How to Save Money by Tracking Your Spending

by heather

You wouldn’t think that a young couple with no children living in a small town could eat $1,500 a month in food. Seems impossible, right?

Sure. Even I would scoff at something so outrageous.

And yet, you’ll be shocked to know that’s exactly how much Andrew and I were spending on food when I finally started tracking our spending. I know; it hurts even to write it. But, I have no secrets here.

What’s worse is that I had NO CONCEPTION we were spending that much on food. If asked, I would have guessed $500, tops. But the first time I tracked our previous month’s spending it was triple that amount. I almost fell over.

What was more sobering was that up until that point, I hadn’t considered myself a big spender. At all. But because I’d never stopped and really looked at where my money was going, my habits were way out of line with my values.

I quickly found out the hard way that often, we’re spending way more than we think we are. If I had known we were dropping so much at the grocery store (buying food we didn’t eat) and the local sushi place (spending a fortune on meals that didn’t even provide us with leftovers) I would have put a stop to it. Immediately.

I’m embarrassed to tell you all that we were married over 9 years before I began tracking our spending. But, I do it now religiously, and it’s made a huge impact in our finances.

The reason why tracking your spending is so important is because, as the business-adage goes, “What gets measured, gets managed.” You can’t manage your money if you have no idea where it’s going.

Most people’s spending is out of control; meaning, they start the month with a certain amount, and by the end of the moth most, if not all, of it is gone. When asked, they could tell you where some of it went, but certainly not all of it.

How I Track My Spending

Although almost every financial guru out there will tell you how important it is to track your spending, they differ on how to do it. I’ll tell you my way, and then go over a few other methods you might find helpful.

It’s important to choose a way that works for you. I can’t say that enough. You might have to experiment with different methods until you find one that you don’t hate. Is tracking your spending fun? Well, to most people, no.

I don’t mind it, however. I like seeing where my money is going. And when I can trim something back that isn’t important to me, then I really feel like I’ve done something.

The Online Banking Method

This is the method I came up with on my own. I’m sure plenty other people do it this way too, but for me, this is the easiest one.

All I do is log on to my online banking account on the first of the month. I open up my account activity page, which details every single purchase I made the previous month. Because I don’t use any credit cards, everything I bought is in one handy place.

Next, I start dissecting it into categories on paper. I tally up all our grocery store purchases, all our eating out, all our gas, etc.

Here are some of the categories I use, based on our spending habits:

  • Groceries
  • Eating Out
  • Books
  • Coffee
  • Home Improvement
  • Fuel (for car)
  • Heat
  • Electric
  • Donations
  • Entertainment (Netflix)
  • Dogs

You get the picture. I keep it simple, which helps my sanity. Now, for the expenses that always stay the same (like the mortgage, my health insurance, cable/internet/tv package, I have those pre-totaled so I don’t have to add them up each month).

Next I simply tally up each category once I’ve gone through the whole month’s expenses, add in my fixed expenses total, and then I’m done.

Doing this each month has enabled me to save more money because I’ve been able to cut down on wasteful, impulse spending that I didn’t even realize I was doing. And what’s more important, I honestly don’t feel that our quality of life has suffered one bit from reigning in our spending. It’s actually quite liberating to know where your money is going.

An important caveat here is that I rarely use cash for anything. Every purchase is made with my debit card, because I get points (which, last time I cashed in, netted me a $100 gift card at Target). So, keeping track of cash expenses doesn’t apply to me. But most people do use cash, so if this is you then you’ll have to save receipts as if they were made of gold.

So, that’s what I do. Will this work for everyone? Of course not. Here are some other methods you can use to track your spending each month.

The Old Pen and Paper Method

Ok, I’ll admit that this one is the first one I tried when I decided to start tracking our spending.

All you do for this is get a notebook and log every purchase that you make; the date, the location, the amount, and what category you’d put it under.

Now, obviously this requires some serious discipline. You have to keep track of every receipt you get, every day, and remember to write it all down. At the end of the week, or month, you add it all up.

I lack the mental function to do this. I simply kept forgetting, which is why this method didn’t work for me. But, I’ve read about it working for plenty of people so don’t write it off just yet.

Using Software

Now, using software to track your spending is an entirely different ballgame. Because my online banking method works for me, I never took the leap into software like Quicken to track my finances. So, I don’t want to offer advice and say “yay” or “nay” on something I’ve never used.

I can offer you this: I’ve heard good reviews on some online tracking sites, like Wesabe. Kiplinger recommended them in May 2008, so it must be pretty good. I’d be interested to hear if any of you have used this online tool and, if so, what you think of it.

USA Today also has a link for a free budgeting tool in their “Financial Diet” series. You can use this to track your spending each month, or create a budget for how much you’d like to be spending in each category. It is an Excel Spreadsheet, and is laid out in an easy-to-follow format.

And, there are plenty of others out there. Most of them charge a fee for their service, so in the interest of saving money you might want to try a free alternative first. If writing it out in a “spending notebook” or tracking expenses through your bank account doesn’t work for you, then give Quicken or Wesabe a try. You never know; purchasing help might be just the catalyst you need to get started tracking your spending.


Nicole June 5, 2010 at 1:28 pm

I have to tell you that this article really saved me, the future of my finances, and possibly my marriage. We are severely struggling with money in this economy and living paycheck-to-paycheck is extremely stressful. Like you, I thought I knew where our money was going…wow, what an eye-opener it was when I logged onto my online banking to track our grocery, fast food, fuel, and entertainment expenses! We were spending probably five times more than what I had originally thought on fast food alone. I just wanted to say thank you for writing this article – tracking money is just something that is easy to forget about, but is necessary – thanks for opening my eyes!

heather June 7, 2010 at 11:26 am

Nicole, thanks so much for letting me know! Good luck with your efforts. I know it’s hard in the beginning, but frugality is like any other habit; the more you do it, the easier it gets. There are TONS of wonderful personal finance and frugality blogs out there, and a huge community of families just like yours who are on the same path. Keep us posted, and thanks so much for reading!

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