Friday, July 6, 2012

Tracking Expenses in 5 Simple Steps

Tracking expenses may be one of the most important, if not the most important aspect in organizing and getting a handle upon personal finances. It’s crucial to numerous facets of personal finance planning and preparation.

I started tracking my own personal expenses in college and have continued to do so to this day. It has assisted me in all sorts of ways when it comes to saving money and making my dollars go further.

Here is how I track my expenses in five simple steps.

Step #1 – Selecting a Method
I’ve never found that tracking expenses needs to be something that is made overly-complicated. Doing so can just make it something that seems more trouble than it’s worth.

Initially, I tracked my expenses in college in a notebook, on a single sheet of paper. Eventually, I moved my tracking into an expense ledger, and later still onto a spreadsheet, but in all cases, it was done in a method that was most conducive to actually doing it and that made it as simple for me as possible.

Step #2 – Making it Consistent
Tracking expenses is one of those things that is typically most beneficial when you make it consistent. Tracking only certain expenses or at certain times can provide some input on where money is going, but it might not show the whole picture.
I’ve tracked every penny, every day for the last 15 years, and it’s amazing the amount of information I’ve been able to pull from this spending history. Staying consistent with my tracking has also allowed me to make it habitual, which takes some of the work out of the process.

Step #3 – Pooling Data
With a consistent flow of information coming from my expense tracking, I can begin to pool data from its stream of information. From how much I spend in certain expense categories such as food, housing, clothing, entertainment, transportation, etc., to seasonal spending trends (summer vs. winter, holiday season vs. the rest of winter), and year-over-year comparisons, I can begin to sort my data into various sets in order to take away the information that is most valuable to my financial life.

Step #4 – Pulling Data
I can then use the information I derive from my expense tracking to develop my own personal inflation rate, set budgets, plan for retirement, find expenses to cut, and apply this data to all sorts of other valuable financial purposes. Having consistent spending reports available is a great safety net when I find it necessary to look back at spending trends, review how changes of location, family or lifestyle have impacted my spending, and break spending trends down based upon expense category.

Step #5 – Making Adjustments
Over time of course, the education with which my expense tracking has provided me has helped me make adjustments not only to how I track and gauge these expenses, but to my spending itself. I use the foundation of my expense tracking to branch out into sub- expense category tracking when it comes to things like utilities, homeownership costs, and moving expenses. These offshoots of my overall expense categories provide me with the opportunity to delve deeper into my spending and begin to pick out ways in which to reduce or enhance it.


  1. I know you don't believe in credit cards, but I love my annual summaries. They track most of my spending and I can dump them onto a spreadsheet with a button.

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  3. It's not necessarily that I don't believe in credit cards, but like guns, they can be dangerous when in the wrong hands or used in the wrong way.

    I'm sure that the credit card annual summaries are a great convenience, but as a "cash man" myself, I have to do a little extra leg work for my expense tracking.