A common trait among people who go into needless debt is that they have no clue how much they’re spending or where their money is going. One of the first things financial advisers suggest doing in order to get a handle on your debt is track meticulously where your money is going for a month, right down to the $.75 you used for a soda. You’ll be amazed to see where your money goes. Seeing exactly how much you spend on those things may make you think twice about buying that tall mocha latte every morning.
Using the information from your month of expense tracking allows you to then easily establish a budget for yourself. You’ll know where exactly where you can and can’t cutback in order to save money.
I love tracking my expenses, but I’ve had trouble keeping up with it. For the past year, I’ve been using Microsoft Money for my money management needs. Money promises users to make financial planning quick and easy. However, I think the reason I haven’t been very good at keeping track of my money is that Money is too quick and easy. Because I know Money will automatically track my spending I don’t worry about tracking my money.
The one time I actually created a habit out of tracking my expenses was when I carried around a small steno pad and wrote down everything I spent. There’s something about the act of actually writing down how much I spent that made me more aware of my money. When I knew I had to write down what I spent, I was more conscious on how much I spent. Anyway, I’ve moved from Money to using a paper tracking system again. Sure, it takes a bit more time, but I’ve actually been keeping track of my expenses.
Lesson: If you want to be frugal you need to know how much you’re spending and where. Experiment with different systems and find out what works for you. Just find something that you’ll actually stick with and use.