If you’re just getting started on your financial journey, you may think that creating a budget is the first step you should. However, the three of us truly believe that tracking your spending is actually the first step.
The truth is, you can’t create a realistic budget that you can stick to if you don’t know your numbers.
In fact, all of us started with tracking our spending before we ever attempted to create our first budget.
This week on the podcast we’re talking about how and why to start tracking your spending. Read on for more about why it’s important to track your spending and the show notes from this week’s episode.
Why You Should be Tracking Your Spending
As mentioned, tracking your spending should be the first step you take to get your finances in order. It should be done before you ever even start with budgeting.
Why? Because most of us don’t actually know where our money is going! So, how can you expect to create a budget and spending goals for different categories if you don’t know what you’ve been spending in that area already?
For example, you create a budget and decide to only spend $200 on groceries. But you can’t seem to stick to it for the life of you! It’s probably because you were spending much more than that on groceries before you started your budget.
In order to create a more realistic budget, you should keep track of what you spend on groceries, and everything else, for at least a month. This way you can see what “normal” looks like before you create a budget.
To get an even more accurate picture of your spending, try tracking your spending for 2-3 months to get an average. You can then use the average to create a realistic budget.
How to Start Tracking Your Spending
So, how can you get started tracking your spending? There are several different ways to go about it. How you track your spending may depend on how you spend your money currently, if you use cash or credit for most of your spending.
You can go old-school with a pen and paper to keep track of your spending. This can be especially effective if you spend cash and don’t usually get receipts. Keep it in your purse or wallet so you can write down your purchases right away.
Another idea is to create and use a spreadsheet. You can input you receipts from cash spending and spending with credit/debit cards. The spreadsheet could have several categories, similar to what you’d use in a budget, to help you add it all up at the end of the month.
Online tools and apps are another popular way to track your spending. You can use a system like Mint or Personal Capital to pull in and categorize transactions from your bank account or credit cards. Then you can manually add transactions for cash spending or make other adjustments as needed.
The key is to find what works for you and use it!
In This Episode We Discuss:
- 1:15 – How did you start getting your finances in order? Did you start with budgeting or tracking your spending?
- 7:20 – How payment types (cash, credit) affect tracking your spending
- 21:50 – Did tracking lessen or increase your stress level?
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