3 Ways to Monitor Your Spending

I wrote last week about the value, as I see it, of keeping track of things in order to make changes in your life. While a common refrain in personal finance is to spend less than you earn, its obviously quite difficult for people to do so. I think part of the reason is that people have trouble actually seeing what they’re spending every month and where its going. On shows like Gail Vaz-Oxlade’s “Til Debt Do Us Part“, it often starts with the host telling the participants how much they spend each month, and the person being shocked when they find out.

Three ways that I see for keeping track of your spending are:

1. Write down everything you spend

Keep a notebook with you, and every time you spend money on something, write it down. At the end of the day, put each of the purchases in an Excel spreadsheet (categorized however you want). Each day you’ll get more data and be able to better estimate what your average spending is, broken down to as many categories as you track.

Something like:

Does the job reasonably well. If you get sick of carrying a notebook around with you (or are embarrassed to be writing down every cent you spend), just start asking for receipts, put them together in the back of your wallet (or in a section of your purse) and enter them all in your spreadsheet at the end of the day. Another way is to use your credit card for EVERYTHING you can, then at the end of the month you’ll have a listing of what you spent and where (and you can add in any cash withdrawals from the ATM as “miscellaneous”).

Make sure that you record things that are automatically paid for (such as monthly reoccurring charges), or interest on debts.

2. Record Your Accounts Each Month

If its too much work to record everything you spend money on every day, an alternative can be done once a month. This is easiest if you use one checking account for everything (including on-line payments), and don’t carry a balance on your credit cards.

Each month look at the balance in your checking account, compare it to the balance last month on the same day. Add all the deposits, and that’s how much you’ve spent. If you withdrew money to pay down debt, or to move into an investment account, add that money back in (its not an expense).

Say on October 1st I had a balance of $1,794.56 in my checking account and on September 1st I had a balance of $1,385.80. During September $1453.47 was deposited in the account. This means $1,044.71 (1385.60 – 1794.56 + 1453.47) was spent over the course of the month. If I had $25 / month automatically moved to an ING direct savings account, then I actually only spent $1,019.71.

Alternatively you can just add up all the withdrawals and payments and you should get the same number.

This is less accurate than the first method (and doesn’t break down your spending by category), but its easier to do.

3. Record Your Accounts Every Few Months

If you mostly get paid from one source (say a paycheck), you can also make an estimate of your spending by subtracting the current balance in your account from the balance at some point in the past, dividing by the number of months and adding in your monthly pay. Say my account is currently worth $1,794.56, it was worth $2,585.23 6 months ago, and I get paid $1,453.47 / month (after taxes). I’m spending $131.78 ((2585.23-1794.56)/6) per month MORE than my paycheck, for a total monthly spending of $1,585.25.

This is even less accurate and easier to do than the second method.

If you have credit cards or a line of credit and carry a balance each month, you should do the same thing for them that you did for your checking account in order to get a complete picture.

How do you track your monthly spending?