CPA Personal Financial Management

Importance of Keeping Track of Your Expenses

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There is a popular saying that “the easiest way of becoming bankrupt is by not paying attention to your expenses.” There is nothing that captures the importance of keeping track of your expenses better than that saying.

The responsibility of taking care of our own finances doesn’t happen when you start earning from your job, it starts much earlier; for some when they get to college and for others even earlier. If you don’t learn how to manage your finances earlier in life, you may find it more difficult to adopt proper monetary habits later when you begin to earn from your employment or business.

In life, if you are continually in debt, it means you do not pay enough attention to how you spend your money. It’s important to monitor spending so as to avoid falling into a nasty financial situation.

People purchase many things over the course of a month. It may just be a packet of gum, a newspaper, an ice cream, or even clothing and household items. At the end of the month, when you evaluate your purchases, you may discover you’ve made more than 50 purchases just in one month.

At that rate if you do not track your expenses, it’s easy to go overboard, beyond your income.

Why Track Your Spending

Being aware of our spending habits is the best way of utilizing our money. When you know how much money you spend, it’s easy to balance your income with your spending and even save for the future.

If you operate a budget; (daily, monthly or even annual), the best way of ensuring that your spending is within the budget is by tracking your spending. When you track your spending, you know where your money goes and you can ensure that your money is used wisely.

Tracking your expenditures also allows you to understand why you’re in debt and how you got there. This will then help you design a befitting strategy of getting out of debt.

Ways of Keeping Track of Your Expenses

There are several ways to keep track of your expenditures. And even those ways may not be identical, as people tend to adopt systems and personalize them to suit their interests and needs. Some of these include:

  • The Paper Trail

This is one of the most basic methods. Tracking your spending by paper requires diligence in writing down every transaction immediately after the transaction is done.

The advantage of this method is that it enables you to make comparisons with your credit card statement to ensure that your purchases match the credit card records. It’s also easy to track how much you’ve spent in a month by simply totaling the amounts you have in your paper trail.

The only problem with this method is that it’s demanding and you may be unable to diligently record each purchase you make.

  • Using Credit Card Statements

Using your credit or debit card statements allows you to employ the advantage of technology and saves you the stressful diligence of writing down every purchase. At the end of the month you’d use your credit or debit card statement to track your expenditure.

But this method isn’t complete because it doesn’t capture the cash purchases you may periodically make.

  • Online Services

There are various online services that enable you to track your expenses online. These methods are becoming popular because they maximize the use of technology. Instead of using the paper trail that demands you to write down every transaction, or use the credit and debit card approach that would require you to total up your expenses at the end of the month, all you’ll need is a software to do the work for you.

In short, when you track their expenses, you experience freedom in spending while avoiding the fear of debt. Tracking of expenses ensures that your financial life is manageable and within means.

A great free tool to manage your expenses is Mint.Com

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On November 26, 2014
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