What is “Tracking My Spending” and why should I do it?

Tracking your spending is any process that you use to see when, where, and how you are spending your money.Tracking your spending can help you manage your money in a variety of ways.

Pinpoint exactly where your money goes

While most of us probably have a pretty good idea of our biggest expenses — like rent, mortgage, or car payments — we may be fuzzier on the details of every dollar we pay out each month for everything else. That’s not uncommon, according to The Penny Hoarder 2021 Survey on Spending and Budgeting Habits. In fact, the poll found 56% of us don’t know exactly how much money we spent in the last month.

Keeping track of expenses can improve the budgeting process, keep us from spending on things that don’t matter, and help make sure our money is working smarter for us.

Two in five Americans, for example, say they don’t realize how much they’ve spent on their credit or debit cards until they read their monthly statements, according to recent research by the American Institute of CPAs.

Spot areas for improvement

Tracking spending can be informative, motivating, and surprising — all at the same time. That’s because you may notice that you’re spending more than you think for certain things. You might find that you have more money than you thought once you cut out the spending on things that aren’t important to you. Money is about choices and the more aware of the choices you are making, the better your choices will be.

And maybe you’ll shed light on money priorities that are inadvertently slipping through the cracks.

Boost money management success

Better identifying where all your money is going can lead to better decisions about your money. It often surprises people to learn that tracking your spending isn’t just about spending less. It’s also about spending on the right things. As you decrease your spending in some places, you might find that you want to increase it in others.

Money management success is about getting the most out of the money you have. You can only do that when you are making intentional decisions to support your values, priorities, and goals.

Tracking your spending is a crucial step in that success.

What Are 5 Good Ways to Keep Track of Your Expenses?

1. Manual method

Some people prefer an active, hands-on approach to money management. Whether it’s a little spiral notebook you carry with you or a binder you tuck expense records in, some of the simplest ways for tracking spending employ nothing more than pen and paper. It could even be a notes app on your cell phone.

The key thing here is to log each time money leaves your wallet. You should capture the amount, the date, and what the expense was.

The binder method keeps expense notes, receipts, statements, and expense worksheets organized in one place so that you can more easily reconcile what’s happening on a weekly, monthly, or even yearly basis. Add 3-ring pocket folders as needed to corral your different expense categories.

Pros: Simplicity, free

Cons: Not easy to do broader evaluation of your spending

2. Calendar plan

Keep a separate money calendar and put it to work to track your spending. Use it to jot down daily, weekly, and monthly expenses as they occur. With this method, you’ll be able to quickly spot spending trends and opportunities to save money.

For example, you might notice spending ramps up on the weekends when you and the family get more take-out food and stream movies. And you can also use your money calendar to mark due dates and amounts for bills in one easy-to-see place.

This method can be a particularly effective strategy if your bills pile up during one paycheck of the month. Tracking spending on a calendar can make sure you align your spending with your income so you can avoid overdraft fees or getting caught with an empty account at the end of the month.

Pros: Helps manage cash flow

Cons: Limited data for focused insights

3. Spreadsheet system

Expense tracker spreadsheets, which you can create from scratch in Microsoft Excel or Google Sheets, can help you customize a table of rows and columns to arrange, store and automatically calculate your own personalized spending categories in timeframes you choose.

Within these ledger-type tools, there are all kinds of ways to highlight expenses that will help you visualize and analyze the full picture. Some types of analysis you can do with a spreadsheet include:

  • Color code different spending categories
  • Highlight expenses that exceeded your expectations
  • Graph spending trends over time
  • Filter by expense type to find patterns

Spreadsheets require ongoing maintenance to keep things entered and tallied, but they can deliver a practical level of detail into your cash flow over time.

Pros: Multiple ways to analyze and gain insights

Cons: Takes effort to maintain it over time

4. Template technique

Ready-made templates require less setup than the spreadsheet system. By using built-in formatting from either Microsoft Office or Google Drive Sheets, you’ll be able to get started sooner. Other free or pre-installed programs may already be on your device: Google Sheets (for Android, iOS and web) and Apple’s Numbers software for iOS, macOS and web are two. What’s more, you can access and edit your template from your phone, tablet, or computer — and share it, say, with a spouse, to work on it at the same time.

Popular Microsoft templates within its financial management category include an expenses calculator and a personal money tracker. And Google Drive’s Sheets also offers a gallery of templates — including monthly and annual budgets — that you can browse when you sign into your account. After you choose your starter template, you can fill in your numbers for a quick accounting of where your expenses stand.

