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Piggy bank - Where Does Your Money Go?

Most articles you read about getting out of debt, controlling spending or saving for the future advise that you start with a budget. They may not all use the actual word, but the sentiment is clear: you’ll be lost without a plan. This is right, though there is a popular misconception about budgets that they are exclusively forward-looking. It is true that budgets act as road maps to your financial future, but you can’t know where you’re going if you don’t know where you’ve been. In other words, the most effective way to plan for your future starts with understanding your past.

Begin at the Beginning

As a lifelong procrastinator, I can tell you that the biggest roadblock to going forward is obsessing about where to begin. So I’ll make it easy: a starting point for tracking your expenses can be the start of any week. Sunday or Monday are both fine. It can also be the end of any week: Friday or Saturday. Wednesday is great, too, because you’re jumping right into the thick of things. Of course, Tuesday and Thursday are outstanding choices because they are so often overlooked and almost nothing exciting ever happens then. By now, you’ve no doubt figured out that any time you start is the perfect time.

There are two ways to track your spending. The more complicated way is after the fact, and that means getting receipts for everything you buy. I mean “everything,” and then categorizing and totaling what you spend. Or you can do it in real-time, which, back in the day, meant carrying around a notepad and writing everything down. Now, there’s an app for that. Actually, there are lots of apps for that!

Google It

Woman grocery shopping while looking at her phone - Where Does Your Money Go?

Apps and software come in all shapes and sizes, with varying numbers of bells and whistles that make choosing the best one a personal decision. There are some features you will want, starting with a simple interface. After all, if it’s easy to use, you are more likely to do so. The app should allow you to assign expenses to a category. It should remember merchants, so you don’t have to re-enter the information every time. Finally, it should allow for easy export to personal finance or budgeting software, or even a spreadsheet like in Microsoft Excel.

The key to successfully tracking your money is to leave no stone unturned. The best way to do that is to make tracking a habit. Whether you’re out and about or at the kitchen table paying bills, everything must be recorded. Making it a habit will help keep expenses large and small from slipping through the cracks. For example, if you buy a hot dog from a street vendor on your way home every day, it can add up to $500 a year. Add a morning cup of coffee and you’re over $1,000 a year. That means if your net income is $50,000 a year, coffee and hot dogs can account for 2% of your income. Is that really how you want to spend 2% of your income? So be sure to log everything to ensure your money is going where you want.

Rome Wasn’t Built in a Day

Close up of hand playing with building blocks - Where Does Your Money Go?

Gaining a complete and accurate picture of your spending takes time–at least a month or so before you can begin to translate your spending into a budget. Tracking your spending is not a one-and-done thing, though. To be effective, it has to be ongoing so it can account for seasonal as well as occasional major purchases. Everything you spend matters, and the longer you track your expenses the clearer the picture will be about where your money goes.

Photo credit: flickr, ©, ©

Frank Addessi Born and raised in the center of the known universe, Brooklyn NY, and currently hiding out in the bucolic hills of northeast Pennsylvania writing about personal finance. His expertise includes personal loans, credit cards and retirement. It's not easy living the American Dream but someone has to do it!
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