3 Ways to Monitor Your Spending

by Mr. Cheap

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?

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{ 10 comments… read them below or add one }

1 Four Pillars

Very good suggestions!

One additional complication with some of these methods (especially the first) is the presence of additional family members – just because one person wants to track the budget to the nearest penny, doesn’t mean they all do!

2 Mr. Cheap

Mike: Yeah, probably you couldn’t really impose the first one on other family members (the 2nd and 3rd should work reasonably well though, and if you combined them with following the 1st approach for yourself, you could get a pretty good estimate of what the other people were spending in your family)

3 WoolyWoman

It is a great idea to monitor your spending I agree, especially when trying to make changes. I did this once 🙂 using Quickbooks and could compare my budget to actual spending and make adjustments. It was a lot of work, but I think useful, perhaps on a bi-annual or quarterly basis, at least for us.

4 Shevy

I’m trying to do a version of #1. I ask for receipts for everything and the ideal is to break it down. For example, if I spent $35.83 at Safeway was it all for groceries? Did I buy a magazine or toilet paper or a chocolate bar or bus tickets? Each of those really belongs in a different category in my Excel spreadsheet (books, household, junk food, bus). But I don’t always manage that and I end up just entering straight from my passbook, as almost everything goes through there. It also means getting my hubby’s passbook and doing the same. He *doesn’t* get or save receipts and I often have problems determining whether a purchase at a gas station, for example, is for gas, candy or cigs. He also takes some cash withdrawals ($20 here and there) and I have no way to determine what cash was spent on. Probably mostly the aforementioned candy and cigs, with a little parking thrown in. But I just assign it all to the black hole of Miscellaneous.

If I keep up with it, it’s fairly accurate. But if I stop doing it for a while, it just feels overwhelming! I didn’t enter for a couple of months and am now catching up on September. Very aggravating, but we really need to get back on top of our spending because we’re facing some serious car repair costs this week.

5 Mr. Cheap

Shevy: think its like dieting: if you fall off the wagon, don’t beat yourself up about it, just start again.

Once you’ve monitored it for a while, you can stop recording everything if you keep spending fairly consistently, and assume you’re still spending roughly the same amount as when you were logging.

As you and Mike say, it can be hard when more than one person is involved…

6 Gates VP

Hey Cheap, I like this post 🙂

I also support the “alternate #1”, which is the “envelope method”. Pre-budget everything and spend cash (or equivalent). It’s a different approach that may be able to get around Shevy’s problem.

Of course, it still needs the long-term feedback cycles from steps 2 & 3.

7 Mr. Cheap

Gates: thanks :-). The envelope methods would work too (and if you had money left over, you could just subtract that from the original budget to see how much you actually spent). Good plan!

8 Lots

Although it doesn’t track your cash spending, http://www.mint.com does allow you to track most of your credit card and bank account spending all within one website. The only question would be whether you would want one website to be able to track all of your financial accounts…

9 Mr. Cheap

Lots: That’s been my concern: I like the looks of Mint, but I don’t really want them logging into all my financial accounts.

10 Gates VP

@Cheap and @Lots: can you even use mint in Canada?

I tried to sign-up for their beta some time ago and it wasn’t going to work b/c everything was in Canada. I tried Wesabe for a while but I was generally unimpressed as well. For quite some time they had no way to effectively track cash transactions.

I paid for my driver’s license and groceries with cash and actually had literally no way to track it, that’s a pretty big miss.

Honestly, I’d love to work for the Canadian version of Mint 🙂

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