Any time you are looking to make meaningful changes in any aspect of your life, there are steps you have to go through. With goal setting, dieting, exercising, and financial maintenance, you have to take deliberate, thoughtful steps to make changes and get results. Any changes you want to make starts with figuring out WHAT you want to change and WHY you want to change it. If you are talking about a new diet, the first think you should consider is what you are changing (decreasing sugar intake, for example) and why you want to change (maybe you are trying to lose weight or maybe you have a health issue you are trying to gain control of). The next step is to figure out what you want your end point to be. What is your goal? Is it to lose a certain amount of weight, gain a certain amount of muscle, or meet a health criteria? This should be something measurable that you can see and be realistic that you can actually attain. Once you establish WHAT and WHY, then you should start thinking about HOW. The “how” are the steps you need to take to reach the goals you have set for yourself. (To learn more about goal setting, check out Goal Setting Part 1 and Goal Setting Part 2).
When you are starting on a path to financial wellness, you should follow the same steps as you would if it were a diet. First, you need to WANT to make a real change. You need to figure out WHAT you want to change and WHY you want to change it. For example, your WHAT could be that you want to be debt free and your WHY is to help you ease the stress your bills cause you. In order to make any actual change, you need to know what debts you have, how much they are, and what your interests rates are. This can be overwhelming, especially once you add them all up.
So, you have established that your end point or goal is to be debt free. So what steps can you take to meet this goal? This is where tracking your expenses comes into play.
Just like tracking your sugar intake throughout the day if your goal is to decrease your sugar, you have to track your money in order to make the changes you need to make to decrease your debt (Read here to see a few different methods of Tracking Expenses). It is all too convenient these days to use our debit card without thinking or to push Pay Now on our Amazon, without even taking our card out of our wallets. This is a nice feature, but it is also dangerous when it comes to our financial health. Often we do not know exactly how much is in our account at any given time, but we probably have an idea if we have enough for certain purchases. If you are trying to gain control of your money and you have a goal of paying down debt, it is important to know how much you have and how much you spend at any given time.
Tracking your expenses can be a dubious task. It is boring and time consuming and no one wants to do it. But, if you have a goal in mind, then you will start to realize how important it is to keep a detailed record of where your money is going. Just like keeping track of what you are eating in a day can help you be accountable about what you are eating and make you think twice about that extra piece of candy throughout the day, tracking your money can help you see where you need to cut back with your purchases. If you are someone who does a lot of impulsive buying, never uses a list, and eats out often, tracking your purchases will allow you to see where your money is actually going. While there is nothing inherently wrong with any of these things, if you are low on cash and have debts that you aren’t sure how to pay off, looking at your list of purchases can help you see where you might be able to cut back.
Here is how I use my expense tracker to help me create a budget and to make sure I am meeting the budget I created.
- Create a monthly budget (See Budgeting Basics). I will estimate my income for the month and create a list of my bills first, then any extra purchases I anticipate making. You may, for example, say that you will spend $100 on gas for the month, $150 on groceries, $50 on eating out, and $100 on personal care. My main goal is to make sure that my list of anticipated expenses does not exceed my expected income.
- As the month goes on, track my expenses. There are several ways to do this (Apps, Excel, transaction registers, or just a piece of paper) but the point is to do this often. You might choose to save receipts every day and then enter them into your preferred method of keeping track every day or you might want to write them down immediately when the purchase is made.
- Double check with your bank account. Although it might seem just as easy to look at your account and write down the amount once it is already posted, this could cause problems of their own. First, some transactions can take several days to be posted to your account, which can lead to you thinking you have more in your account than you actually do. Second, a company may accidentally double charge you or charge you the wrong amount. If this happens, your receipt is the proof of what your charge should actually be if you need to dispute something. So, keep track first and then check off what is cleared by your bank as it posts.
- Create categories. On my expense tracker (CLICK HERE FOR YOUR FREE PRINTABLE EXPENSE TRACKER), I have a column specifically for creating categories of each purchase or expense. My categories include groceries, gas, medical, personal, and miscellaneous. I try to write in the category when I write it in my tracker. If you do not have a column for categories, you can easily write them down as you go, or at the end of the month, use different colored highlighters for each category. Whatever you do, it is important to be able to see your categories.
- At the end of the month, add it all up. I created my own form to do a monthly wrap up of my finances to help me analyze what I have earned and what I have spent. I add up each category and keep track of the total of each, add them all up with all my bills and get a complete total of what was spent for the month. I then subtract that from my actual income and see how it compares to what I had budgeted for.
- Analyze. Let’s say I went over budget in several different categories. I can see that I have overspent, I can easily see that maybe I spent more than I brought in for the month, and I can see that I don’t have enough extra money left over to pay down any debt (which is my main goal). Now I have decisions to make. Is there a way to add additional income every month? Usually, this is an easy no for me. So now I look at my categories. Is there a way I can spend less in any (or several) of the categories? Can I eat out less? Can I spend less on my personal care? Are there items I don’t want to give up? It is perfectly okay to want to keep up with your hair appointments, even if you have debt. The secret is going to be to make a list of priorities for yourself and be real about what you are willing to give up. Just like with your diet, you may WANT to keep eating candy bars, but if your goal is to reduce your sugar intake, then you have to make sacrifices to reach that goal.
- Create a new budget. Using the information that we have analyzed, next month’s budget can be a little more streamlined and can reflect the changes you want to make. Now, when you are tracking, you can keep an eye on if you are under budget and make thoughtful decisions about your purchases.(CLICK HERE FOR YOUR FREE MONTHLY BUDGET WORKSHEET)
Tracking your expenses is tedious, but so is anything we are working toward changing. Keep your goals in mind and keep paying off little by little, making small changes to your budget as needed, and you will reach those goals. It may not be a quick process or an easy journey, but it will be worth it in the end.
Remember to follow me on Instagram, Facebook, and Pinterest at Being Grown Up. Look for my podcasts on Anchor.fm/kim-stamler Like and comment down below and let me know what financial goals you are creating for yourself. XOXO