Do you know what you spend?

June 20th, 2011 Doug Benjamin
Do you know what you spend RS

Chances are, you probably know what you spend on your mortgage or rent, car payments and utilities. Most people know what they spend on the “big items,” but have no clue what they spend on the “little things.”

Here’s the thing. When people learn how much they actually spend on the “little things,” they are often amazed and even shocked.  You probably will be too.

That’s why it’s interesting, fun—and smart—to keep track of your daily spending. Keeping track of your daily spending gives you a clear picture of where your money goes, shows you lots of ways you can save money, and will make you a smarter consumer.

For example, let’s say you spend an average of $4.50 a day on coffee and soda pop—which is typical in today’s world. It doesn’t seem like you’re spending a whole lot every time you buy a coffee or pop, but when you add it all up, it would be about $135 every month!  Knowing this, you could decide to cut your spending on coffee and pop down to $1.50 per day. That would save you approximately $90 every month.  If you put that $90 a month into savings, you’d end up with $1080 in a year. That could mean a great vacation, a beautiful TV, lots of new clothes, or even better, a nice savings fund for better financial security.

Now that you see how insightful keeping track of your spending can be, let’s look at different ways to do it.

The low tech approach

Keeping track of your expenses isn’t a lot of work. It’s actually very simple. One easy way to do it is to carry a small notebook with you. Every time you spend even a tiny amount, write it down in the notebook, with a short description of what you spent the money on. Then, each week or month, add up your spending. One good approach is to create categories for your spending.  Here are a few examples:

  • Food
  • Snacks (coffee and pop!)
  • Gas
  • Parking
  • Entertainment
  • Home
  • Utilities
  • Cell Phone
  • Automobile
  • Health & Beauty
  • Clothing

Of course, you can create your own categories since everyone spends their money differently.  But the important thing is to see where your money is going, and be aware of which categories you feel you’re spending too much on.

The high tech approach

In today’s world of smart phones, laptops and iPads, you have a tremendous variety of apps and other software to help you keep track of your spending.

Many smart phone apps, for example, let you enter every expense, in whatever category you choose, and then add it all up for you automatically. Many of them even create pie charts and graphs to show how your money is being spent. Even better, since you probably have your smart phone with you at all times, it’s very easy and convenient to enter your spending.

If you prefer to use your laptop or tablet, they’re great tools too. Many people prefer to use laptops or tablets because of the bigger screens, which let you view the graphs, charts, and spending totals a bit easier. Keep in mind, though, that you’ll need to write down all your expenses as you make them, so that you can enter them in your laptop or tablet at a later time.

Either way, the high tech approach is interesting and engaging. It lets you see your spending in a whole new light, analyze it better, and maintain your complete history of spending.

The ultimate goal—creating a budget

Once you have a clear picture of how you spend your money, you can create one of the most important financial tools of all—a budget.

The best approach to creating your budget is to start with your monthly income. Then set up your categories for expenses—including fixed monthly expenses like mortgage and car payments, and variable monthly expenses such as coffee and pop! Other important categories, which you may not think of as expenses, should include savings, college funds, and investments.

The number one goal is to make sure your expenses do not exceed your income.

After you enter your average monthly expenses, then you can look over the categories that are discretionary spending (coffee and pop!), and find the areas where you’d like to spend less. Then begin changing your spending habits to better reflect where you really want your money to go.

Continue to keep track of your daily spending to make sure you’re making the changes you want.  By following this simple process, you’ll be happier about how you’re spending your money, and you’ll have a much better, more sensible understanding of your finances.

Doug Benjamin

About the author

Doug Benjamin is Senior Vice President at MidWestOne Bank. He works in the retail department, specializing in checking and savings accounts, consumer loans, auto loans and home equity loans.

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