Some say it’s too boring, others it’s too tedious, and others still that it’s too intimidating but I believe that tracking your spending – all of it – is a fundamentally important thing for everyone to do, regardless of your income or age.
The digitisation of money and the growth of e-commerce has made it easier and quicker for us to spend money without fully thinking it through or realising exactly what we’ve spent where, which is why tracking what you’ve spent is even more important.
One key point I want to cover off before going any further is that tracking your spending is not the same as having a budget. Tracking your spending is an awareness thing, you simply capture what you’ve spent, whereas a budget focuses on creating defined limits for different types of spending and staying within these. Whilst I believe many people would benefit from having a budget, in this piece I want to show why everyone should – at the very least – be tracking their spending.
Tracking your spending might lead you to creating a budget but it doesn’t have to. For me, it’s led to me creating ‘rough buckets’ but if I over-spend in one bucket one month then so be it, I don’t restrict my spending to a specific amount in each bucket. However simply by recording the expenditure I have found that I’ve reduced the amount I spend on needless items, more on this later.
Specifically, in this piece I will:
Explain the benefits of tracking your spending
Outline the best resources – free and paid for – which you can use to help stick with your spending tracking
Explain what I’m doing, and how I track my spending
Share the key things I’ve learnt from tracking my spending
Noting down your expenditure takes a few seconds each time, but it could save you thousands of pounds in the long term and give you back control to spend your hard-earned money more purposefully.
The Benefits
There are many potential benefits to tracking every penny you spend, the ones which are applicable to you will depend on your unique situation, however I want to share the 8 which I think are most common.
Gives you control – As I once heard the great Matt Mullenweg (Creator of WordPress) say, ‘You cannot change what you don’t measure’. Tracking your expenditure gives you control of your money and the power to take back the decision-making process.
It forces you to prioritise – Once you start tracking your spending you’ll soon realise if you are spending more than you earn each month, something you may not have realised before, if the delta wasn’t thousands of pounds. Knowing this will give you the data and desire to think about where you want to spend many and prioritise the things which matter most to you.
Help create the future you want – Following on from the previous point, too many people blindly go through life not knowing what they want to do or how to get to the position they want to be in financially. Tracking your spending will allow you to see how much you really need to earn to live the life you want. The hard part then becomes knowing what your perfect life looks like, unfortunately that is not something I can help with!
Help prevent fraudulent activity on your account – Despite the many benefits of digitisation of money, one of the drawbacks is the high level of fraud and the relative ease in which it can occur. Tracking your spending can’t stop you being a victim of fraud, however it can help you spot it more easily and ensure it doesn’t go undetected.
You’ll probably reduce your spending – Without even trying to, this is what I found. Because I didn’t want to see the guilt of adding that figure into the spreadsheet I’d sub-consciously ask myself ‘do I really need this?’ before the purchase, rather than after it.
Catch those small uncancelled subscriptions – You don’t notice your music buying habit when you see 99p leaving your account occasionally, but capturing all of these you are realising your spending £300 a year, do you really love all those songs? Would Spotify be a better option? Similarly, many of us have that online magazine subscription which we signed up to when it was free but 3 years later we are still paying £50 a year. If you don’t happen to check your balance within a couple of days of the direct debit coming out, you’ll miss it for yet another year.
Encourage forward planning – Knowing you’ve got to write down every figure will incentivise you to cut down how often you do the same things, instead of popping into the local supermarket four times a week, you’ll plan and do one big shop getting the things you need and cashing in on deals.
Help your relationship – Many surveys over the years have shown that the leading cause of relationship stress is not kids or affairs but money. Tracking your spending allows you both to sit down and have an adult conversation about where your money is going, agree the priorities and hopefully prevent arguing.
These are the main 8 benefits I see, not all will be relevant to you, but I’m sure most will resonate.
Best Spending Tracking Resources
Mint – It’s arguably the biggest player in the tracking of spending and budgeting arena. It’s an all-in-one resource for money management provided by Intuit. Once you’ve synced all your bank accounts, monthly bills, credit cards etc into the mint app you get a snapshot of your net worth in one place. Once set up, your spending is categorised and calculations made about your average monthly spending for each, i.e. your budget. The push notifications are very good for letting you now when your over-budget and the graphs and charts make understanding where you are and how you’re doing very easy. It’s also 100% free.
Penny – If you are looking to embrace AI this is the app for you. If you are concerned about AI or robots taking your job I’d suggest you read my post here. Again, you must link all of your accounts, so everything is in one place, but once configured Penny, the AI chatbot, will answer questions you ask about your money. Not only will she answer your queries with charts or graphs she’ll also give you information about spending each day and if any of your subscriptions are increasing their rates. Penny is free, although there is a paid membership available called Penny+
YNAB – This was the first budgeting app I came across, although technically, it’s a desktop application that has an app side-kick. This is more involved than the previous two because to follow the process fully you should spend your first few months building up savings in your current account to remove the risk of going over-drawn, i.e. using the money you have, rather than the income you expect to earn in the future. You Need a Budget (YNAB) has more flexibility than the others I’ve mentioned so far, there is no over-spending as you can move money to different pots on different months depending on changing needs. This is also a lot more than just a budgeting application, there are free workshops, written guides, weekly newsletters as well as YouTube videos to help you pick things up quicker and stick to it. All of this does come at a cost, ~£3.50 a month or £35 a year with a 34-day free trial. If you like the concept but don’t want to spend money, check out the free version of Goodbudget, it follows the same ‘envelope’ approach.
