How To Track Your Expenses – Getting Started

One of the most important steps in gaining control over your finances and achieving financial independence is to learn how to track your expenses.  When you understand where your money is going every month, you can better plan for the future and develop new spending habits to reach your financial goals. Getting started is the hardest part!

Tracking your expenses on a monthly basis helps you create new spending habits and provides you an opportunity to save money for:

Emergency Fund Savings
Save 6 months expenses in an emergency fund
  • Emergencies
  • Dream Purchases (vacation, car, house)
  • Kids (having a baby, child care, wedding, college)
  • Retirement

The best way to understand what you spend your money on is to begin tracking your expenses. Your relationship with money will change as you gain knowledge of your spending behavior and patterns.

Tools You Can Use

There are some great free sites that are really easy to use (Mint and Personal Capital are the most popular), but you can also do it yourself manually in a spreadsheet. Personally, since I’m a finance/accounting nerd, I like to keep a spreadsheet and track my spending online. I like Personal Capital because it pulls everything (assets, debts, income and expenses) together in real time, so I can see where I’m at financially, as well as be able to track fraudulent charges immediately. I also like keeping a manual spreadsheet too because it gives me a better feel for where my money went on a monthly basis.

How To Get Started

To begin tracking your expenses manually you need to:

Start tracking your expenses
Start tracking your expenses
  1. Identify the major categories you spend money on – housing and utilities, your car, food (groceries and eating out), entertainment and travel, clothes, and all the other “small” things you buy.
  2. Get your monthly bank and credit card statements from the last few months, and track each expense in the proper category.
  3. If you use cash, start keeping your receipts and write down each time you buy something with cash. (This can be one of the biggest eye openers since these tend to be ‘invisible’ expenses.)
  4. After a couple of months, review the amounts you spent in each category and begin identifying areas you can cut. See my related post on “How To Cut Monthly Expenses” to get some ideas.

Once your take a look at how much you’re spending in certain categories, you will most likely have an epiphany or “oh, sh*t” moment. For me, it was seeing how much I was spending on clothes, shoes, and workout equipment, as well as eating out way too much. I began to question why I was spending so much on certain things, and then, if I stopped spending so much on these things, would I still be happy. I decided to try it out… and I found that I’m actually happier not spending on material things and enjoy making healthy meals at home. It has now become my mission to save money as I’m on the road to financial independence.

I went from spending over $50,000 a year in 2013 to just under $30,000 last year (2016), and this year my mortgage will be paid off which will drop my spending even further. Every couple of months, I take a look at my expenses and identify a new way to save money. It’s a fun mental exercise for me and it’s interesting to see what areas I’ve been able to optimize the most.

If you want to start tracking expenses online, you can easily create an account and start linking all of your accounts. It’s a great way to systematically track your expenses, as well as provide a comprehensive picture of your net worth.

Save for a wealthy retirement
How much do you need for retirement?

Retirement – The Biggest Savings Goal

Saving for retirement is often the biggest savings goal people have, although we often don’t think about it much until we get close to our retirement date. Tracking your expenses ultimately helps you determine how much you need to save for retirement. Most experts recommend that you save 25 times your annual expenses for retirement. Therefore, when you can identify what your spending requirements will be for the future, you can easily calculate how much your retirement savings goal should be. For example, if you spend about $30,000 per year, you need to save at least $750,000 for retirement.

There are a few things that will more than likely dramatically vary your spending ability in retirement, including a reduction in income and potentially higher expenses. Health care is a big unknown in retirement, including possible long term care, assisted living, or various medical care that may be needed.

For most of us that have worked their entire life for someone else, income, taxes and medical insurance came from our employer. Retirement can be scary when both income and expenses are unpredictable.

Tracking your expenses not only gives you more control over your finances, it also helps you identify what is most important to you. After you add up everything you are spending in certain categories – groceries, eating out, entertainment, etc. – you will begin to make different choices. Your spending habits will change as you align your spending with your overall values, priorities, and goals.

Today, take charge of your finances, start a plan to track your expenses, and create new spending habits to reach your financial goals.

“Beware of little expenses. A small leak will sink a great ship.” ~Benjamin Franklin

4 thoughts on “How To Track Your Expenses – Getting Started

  1. These are some great tips! Like you, I track my monthly expenses using a spreadsheet. I only have one credit card at the moment and rarely use it.

    A spreadsheet has kept me organized for the most part. I did notice that we spent a lot on dining out. We’ve cut back on that expense quite a bit and it has forced us to cook healthier meals at home which is a huge benefit.

    Would it still be helpful to use tracking software such as Mint? I’ve tried to find accounting software before that could track my expenses but many of them had so many bells and whistles that it felt overwhelming. Thanks for sharing your experience!

    1. I actually enjoy tracking my expenses, I think it’s fun and gives you so much information about your lifestyle. If you use your checking account and credit cards to pay bills, Mint is a very useful tool. If you mostly use cash, I don’t think it is very helpful since you have to track your expenses manually anyway. 

      I agree that some of the tools out there have too many bells and whistles for the average person. I think I’ll have to do a post comparing the different ones out there! Thanks for your comment. ~Jen

  2. That was very informative. I like how you talked about keeping track of the expenses that are paid with cash. I often forget how I spend my cash, making it harder to plan for the future.

    I also have cut back on expenses, including presents. I have found that our family actually feels happier when we look at it as less is more.

    When my kids have a birthday, I find out 1 thing that they really want. If it fits in my budget, they get it. May sound cruel to give just one or two presents at birthday time. Meaningful gifts that last are kind of like quality verses quantity, or good, better, best.

    One way that I have helped with my budget is naming it, “Debt free and getting richer.” My budget syncs between between computer and phone so that if I’m out and about and remember I need to pick something up, I’ll know how much I have in that budget category.

    Every time I open the budget on my phone to do some unexpected shopping, I’m reminded what my goal is because the title of my budget appears. It helps curb excessive spending.

    1. I think that giving your kids one or two meaningful gifts is a great way to instill values in them at a young age. I have a friend that does that with her son and it has taught him to be more thoughtful about what he asks for.

      I like your idea of naming your budget, and that it syncs to your phone. What an awesome idea! I can see how it would curb spending on things you don’t need. Reminders are so helpful when they are right in front of you! Thanks for your comment! ~Jen

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