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How often do you track your expenses? Do you do it monthly, weekly, daily, or when the mood strikes? Maybe you don’t track your spending at all. Opening up a spreadsheet or budgeting app and then entering all your transactions on a daily basis might sound like torture.
But the benefits of tracking your expenses far outweigh ignoring your spending.
Why Is It Important to Keep Track of Your Expenses?
It’s important to keep track of your expenses so you know where your money goes. You can then start ensuring that you’re spending your money wisely. When you track your spending, you can cut out bad spending habits, create and stick to a budget, and make sure you’re putting money toward your goals.
Let’s look at the reasons why you should track your expenses. Here are 11 ways tracking your spending improves your personal finances and your life:
1. Puts You Back in Control
It’s a terrible feeling not knowing where your money goes. You wonder how it came to be that you work hard, yet you don’t have enough cash to afford a cheeseburger until the next payday. You feel lost and out of control when it comes to your personal finances.
I’ve been there. And I don’t ever want to go back to that place.
You have to take control. No one is going to stop you from spending all your money. Friends, family, and businesses, directly and indirectly, encourage it. You’re in charge of your financial decisions. The only one who can make sure you don’t wind up broke, unable to retire, and wondering how it all happened is you.
Taking back control starts with tracking your expenses.
2. Identifies Budget Categories to Reevaluate
What percentage of your net income is spent on housing, food, and transportation? How much money do you save for a rainy day every month? What about your discretionary spending?
The answers to these questions can easily be found by tracking your expenses. Once you know how much you spend and for what, you can see where you can cut or eliminate some spending. You can usually find a few things to stop buying to save money.
After seeing the numbers, you might decide to reduce your housing costs, drive a more affordable car, or set a food budget which will make an immediate and lasting impact.
3. Shows You Your Bad Spending Habits
When you start tracking your expenses, certain patterns, habits, and spending triggers emerge that you might be unaware of. You might unearth unused subscriptions or small everyday expenses you can easily eliminate, like that daily latte.
For example, it wasn’t until I started tracking my expenses that I realized I was spending over $40 a week in gas stations and convenience stores, buying drinks, snacks, gum, and other unnecessary stuff.
I was embarrassed enough to cut it out completely. It’s not a ton of cash, but it looks better going into my emergency fund rather than going toward beef jerky and gummy bears. Tracking your spending helps you eliminate bad money habits and make more financially sound decisions.
4. Keeps You From Overspending
What you think you spend on certain things and what you actually spend could be miles apart. You’ll never know it if you’re not tracking spending.
For example, my family was spending hundreds more on food than we thought we were. It was shocking to see, but the numbers weren’t lying. We immediately started figuring out ways to reduce our grocery spending and committed to doing so.
5. Helps You Avoid Debt
If you have student loans, a car payment, and carry credit card debt, seeing how much you pay creditors monthly is illuminating. You can drill down even further by examining your credit card statements and determining how much of your monthly debt payments go toward interest and other fees.
You’ll be inspired to focus on getting out of debt as quickly as possible. You’ll also be discouraged from taking on any new debt.
6. Helps You Cut Out Impulse Spending
Keeping track of spending causes you to think before you spend. If you know how much you’ve spent and on what, you’ll be less inclined to purchase something on a whim. When I’m reviewing my receipts and logging my expenses, I know I don’t want to see hundreds of dollars going out the door for mindless spending on impulse purchases every month.
7. Keeps You Focused on Your Goals
You have to track your spending to reach any financial goal. My main excuse for not getting started with investing a lot sooner was I didn’t have enough money.
The truth was a little different. I didn’t need to get a raise or earn extra money before I could start focusing on the future. I had enough money, but I wasn’t managing it well.
Tracking your spending will help you ensure you’re spending money on your priorities and putting money toward your financial goals, which could include getting out of debt, building your emergency fund, starting an aggressive savings plan, or investing for the future.
8. Reduces Stress
Not knowing where your money goes causes stress. Not being 100% sure you have enough money in the bank to cover all your bills is stressful, and stress is known to cause all sorts of serious health problems.
So, it stands to reason that if money is a major stressor for you, managing your money more effectively could lower your stress level, eliminate your money anxiety, and improve your health. Tracking your monthly expenses is one of the foundations of better money management.
9. Improves Your Relationship
Early on in our marriage, my wife and I didn’t track our spending, think about budgets, or have any idea what our financial picture looked like. We didn’t have a considerable income discrepancy between us, so we split expenses down the middle. We reckoned that since we both worked and neither of us had extravagant tastes, we didn’t need a monthly plan, and money would just work itself out.
That approach proved to be a colossal mistake when life threw us a few curveballs.
Once we started tracking expenses, we were able to get on the same page about our finances and see the big picture. We talked everything out and started making our spending decisions together. We set short-term and long-term goals, we started budgeting, and we embraced frugal living.
We reached new levels of communication and teamwork. The couple that budgets together stays together. And it starts with expense tracking.
10. Ensures You Catch Fraudulent Transactions in Time
I logged into my bank account one morning and saw a large pending transaction from Best Buy I didn’t recognize. I caught it before my bank’s fraud department did. I don’t know if they ever would have, either, since I’m no stranger to electronics stores and have purchased from the Best Buy website before.
If I had not checked my expenses every day, I might not have discovered the problem until it was too late.
Imagine your debit card gets declined at the grocery store, or your rent check bounces. Now, you’re on the hook for late payment fees and returned check fees. Your bank account is wiped out until you go through the process of getting it restored and having new cards issued.
Finding out your account was compromised when it’s too late, and you’re bouncing payments all over town is the worst way to find out. Track your expenses for no other reason than to protect yourself from fraudulent charges. If you haven’t logged into your bank in months, make it a daily habit starting today.
11. Gives You a Sense of Accomplishment
If you’ve been struggling, finally understanding where your money goes and coming up with a plan to spend it wisely is a huge win. It’s an achievement that will make you feel more confident about the future and help you sleep better at night.
I don’t know about you, but I could always use an extra shot of self-esteem once in a while. Keeping track of expenses and avoiding financial trouble can give us that.
Start Realizing the Benefits of Tracking Your Expenses
Logging in to your bank’s website and scrolling through your bank statements once in a blue moon is not a good way to manage your personal finances. You need a better approach.
The benefits of tracking your expenses, as opposed to ignoring how much you spend and what is potentially life-changing, are as follows: But as important as tracking your spending is, it’s really just the first step.
What you do after you’ve started tracking your expenses matters more. You might make drastic life changes. Or you might just come up with a solid financial plan and a meaningful budget you can stick to.
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