The absolute FIRST step in getting your finances under control is tracking your expenses. This empowers you to start a spending plan, save 3-6 months in your emergency fund, and automate your savings. This is the catalyst for turning your financial life around!

My #1 Actionable Tip for Improving Your Finances

The absolute FIRST step in getting your finances under control is tracking your expenses. This empowers you to start a spending plan, save 3-6 months in your emergency fund, and automate your savings. This is the catalyst for turning your financial life around!

In honor of both financial literacy month and my first anniversary (today!) of starting this little blog, I want to share my number one tip for improving your personal finances.

I’ve compiled an entire series of classes this year on completing your entire financial plan. I’ve covered everything from making financial goals to some of the more in-depth aspects of estate planning. If you’re struggling to get started with your personal finances, you can just ignore all of that and focus on one and only one thing:

Tracking your expenses.

You already know all the standard personal finance suggestions: Spend less than you make, have an emergency fund of 3-6 months of expenses, and automate your savings. If you don’t have a good grasp on how much you’re actually spending, how will you know if you’re spending less than you make? How will you know how much you have to save, especially for your emergency savings? Tracking your expenses is going to make all the difference.

However, if you are living paycheck-to-paycheck, you may feel like, what’s the point? The point is that tracking your expenses can get you out of this cycle.

And if you’re already saving some money, you might think, No thanks, I’d rather not. I’ll tell you straight up: it’s not a waste of time, but likely you’re wasting money until you do.

Even anti-budgeters like David Bach (The Automatic Millionaire) admit that in order to really see where you’re at with your spending, you have to track your expenses, at least for an initial period of time.

Let’s answer some basic questions about tracking expenses, and hopefully it will convince you that this is the BEST thing you can do to start gaining control over your money.

WHAT’S THE POINT OF TRACKING MY EXPENSES?

Ultimately, by looking at each and every thing that you spend money on, you’ll be able to determine whether you need to make some changes to your spending habits. These changes will be necessary to optimize the money you can put toward your important financial goals.

You may find subscriptions or other fees being renewed automatically that you no longer use or that can be substituted for less expensive options.

You may just simply realize that you are spending way more on certain categories than you thought. The usual culprits are eating out and entertainment. Those $10-20 purchases really add way faster than one would think… trust me, I know!

HOW DO I GET STARTED?

In the Making Your Money Matter class series, I’ve provided an entire Tracking your Expenses mini-class complete with spreadsheet template. There you’ll find:

  • different ways to track your expenses,
  • step-by-step instructions to get started, and
  • a spreadsheet template that you can download for either Excel or Google Sheets

If this is your first time tracking your expenses, you may want to stick to very general categories including:

  • Housing
  • Transportation
  • Food
  • Medical
  • Clothing
  • Personal Care
  • Recreation & Entertainment
  • Child Care
  • Miscellaneous

HOW MUCH TIME IS IT GOING TO TAKE?

I usually spend less than 15 minutes each week tracking my expenses, mainly importing, inputting and categorizing them in YNAB. I would expect that most software programs with importing capabilities would require 15 minutes or less of time each week to keep everything updated.

Of course, there is setup time involved in using a software program. I’ve tried Mint, Quicken, EveryDollar, YNAB and more and I estimate that it takes 30-45 minutes on average to get them initially set up with accounts and categories. You can see how to set up an account in YNAB in my video tutorial.

If you decide to use paper and pencil or some sort of budget printable, you’ll likely spent at least 30 minutes per week just for tracking, since it will take longer to write down all the transactions and total them up.

WHAT DO I DO NEXT?

After you spend the time to total up all your spending, you may wonder what to do next.

First, go through your category totals and determine whether the spending amounts make sense for your personal situation and your goals. For example, you may be shocked that you spend $1,000 on food if you only have 2-3 people in your household. Or, you may realize that you spend more than you thought on personal care or clothing when everything is presented in monthly totals.

Second, use a recommended budget calculator to take one more objective look at some of the categories that may be larger than expected for your income level. These are just (very) rough suggestions, but can be helpful in many ways. It’s the next best thing to having someone else take a look at the reasonableness of your expenses for you (most people don’t really want to do that!).

The only other thing to do is to adjust your spending habits to align with your goals and values!

FINAL THOUGHTS

You can’t change what you don’t know needs fixed.

Tracking your expenses will give you that start to be able to do all of those things that you know you need to do: save your emergency fund, increase your retirement contributions and give more to charity.

Don’t wait for a new year, new month or a new week. If you want to get control over your financial life today, you need to start tracking your expenses today.

What do you use to track your expenses?

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14 Responses

  1. I think you pretty much nailed it. The media tends to focus on the easy answer and saying to focus on your pay for planning for retirement, but it’s actually your expenses that can make or break you. If you can’t get those in order, your finances are going to suffer whether you make $30k a year or $250k a year.

    I use Quicken (religiously) for my finances. I got sucked into that product in 1999 and have tried everything I can to find something “more modern”, but nothing seems to compare for me.

    — Jim

    1. When it goes back to the debate about whether you should focus on earning more or cutting expenses, I always think it’s wise to start with identifying expenses to cut. For a lot of people (me included), you can get a lot of quick wins when you first start tracking your expenses. Then you can move to focusing on earning more.
      I love how Quicken integrates the debt principal/interest payments and synchs with TurboTax also, but I just didn’t like the input functions and it was a little buggy when I tried it out. If I had used it in those earlier years, I’d probably still use it, but just wasn’t happy with the issues in it. Hopefully that will improve with the new ownership. I’m a huge fan of zero-based budgeting, so I love YNAB.

  2. I use Mint and my own spreadsheet to track. At the end of each month, I download all my transactions and dump them in my excel sheet. Then I categorize my income and expenses to get a better understanding of where I’m at on a month to month basis.

  3. I don’t use anything to track my expenses, but I do have it in my head.
    I usually spend $3k per month (no mortgage/rent), so I usually just check my bank account at the end of the month to make sure that I didn’t really go over my “budget”. (It’s not really a hardline budget – more of a guideline).

    1. It sounds like you have a pretty good handle on your spending overall. I get a little overly excited about these things, so I love tracking my expenses to make sure that I’m on track during the month and don’t end up with a surprise that keeps me from meeting my goals later.

      1. I tried one of those expense tracker apps, but I gave up after two weeks. I find it to be a hassle to type in every purchase (and corresponding dollar amount) that I made. I guess we all have different preferences.

  4. I’m with you, this is the best tip! I still love my trusty spreadsheet and keep track of all my ins and outs, but I also use Personal Capital so I can check on things anytime / anywhere – not obsessively though 🙂

    1. I would say I’m an obsessive expense tracker, although I totally don’t think you have to be to get it done. I love my YNAB/spreadsheet combo. Personal Capital is a great resource too!

  5. I’ve been using Mint for around 5 years and it’s been very helpful in our debt destruction goals. I am very intrigued with YNAB. A lot of financially savvy people (including you) I know use YNAB and have had a lot of success with it. I may have to try it out next month. 34 day free trial evidently… mmmmm… free … yum.

  6. Great post. Reduce expenses = more money to save. Not always easy for some. Good place to start on the road to (fi).

    1. I agree – tracking your expenses is a great start to financial independence, even if you also need to start increasing your income to get there.

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