayntree does not provide specific legal or tax advice. Please consult with your tax advisor or legal professional for guidance with your individual situation.