When you are trying to stick to a personal budget or if you simply want to take charge of your finances, one of the crucial things that you should commit to is to keep track of your spending. Being able to do this does not require technical knowledge of accounting and financial management, but it is especially important if you are going to create and reach any long-term financial goals. There is no way you can do any kind of estate or retirement planning without understanding your current cash flow. Today, there are many tools available for you to choose from to help you monitor your spending habits so that you can make adjustments in order to stick to your budget and start building wealth.
What you need
Before making use of the tools that are available for you, you must have the following information on hand in order to arrive at a realistic approximate of how much you spend. Keep receipts for purchases that you make, whether by cash or credit card.
At the end of the day, make a record of small cash purchases that you did not get a receipt for like bus fare, snacks, coffee, etc. Make sure to diligently update your record of these small purchases because chances are you will forget them and you don’t realize how much impact this has on your budget when you compound them in a period of 30 days.
Keep a spending diary
So that you will not miss taking down any expense, you can try keeping a spending diary for a month and see if this works for you. You can have a small notebook that you can carry in your pocket to list down your daily expenses and where you can keep your receipts in. You can also use the notebook app in your smartphone to keep this information. The information that you have in your spending diary can later on be used to compare your actual spending against the amount that you have set in your budget.
The Envelope System
If you want to keep track of your spending and at the same time try to keep your spending within budget, you might want to try using the envelope system. After identifying how much you spend for each expense, you can put in money in envelopes and label them accordingly. Make an envelope for each expense and take out of the envelope assigned whenever you have any purchases or payments to be made. Mark one envelope as emergency fund to be used in case you have overspent on any expense or if you have any expense that is not included in your budget. The envelope system will let you know how much you have left to spend for each expense and will effectively help you stay within the budget that you have set for each.
Online tools
There are tools or applications that are available through your smartphone or online that can help you monitor your spending. They can automatically capture any transaction that you make using the accounts that you enter online. It also sorts these expenses into categories to give you an idea where most of your money is going. It is regularly updated to help you know where you currently are so that you can adjust accordingly. Online tools eliminates the need to keep receipts and is an effective way to keep track of your progress over time.