Have you ever tried to lose weight by tracking everything you eat? Sometimes the results are surprising. You may not realize how much cake you consume until you track the data. Financial planning is similar. You might not realize how much money you spend on coffee, food, or clothing until you track the data.
Track Your Spending
Many beginners track their transactions for up to a month before they create a budget. This is a good starting point if you haven’t tracked your spending before. However, monthly spending can vary due to many circumstances, so it’s better to keep track of your spending for a longer period.
Once you create a budget, continue to track your spending to see how your actual spending habits align with the ideas you set in your budget. Budget worksheets can help you compare your actual spending with your ideal spending. By tracking your spending and comparing it to what you want to spend, you’ll be able to determine if your financial goals are realistic.
Track Expenses
Different payment methods for items are among the hardest things to track. How can one person track every cash payment, credit card, debit card, check, automatic bank withdrawal, and PayPal transaction? One of the best ways is to commit to a personal budget and stop using cash (if possible).
Stop Using Cash
You have automatic and electronic records for every credit card, debit card, check, automatic bank withdrawal, and PayPal transaction. The only type of transaction that is not automatically recorded is cash.
If you stop purchasing things with cash, you will spare yourself the hassle of manually recording your spending. Instead, you can review your electronic records once a week and enter those records in one central place. You can use a spreadsheet, notebook, or budgeting worksheet.
Note: Transitioning from cash to credit and debit cards can sometimes be more difficult than using cash, as it can be challenging to overcome the urge to spend more.
Envelope System
The envelope system is an effective method for managing cash when combined with a budget. At the beginning of each week, place specific amounts of cash into envelopes. Allocate each envelope for a specific category of spending and be sure to record the amount you put into each envelope. For example, your envelopes could be labeled “Lunch $25,” “Fuel $75,” and “Goal $40.” Since you can’t accurately predict all your expenses, especially at first, keep an “Miscellaneous” envelope as well.
Note: Over time, you will learn what you need for each activity that requires spending. You will find that budgeting becomes a habit in a relatively short period.
At the end of the week, record the remaining amount in each envelope. You might have, for example, $5 left in the lunch envelope. You might have $12 left in the fuel envelope. You may need to use $10 from the miscellaneous envelope to cover an accidental overspend at the Target store. This is an easy way to track your cash spending. You’ll see your spending habits within broad categories without needing to detail every transaction.
Write It Down
Carry a small notebook and pen in your bag or pocket and record every transaction there. You can also log it in an app. What’s the benefit? You’ll seriously think about every expense. Recording each transaction makes you more aware of your spending habits at the moment you make the transaction.
What are the drawbacks? It can be considered a burden, and it’s easy to slack off or forget, and there’s no way to gather the data retroactively if you forget to record the expenses (unless you regularly keep receipts). You must be determined and committed to tracking your spending to make this work.
After
Considering all the mentioned ways, managing money is about personal preferences and finding a method that works for you and making it a priority by setting financial goals.
Setting Goals
When creating a budget and putting in the effort to stick to it, it can become difficult to continue tracking your spending or following the budget without a realistic goal for your budget. Your goal does not have to be a million dollars – goals should be achievable, such as building your emergency fund, planning a few vacations, covering educational expenses for children, or just ensuring that you have enough money to cover essential expenses.
Source: https://www.thebalancemoney.com/how-can-i-keep-track-of-my-spending-patterns-453691
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