40%.

That’s how many Americans actually try keep a budget or track their expenses, according to the National Foundation for Credit Counseling.

For everyone else that struggles to budget, we’re here to share the secret behind creating a budget that sticks. Keep reading to find out the how and the why behind the magic of tracking your expenses.

In this post, you’ll learn:

  • One of the top reasons why budgets fail & why it’s important to track your expenses
  • How to track your expenses and set yourself up for budgeting success
  • How to create an expense tracking calendar

TAKE ACTION:

  • Grab a blank calendar and record all the spending you do
  • Highlight what you spend on your basic necessities
  • Take note of what you’re spending on everything else to see if you’re okay with that

This post may contain affiliate links. See disclosure for more details.

why tracking expenses is crucial to your budget

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Budgets always sound simple in theory, right?
All you have to do is decide how much you’re going to spend on various things each month and how much money you wanna be left with. Then, just follow the plan and – tada! – you’ll have all this money, just like you said you would!

Except, it never actually works out that way, does it? You can’t seem to stay within the limits you set, so you end up just as broke as you were before you put in all the effort to create a budget. Talk about frustrating!

If you want to create a budget that truly works, you need to figure out spending limits that you can actually follow. Luckily, there is a powerful technique that can help you do just that: tracking your expenses.
how track expenses, set spending limits

Why should I track my expenses?

Many people who tried and failed at budgeting went about it the wrong way.

They jump right into writing down what expenses they pay and setting their dollar limits, fully expecting to come out on top just because they have a plan.
But how do you know that you’ve captured everything, and that your spending limits are reasonable? Or that you’ll actually be able to come in under the dollar amounts you set? If you drop the ball on any of those things, you could be setting yourself up to fail.
how to budget - google search on web
Some people try to work around that problem by researching what other people spend for the same types of expenses. But that’s still no guarantee that your budget will work.
If you ask 100 people what they spend every month on groceries, for example, guess what? Survey says…you’re gonna get 100 different answers, even if you’re asking people with the same family size, living in the same city.
And just because someone else feeds a family of 8 on $40 a week, doesn’t mean you can…or that you even want to.
Instead of looking at what other people do, always start with the best benchmark for your situation: you!

What are the benefits of tracking your spending habits?

You never would have thought to call a plumber if you didn’t even know you had a leak, right? Likewise, you probably won’t change your spending habits if you have no idea how much money you’re throwing away that you wished you were saving instead.

If you’ve never done any sort of expense tracking, you might be stunned by what you discover.

That’s because most people tend to radically underestimate how often they spend money. It might shock you to discover that you spend money every single day, or even multiple times a day!

Our true spending habits are startling to us because we do so much of our spending mindlessly.

That also means we often spend more so out of habit & routine, instead of necessity, which can make for a lot of wasted money. And because we literally spend without thinking, that leads us to think that we’re better with our finances than we actually are.

crushing it
Tracking your expenses honestly for at least three months is the best way to get a real handle on how you really use your money, which is 100% crucial for creating a realistic budget that you can actually follow.

TIP:

To make sure you don’t miss anything, keep your expense tracking calendar somewhere clearly visible in your wallet so that you see it every time you go to grab cash or to take a card out. You should also set aside 10 minutes each night to mentally go through that day and jot down anything else you may have missed.

How do you keep track of your expenses?

Contrary to popular belief, you don’t need a special expense tracking app or expense tracker spreadsheet. Tracking your expenses is a lot simpler than you think.

Step 1: Record your expenses
Grab a blank calendar and start writing down every single time you spend money or pay a bill, no matter how small the dollar amount is. Do this regardless of whether you pay for it with cash, a debit or credit card, or if gets directly deducted from your bank account.

We’re not asking for a novel here; just the dollar amount and a simple but clear description should be good enough.

how track expenses record expenses

Step 2: Highlight your essential expenses by category

Our initial focus will be on much you spend on your essentials, a term that pretty much refers to your basic necessities. We like to use 7 specific categories of essentials:

  • Housing & utilities
  • Groceries
  • Transportation
  • Healthcare
  • Childcare and pet care
  • Minimum debt payments
  • Other (for any other expenses you can’t avoid that don’t fit nicely into the first six areas)

Looking through your spending from these last three months, go through each of those 7 categories one at a time, and highlight all the expenses that fall under that category.

For example, the first essentials category is housing & utilities, so you’d highlight any spending that relates to keeping a roof over your head and the utilities running like so:
highlight budget category line items
Once you finish all three months, move on to the next category, which is groceries, but switch your highlighter color.
highlight groceries in different color

TIP:

If you need more highlighter colors, click here to find a variety pack that’ll work perfectly for this task.

Keep doing this for the rest of the essentials categories, one by one, until you’ve gone through all seven categories.
highlight expense categories in different colors

TIP:

You might have some expenses that could fit into more than one category. It doesn’t really matter which category you decide to put it in; just pick one, but consistently use that category each time the same expense shows up.

Your color-coded expense tracking calendar tells you exactly how much and how often you spend. That means, anything that isn’t highlighted is money you’re spending on your non-essentials.

how track expenses budget overview visual
If you’re worried that I’m gonna tell you to cut all that stuff out, or that I’m about to get all Judgy McJudgerson on you, relax!
This is your money and your life, so you have the right to decide how to use it in a way that makes you happy.
Turning to someone for help and advice doesn’t necessarily mean you want to live their life, so I’m not here to tell you what you should and shouldn’t spend on.
I’m only pointing out what you spent on your non-essentials because you can already sense your spending and your goals aren’t quite aligned.

You know that you aren’t where you want to be, and you just want to find a way to get there, which a budget can absolutely help you with.

There’s nothing inherently wrong with spending on non-essentials, but if there are other choices you’d rather be making, choices that you believe will ultimately make you happier and leave you better off, then tracking your expenses is the first step to identifying what you’re actually doing so you can start changing the things you don’t like.

What is the best app for tracking expenses electronically?

If pen and paper is too old school for you, you could try an app like Personal Capital, which offers free tools that let you track and monitor your expenses digitally.

Unlike some other apps, Personal Capital’s expense tracking function is 100% free and doesn’t require a monthly fee. They also offer a wide array of other financial services and wealth management options, which makes it easy to expand your digital money management without switching apps if you decide you want to take care of other aspects of your finances electronically.

Conclusion

Our tutorial on how to track your expenses will show you step by step how to create an expense tracking calendar. By tracking your expenses, you can accurately judge what you need your money to do for you, which will also help you come up with sensible budgeting goals. Learn why is it important to track expenses and start taking control of your finances.

TAKE ACTION:

  • Grab a blank calendar and record all the spending you do
  • Highlight what you spend on your basic necessities
  • Take note of what you’re spending on everything else to see if you’re okay with that

SPREAD THE WEALTH! SHARE THIS POST!

KEEP LEARNING & EARNING:

stacy trinh aka aunty chang headshot

AUTHOR BIO

STACY, aka AUNTY CHANG, is a personal finance blogger set on a mission to show people that there's more to money than just the numbers. With two rental properties and a six-figure 401k by her 30's, she's on track to retire early without sacrificing work-life balance to get there. She wants to teach others how to identify their goals and use money to make them happen. Dual income, no kids, based in Hawaii.

Hangs out on Keeping Up with the Changs: Facebook | Twitter