In case you missed it, I started a post series about taking control of your financial life. Step one was to know your net worth. As the new year approaches, this is the perfect time to spend some time on finally figuring out your finances. These easy steps can help you! And … guys, I included a free spreadsheet that is easy and super helpful in tracking expenses and setting up a budget.
If you missed the first post, find it here. The simple steps will help you understand exactly where you stand financially. I find it especially useful to know every asset and liability and the associated accounts. You may want to keep a file on your computer with all the information so you can access it easily to do financial check-ups (at least annually).
The second step in taking control of your financial life is to track your expenses.
Once you know your net worth (see step one), you have an idea of where you are starting from financially and can begin to set your big financial goals. Some common big financial goals –
- Pay off credit card debt
- Pay down student loans
- Contribute regularly to retirement accounts
- Save up for down payment on house
- Start a college saving plan
These are just ideas, but they are big goals – getting there will take many small actions on your part. So, how do you know where to begin? Before you start making changes, you need to know where your money is going now.
Why I track my expenses
I have a system I’ve used for years to track exactly where my money is going. Now, as a single mom, it’s even more important that I know exactly where every penny goes so I can reach my financial goals. As a public school teacher, I’m not rolling in the dough. But, I grew up in a household constantly stressed out about money and that stress affected me significantly. As a single mom I have vowed never to allow that type of stress to affect my daughter.
I keep financial stress at bay by being very good with my money. I travel, and occasionally I splurge on something for myself, but in general I think about every single purchase I make. I may not have a lot, but I won’t let that impede my happiness or prevent me from doing some of the things I dream of doing. It just means being smart with money … Tracking your expenses is key to being smart with your money!
By tracking your expenses you can easily see where you may be wasting money – cut out the waste and you can save that money! Every financial goal you have most likely involves saving more money. You need money to pay debt, save for retirement, save for expenses – by identifying where you’re wasting money, you can begin to divert that money to savings.
How I track my expenses
I’m giving you access to a spreadsheet I’ve created to make this process easier. Just follow this link and download (you’ll need Microsoft Excel) and then return for the step by step instructions.
Step by Step – Tracking your expenses
STEP ONE: Set up the “Monthly Expenses and Income” tab on the spreadsheet. Input the exact monthly expenses for common bills like the mortgage and utilities. If it’s something that varies, like groceries, do your best to estimate a monthly average. Fill in the income sections and determine how much you have leftover each month. You may not have a lot leftover once you account for all these expenses. The important part is that you don’t have a negative amount. If you do, you are spending over your means and need to reevaluate your expenses AND CUT them, now.
STEP TWO: Set up monthly goals for each category under the “Budget Tracker” tab. Use the monthly expenses from Step One to help you determine reasonable goals. You can easily add to or change the categories I have in the spreadsheet.
STEP THREE: You’ll need to keep track of your expenses somewhere – I personally find it easiest to use a notebook and keep track of what I spend by listing amounts in categories each month. This may sound like a lot, but once you get used to it, it’s not too bad. I spend maybe 10 minutes a week. 10 minutes, people! You can do that for yourself, so you can save more and get on track financially.
Throughout the week I keep my receipts and get email alerts from my credit cards. Each week, I simply list those amounts under the appropriate categories in my notebook.
Other options include adding a list in the spreadsheet I’ve provided or using an app like Mint. I haven’t had a lot of luck with using apps for tracking and budgeting, which is why I use this method. I do, however, highly suggest having any apps for credit cards you use. Set up alerts and then you can get notifications for every purchase, which makes tracking easier.
STEP FOUR: At the end of each month, input the total amount spent in each category under the “Budget Tracker” tab. I also color code each section with good (at or under budget), neutral (right over budget), or bad (more than $25 over budget). You don’t have to use that system, I find it helpful to identify patterns.
STEP FIVE: Continue to track expenses each month and you will start to see patterns. Are you constantly over budget on groceries? Shopping too much? Spending a ton on gifts? These patterns will help direct you to the areas you need to work on improving. Also, by tracking each expense you’re going to feel so much more in control of your money.
You have the power to reach your financial goals. You don’t have to believe you can only be happy with more money. Instead, use what you have wisely and you’ll probably be surprised you have just what you need.
Take control of your financial life, so you can direct it! Reach those goals of paying off debt, saving for retirement, or buying a house by making sure every penny is going where you want it to go.