A simple way to track your spending

One of the key habits of financial success is living within your means and knowing how much you spend every paycheque, every month, or every year.  In one of my most popular articles on RetireHappy,  Different ways to track your spending, I talk about how important it is to know how much you spend and offer some different ways to track your spending:

  1. Write down everything you spend
  2. Use software
  3. Online tools
  4. Use a spreadsheet (Download Budgeting and Cashflow spreadsheets (3048))

While this may all seem so simple, why is it that so many people I meet do not know how much they spend with much accuracy.  Why aren’t people utilizing these simple strategies?  I think the biggest challenge people face isn’t desire but rather lack of time, passion, commitment and/or a catalyst to action.  If you think about it, implementation is always the toughest part.  What’s most interesting to me, is after re-reading that article, I realize that I personally don’t use any of those strategies myself anymore.  So what do I do to track spending?

Simplfy, simplify, simplify

Asset AllocationYou’ve probably heard that the key to buying real estate, is location, location, location.  In investing, may people will say the secret is diversification, diversification, diversification.  For me, my life mantra is simplify, simplify, simply.  I try to apply this mantra to all facets of my life and it’s no different when it comes to managing money.

So, when it comes to spending, I no longer have time to enter everything into a spreadsheet on a consistent basis (I used to). I can’t be bothered to write down everything I spend.  And I have never found a software program that works for me but I know people who like to use phone apps or programs like Mint or Quicken.  My real problem these days is my priorities have shifted because I have 4 active boys and being a dad takes up a lot of my time.  Between my boys and my business finding extra time is not easy to do.  I’m sure many of you can also relate to being too busy.

Spend everything on one credit card

When it comes to spending, my wife and I, spend everything on one single credit card (and we have been doing this for about 10 years).  This is a great way to track our spending because the monthly credit card statement is our tool to know how much money we spend in any given month.  Simplifying our spending has helped us in many ways.

For many people, spending happens in many different forms.  Sometimes people pay with cash, sometimes with debit and other times with various credit cards.  If you think about it, the more forms of spending anyone uses, the harder it is to track spending.  The only way to track spending is to aggregate spending data through a spreadsheet or software program.  Unfortunately, that requires precious time and energy which may be the reason so many people don’t do it.

Not only does spending on one credit card help us to track our spending, we also benefit in a couple of other ways:

  1. Obviously spending everything on one credit card also allows us to collect Air Miles and gets us a bunch of travel and merchandise rewards.
  2. The other benefit of using one credit card is that our credit card has an online system (Money Logics) that breaks our spending down into different categories.  (Just for interest, we use a BMO Air miles Mastercard.  I don’t claim it as the best card as I have not done much analysis on which credit card or rewards system is the the best.)

BMO Money Logics

It’s not for everyone.

Using a credit card for spending works really well for us but it’s not for everyone.  It’s important to disclose that we pay off our credit cards every month.  If you don’t pay off your credit cards every month, please do not use our system.  It can be very dangerous if you don’t have discipline or risk overspending.

Use what works best for you

My wife and I love our system to track spending because it’s simple, easy and works well for us.  The key in my mind is it’s simple and there are other ways to achieve that like simplifying your banking and just using one bank account.  Alternatively you could use a pure cash system to track spending.

As you can see, there are many different ways and approaches to track your spending. It matters less which approach you use because they all work.  The key is to find the system that works best for you and stick with it.  Do you have a system that you use?

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites Group Benefits Online and Advisor Think Box.

8 Responses to A simple way to track your spending

  1. I use the MINT banking app and it pulls it up in a type of graph which is super easy for me to use. It simply tracks everything from my cards connected to my bank. The only downside is it can’t keep track of cash flow.

  2. As you say the key is finding a system that works for you. At Money Coaches Canada we are also not big fans of tracking using a program or writing down everything you spend. Mostly because people are busy and they don’t do it. The real issue isn’t to find out where you money was spent, but to determine how you want and need to spend your money going forward. It’s all about knowing where you need and want your money to go and making sure you are living within your means while still keeping an eye on the future. We suggest a series of bank accounts that you can use like electronic envelopes to save for things like Clothes, Gifts, Travel etc, but also one for monthly spending for the things you tend to spend on fairly regularly like groceries, gas, dining out. The key is if there is money in the account you can spend it, but if its running low you better stop spending until the account is replenished again on payday. You can log in online everyday to see your balances. Whatever is left in your account you can spend or save for a future expenses. The only exception is the account for the Bills, that account is untouchable, and always holds enough money to cover all your fixed monthly bills or payments. For those that don’t like to track, this system works! And its motivating to see your Travel account build up so you can start planning for your next trip!

  3. How does your BMO Credit Card statement break down your payments into the categories? Just by the company name that you bought something at? Or do you have to apply the category once you import the data but prior to running the chart?

    • I’m not 100% sure but I suspect it is based on the name of the store and the category it belongs to. It is not 100% accurate. Every now and then it does not get the category right but I am not bothered by it.

  4. Great post Jim! Yes, simplifying things is key. I personally like to keep track. There are times when I have no time; and that’s when bank statement(s) become handy. 🙂

  5. I love to write everything down. I’ve tried Mint and my bank’s tracking system, but I like my system the best. I get a 12-month calendar (from the bank or a business) and write down all my expenses in red in the corresponding day e.g. in the July 21 box, I have $87 in red for Fortis BC bill. In blue ink, I have income under the same date ($720 UCCB lump sum payment) or my paycheque. Any income or expense gets written down this way, so that I can refer to it whenever I need to. I also keep track of all my grocery spending and record the monthly totals. This way I know exactly how much money I have and how much I need to cut back on. I’ve been doing this for years. It may seem time-consuming but it’s really fun and accurate!

  6. I have an all in one account and use a combination of Mint and the credit card. I have a no fee 2% cash back card (don’t get me started on earning minimal air miles to pay an inflated flight price!).
    The important part that is missing from the credit card advice is to SET A LIMIT! Determine what your monthly spending looks like and set the cc at that. Get a second card for ‘extraordinary’ expenses, things that are one-offs and not included in the budgeted amount. All of your extra money stays in your account, and you know when you are ‘declined’ you have reached your limit – you spend any more and you are going into what was meant for mortgage/savings/investing. That extra cash flow maximizes the amount I can ‘pre-pay’, saving me interest, and has helped me reach my goal faster.

  7. We have a simple method. I started it three plus years ago when we retired early. We determined a monthly after tax budget. We track the number monthly but are not particularly concerned about monthly variations. Some months we have high expenses attributable to prepaid travel etc. We do not include personal income tax installments/refunds. We do include offsets such as insurance payments for dental, eyeware etc. in this budget. We have been ‘on the number’ on an annual basis for the past three calendar years. We increased the number by 8 percent last month-reasonable after using the same number for 40 plus months-especially in view of the decline of the CAD (we travel extensively).

    How do we track it? Simple. It takes about five minutes each month. We simply review our bank statements and add up all bill payments, all cash withdrawals. We do this each month, then determine the month end balance carryforward amount. This can be negative or positive but our goal is always to balance at Dec. 31.

    Works for us. We typically shop for value so this macro level is better for us and much easier than tracking down to the micro level. Not for every one but it works for us.

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