What’s often interesting about being interested in personal finance is the realization that many people who aren’t so inclined view money and manage it very differently that we do. Actually, a great many of those folks, I believe, don’t even manage their money, per se.
For those that do, it’s generally expected that we have at least a working knowledge of our cash inflow and outflow. After all, it’s important for us to live within our means and make sure our income exceeds our expenses. If that equation is out of balance, we won’t be building net worth.
So back to that latter part of the equation. Do you track expenses?
I do, but I’ve done it differently over the years.
The Early Years
I actually tracked every single expense when younger. I mean, I spent about a year tracking every single thing. Every. Single. Thing. Even down to spending 25 cents at a parking meter, I recorded everything.
The approach, which seems now like it was from the stone ages but was probably advanced back in the day, was to write down on a notepad my expenses each day. Then, I would periodically transfer those expenses into Excel, in a preformatted spreadsheet with about 25 line items, and a column for each day. At the end of the month, I would have a sum total of all my expenses overall, as well as in each category. When looking at multiple months, I could then establish an average or baseline, and see how I was trending.
The net effect of this is that I was able to see my spending habits as they truly were, learn from the data and make adjustments, and then budget accordingly. I felt enlightened
The Later Years
After a while, I simply got sick of manually entering data into Excel, and recording each and every transaction. I realized that this was too much work, even though the information was valuable. Sometimes, we just have to make decisions based on tradeoffs, and mine was to stop tracking every single expense in that way.
What I ended up doing instead was simply “auditing” my expenses. In other words, what I did was select one month out of the year to track expenses. Then, I would get a general idea of where my money was going, and what habits were driving those expenses. At that point, I would simply make conscious decisions to adjust my spending throughout the year.
These days, I use Mint. At first, I liked my Excel-based approach, as it was customizable to how I liked to look at things. But as I mentioned before, it became too much to regularly track – so I simply did it one month out of the year. With tracking online, I thought I would be able to save my time through automation, while also getting a regular idea of what expenses have been.
That generally seems to be the case. It’s WAY easier to use something like Mint (or another platform) than manually tracking each item in a spreadsheet. Linking credit card activity allows transactions to automatically show up, and also be categorized.
Now, it’s not perfect. Categories aren’t always a perfect match for each expense, and cash expenses aren’t accounted for in how I track. That part I have to just estimate based on withdrawals, and perhaps allocate separately. However, by trying to make most expenses via a credit card, the bulk of the expenses are recorded.
What about You?
Do you track expenses? Why or why not?
If so, how do you accomplish this?