Tracking my expenses on a daily basis is the key activity that has ensured I stick to my financial freedom journey so far. It has eliminated all guesswork in my finances.
It’s a two-fold system that involves tracking my daily expenses and sticking to my budget. This is a system I’ve used for over a year which has been a source of happiness because it gives financial clarity.
Choosing not to track your expenses is choosing to lose control over your money. It’s deciding that it’s okay to keep living in a financial fantasy while also deciding not to give each dollar that you earn a job.
After writing about how to stop living from paycheck to paycheck last week, I decided to write a guide on how to track personal expenses.
How to track personal expenses for beginners
In last week’s article, I told the story of a friend who gave up on tracking their expenses on a daily basis after two days because he felt that it was too cumbersome.
To be honest, the initial stages of the process can be chaotic, which is why it’s hard to stick with it. But in the long run, it pays off. Isn’t this true for all good things in life anyway?
The best way to succeed in this is to not care about perfection. Forget perfection. Enjoy, trust the process and be open to learning along the way.
Step 1: Create budget categories on an excel spreadsheet
You could also do this in a notebook or word document. For the purpose of this article, we’ll use a spreadsheet.
Creating these budget categories will act as a guide that tells you what you should be spending your money on. If something is not in your budget category, then you should not be spending on it.
What we are trying to achieve is tracking your expenses for at least 3 months then do an average of each budget category. This average will be the final budget that you will work with moving forward.
This process will also show you if you’ve been living above your means which is how people end up living from paycheck to paycheck and in debt.
Step 2: Record your expenses
Next, any time you make a purchase, pay a bill or spend any money, record in a notebook, notes app in your phone or word document.
At this point, don’t worry about categorizing the purchases.
The only thing you need to ensure at this point is that it’s within the budget categories that you created.
Step 3: Have a monthly financial accountability meeting
At the end of month 1, have a financial accountability (or you can call it whichever fancy name you’d like) meeting with yourself to categorize all your purchases and record in the spreadsheet.
You can go out of your way to make it fancy by pouring yourself a glass of wine or juice, playing some soothing music or having your favourite snack. Make it special so that you communicate to your subconscious mind that it’s something fun!
Add up all expenses that fall under Groceries for example and put the total. Do the same for all your categories.
Also, do a total of your expenditures for the month and record it in the ‘total’ cell at the bottom of the sheet.
Feel free to change or rename categories. Remember that we’re learning while in the process so if you feel that a category doesn’t quite capture your lifestyle, change it.
For example, my monthly shopping is categorized into two: groceries/food and house supplies. I always want to know exactly how much I’m spending each month on each. This allows me to both control my expenses on the two and also make sure that I’m feeding myself with the best groceries I can afford.
Keep recording your expenses in month 2 and 3. At the end of each of the months, have the meeting.
If you’re keen enough, this process will also show you if you’re spending too much money on certain things while not allocating enough money in other categories.
Step 4: Make your final budget
You’ll do this by averaging each of the categories. For example add how much money you spent on Groceries in month 1, 2 and 3. Then divide this total by 3. Put this figure in the final budget column.
There you have it! That shows you how much money you need to spend on each category. It will also be your budget moving forward.
From experience, some of my clients get shocked by these numbers especially the total because they realize that they’ve been living above their means. If you find that your totals are higher than your monthly income, then you’ve also been living above your means.
You will need to work on cutting back on the categories or even fully eliminating some expenses such as clothing and footwear for a while. This could be until you start earning more money.
To do this, read my previous article on how to create a budget that works. It’s a great resource to get you to a level where you’re living within your means.
Related read: What I learnt from tracking my spending for a whole year
Best application to track expenses
I have tried out many apps designed for tracking personal expenses. A lot of them were either super complicated to use or didn’t have my local currency.
A friend introduced me to the Toshl Personal Finance App which is the best app to track your personal expenses.
It’s available in any currency.
There’s the paid version and the free version.
The paid version allows you to create more than two budget categories and set a budget for each. As you input your expenditure for each category within the month, it deducts from your set budget so you always know how much you have left in each category. You can also link all your bank accounts, including PayPal to the app which makes your bank reconciliations easy at the end of the month.
The budgets can also be set daily, weekly, monthly, or whichever custom period works for you. They even send notifications if there are any changes in your budget and you can also calculate your net worth!
Toshl Personal Finance App free version
Having said that, I’m a freebie girl. I use the free version because it gives me exactly what I was looking for in an app: the ability to record my expenses on the go!
Other benefits in the free version include expense graphs that give you a visual expenditure comparison between all your categories. This is helpful as it shows you where the biggest chunks of your money go on a monthly or daily basis.
The downside is that the free version only allows you to set two budget categories which are not enough. I supplement this with a google sheet.
Having the app is like having your financial advisor with you all the time, it’ll always tell you when you’re messing up.
How to track expenses in google sheets (I use Toshl App & Google Sheets)
At the end of the month, I usually have something like this:
I then open my Google sheets which has my budget categories (the cost of not paying for the Toshl app!)
I compare how much I spent (as displayed on the app) with my budget (from the Google sheets).
Google Sheets also has a Graph feature that you can use; it automatically graphs your expenditure to give you a visual representation of your monies.
I take note of any overspending that might have happened and make plans to reduce in the subsequent month. This is part of my monthly financial accountability meeting that I have with me, myself and I where I also audit my finances using the 11 customized questions that I shared here.
Tracking your monthly expenses is a hands-on process. It’s you taking responsibility for every coin that you earn and telling it where it should go. These jobs that we go to for 5 days (or sometimes more!) a week are gruesome, you want to make sure that you’re making progress towards your financial goals on a monthly basis.
It gets better with time. You want to get to a point where recording your expenses becomes an automatic habit. This will in turn help you to always rethink your expenses, which will help you keep it at a minimum.
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