OnTrees – Yet another service that allows you to view all your bank accounts in one place, through the app or desktop version. Whereas YNAB tries to get you planning ahead and noting where every pound goes, OnTrees focuses on where you’ve already spent your money, therefore it is more of a spending tracker app than a budgeting one. It was brought by MoneySuperMarket in 2014 and is free to use.
Your Own Way – There are so many different applications and software available, but I don’t use any of them, I do my own tracking with simple Excel, more on that later. The key point I’m trying to make is this: Use the tools that work best for you, those that will make it easy to track and not too complex that you’ll only do it for a day or two, the key is sustaining the habit.
How I Do It…
My tracking started when I created a master Excel with all the meaningful ‘buckets’ of different types of expenses I make. It took a month or so to ensure everything had its right place, but I now have ~20 spending buckets, which cover everything, e.g. Rent/Mortgage, Groceries, Transport, Eating Out, Drinking Out, Utilities, Presents, Drinks etc.
Now it’s created I just need to cover how to populate it. As I always have my phone with me I simply have a note on my I-phone called ‘spending tracker’ and every time I make a purchase I log it in there. Then once or twice a week I spend 10 minutes or so updating these into my Master ‘Buckets’ Excel tracker.
This might be slightly more time consuming than one of the apps I’ve highlighted above but it works for me and is so simple. I’m not looking to do lots of analysis, I just want a simple and easy way to capture and store the data.
Once the process is set up the final stage is setting up the routine to keep doing it. This is also where the simplicity of my method is important, historically when I’ve tried to track my spending I’ve not kept the habit up because it was too onerous or too complex. The simpler the process, the more likely the habit will stick.
What I’ve learned…
The first, and most important, thing I’ve learned from tracking my spending over the last ~14 months is that on the whole I had a good understanding on what I was spending my money on. I’m really happy that the rough numbers I jotted down against each ‘bucket’ before I started tracking aligned with the actual spend.
Although not everything was as I expected, here are a couple of things that came as a surprise:
Amount of money spent on holidays – I quite significantly underestimated how much I was spending on my holidays. The main reason for this, I see in hindsight, is that holiday spending is usually split over a period of 3 or 4 months therefore you don’t appreciate what the total cost is. If you are like me you’ll pay for your flights months in advance, then perhaps the next month sort accommodation, then you’ve got spending in the month of travel and finally the month after you pay the credit card bill, when split up the amounts don’t seem too bad, but cumulatively it’s a lot of money!
Socialising spending was lower – I always used to feel guilty that I was spending too much money on alcohol when out seeing friends. The numbers suggest I shouldn’t feel so bad, clearly the guilt stuck in my mind more than I realised.
Needed to better handle the money I had at the end of the month – I’ve always been good at ‘paying myself first’, on the day my salary is paid into my current account I have direct debits which take the necessary money out to my saving accounts, which is great. However, I wasn’t optimising my handling of any money left over at the end of the month. Now that I have a better idea how much will be left over in my current account each month I can plan better how to use that money instead of having it sit in my current account not earning any interest. If you looking for more guidance on how to invest extra money check the articles I’ve written here.
As you can see on the whole I was really pleased when I saw that what I thought I was spending aligned well with what I was actually spending, however there is one big thing I haven’t touched on yet…. How much actively tracking my spending impacted my actual spending decisions?
I cannot say with any certainty that when buying lunch towards the end of the month I subconsciously choose the cheaper options because I knew I was reaching my jotted down ‘lunch bucket’ or that I suggested friends come around to my place for some beers instead of a pub in central London.
The point is it doesn’t matter, if I wasn’t subconsciously impacted then so be it, but if I was then it’s a win-win, I changed my behaviour in a positive way without it taking any will power or effort. I am a massive fan of Behavioural Economics and this ‘nudge’ principle is one of the core tenants, if you’d like more information on Behavioural Economics I’d suggest you read this.
Conclusion
The overall aim of this piece has been two-fold:
Highlight the difference between tracking your spending vs. budgeting, and that the former is very easy – with many different resources – and rewarding
Show you tangible results you can see from tracking and what I’ve learned
Money is such an important part of modern day life, not because you should want to have as much as possible, but because to be able to do more of the things you love in life, you’ll need money – even if your favourite things are cheap. Tracking your expenditure gives you control of your money and puts you in the diving seat, instead of simply trudging on month after month, blindly moving randomly, not steadily progressing towards the future and life you truly want.