Pros: Easy to share with others

Cons: Inflexible

5. App approach

If you’d rather automate the collecting and calculating, there are many spending trackers and budget apps to choose from that handle a lot of the work for you. Dozens of apps can be found in the App Store or Google Play. The challenge won’t be finding one. The challenge will be finding the one that works for you. These expense tracker apps let you set up different spending categories and sync directly to your bank account, credit card account or other financial accounts if you choose. In that way, they can automatically sort spending for you, which might be helpful if, say, you forget a one-time purchase occasionally. And some apps let you build watchlists, alerts and limits to better manage the spending that’s important to you.

Pros: Tailored tools designed for daily use

Cons: Costs money, might take time to find the one that works for you

Tips for success

Backward-looking vs. Live-tracking

When it comes to tracking where your money is going, there are two broad approaches you should consider. The first is a backward-looking approach that identifies your spending after it has already been done. This is common to budgeting tools, debt and credit card analysis, and reviewing receipts collected in a shoebox. The value to this approach is that it allows you to be comprehensive and to see the pattern in the entire month. The downside is that it demands that you sit down and dedicate some time to seeing what is going on.

The second approach is live-tracking where you are capturing every spending event as it is happening throughout your day. The advantage to this approach is that it raises awareness of your spending temptations as they arise and can give you added will-power to avoid spending. The downside is that it interrupts your day and requires you to always be thinking about recording your spending. This can sometimes feel all-consuming.

If you are struggling to rein in your day-to-day spending or you conduct most of your transactions with cash, it is often a good idea to start with the live-tracking approach. It will help you be more aware and more purposeful. Once you feel like you are holding to your plan, backward-looking tracking can help you tweak your efforts across paychecks.

Gather account statements and receipts

The best place to start when tracking spending is gathering the following information:

  • The most recent full month’s statements from your bank checking accounts
  • The last credit card statement
  • Receipts or a tally of your daily cash spending
  • List of periodic bills that are paid semi-annually or quarterly, such as insurance premiums

For a deeper dive, try tracking expenses for two weeks, a month or longer so you get a wider view of spending trends to compare.

Group expenses by category

Once you have all the information, the next step is to organize your spending into broad categories. (Some banks and credit cards automatically do this sorting for you). You should divide your expenses into categories like these:

  • Monthly essentials that have predictable amounts like housing, utilities, cell phone bills, and debt payments
  • Monthly essentials that have unpredictable amounts like groceries and gas
  • Monthly extras like merchandise purchases, entertainment, and streaming services
  • Periodic essentials like car insurance
  • Periodic extras like holiday spending

You should, of course, divide them into categories that make sense to you and your life. The categories should help you see what expenses are “non negotiable” which ones are flexible and which ones are not important. For instance, another way you could divide your expenses is like this:

  • Needed to live: rent, utilities, groceries, debt
  • Could live without, but I wouldn’t want to: streaming services, entertainment, clothes
  • Splurging: night out, etc.

You may find it helpful to use the Spending Tracker tool from the Consumer Financial Protection Bureau — an easy worksheet for sorting expenses into categories.

However you do it, the important part is to be able to see what is important to you, what is flexible, and what is expendable.

Record and evaluate

Now you’re ready to take stock of how much you spent in each category every month. What expenses surprised you? Are you paying more than you thought for certain things that you’re not really using? Do you see any categories where there’s room for change? Using one of our 5 easy ways to track your spending that works for you should make this much easier.

The Bottom Line: How to track your spending

Follow four simple steps to find an expense tracking plan that will work for you:

1. Determine why you want to track your spending.

You may want to decrease your spending, or you may want to build a reliable budget. It may be that you just want to understand where your money is going. First understanding you motivation will make sure you set the plan that will work for you.

2. Figure out how detailed you need to be.

You could track every solitary cent, or you may only need to understand rough numbers. Is it good enough to say you spent $80 at Walmart or do you need to specify that $60 was spent on groceries and $20 was spent on a children’s clothes? The receipt would be the same, but the categories might be different. If you need to track categories to accomplish your goal, you will need to draft a plan that will go beyond the receipt.

3. Decide whether you want to track it daily or evaluate looking back

Deciding whether you want a solution that looks back or one that you manage in real time will be essential to determining which system will be best for you.

4. Pick a system for tracking your spending

It is important to realize that you may need to change paths as you go. You might learn that some things are more important to you than others. After you’ve picked a tool and used it for a few weeks, don’t be afraid to make a change if you find it isn’t working for you.