Failing to keep track of your spending is one of the fastest routes to personal financial ruin. So it makes sense to find an easy way to track your spending, a method that doesn’t require too much effort so that you will persevere with it. Keeping a record of your spending goes hand-in-hand with having a personal or household budget, because only by comparing your budget and actual expenditure over a range of items can you manage your finances, rein in any overspending, and take control of your financial future. There are four basic methods available for working out and recording your spending, each one with its own merits and drawbacks. They are payment receipts, notebooks, cash withdrawal receipts and credit card statements.
1. Keep all your payment receipts
Keeping all your transaction receipts for later evaluation sounds easy. Large financial transactions always come with a receipt, even if it is just an electronically-generated number appearing on your computer screen when you pay your bills online. Small and medium transactions may or may not come with a receipt. The supermarket checkout always generates a receipt, whether you spend 99 cents or $99. However, the newspaper vendor is likely to think you have taken leave of your senses if you ask for one, and you may have to surrender your bus or train ticket, which are a kind of receipt, when you arrive at your destination.
Keeping receipts, and then sorting them into expenditure categories and adding them up at the end of the month, is useful for large amounts but impractical for the many small transactions that can quickly accumulate into a substantial sum. Even if you had receipts for everything, you would soon become buried in paperwork and give up.
2. Make detailed notes
Instead of disappearing under a pile of receipts, simply make a quick note every time you spend more than a few cents. Keep a small notebook for this purpose in your purse or pocket, listing amounts and categories, such as groceries or movie tickets. At the end of the month, total the amounts in each category so that you can compare actual expenditure with the amount you expected to spend according to your budget.
The disadvantage of this method is that it is easy to forget to make notes, and you have no total to balance against to act as a check on your figures.
3. Balance cash payments against cash withdrawal receipts
When you withdraw cash from your account using the automated cash dispensing machine at your bank, you will receive a receipt listing the amount withdrawn, usually on a small piece of card or paper. The reverse side of this receipt is usually blank, and offers you a perfect opportunity for recording how you spent the cash just withdrawn. Suppose you withdrew $200 from your account. On the back of the receipt, jot down the amounts (rounded to the nearest dollar) as you spend the cash.
By the time you are ready for the next withdrawal, the reverse of your card might read: Groceries $23, $11, $42; Coffees $2, $2, $3, $2; Train fares $5, $5, $5, $5; Lunches $4, $3, $5, $7; Beer $14, $8; Pizza $15; Gas $37. In fact this only adds up to $198, because you might forget something, and rounding creates minor discrepancies anyway. When you are totaling your expenses at the end of the month, allocate the extra $2 to ‘Miscellaneous’. It is not a significant amount. If there is a major omission, you will notice it and have an opportunity to recall where the cash went before it becomes a distant memory. You have successfully tracked your expenses, not on the back of an envelope, but on the back of your cash withdrawal receipt.
4. Use a credit card at every opportunity
By far the easiest way to track your spending is to get someone else to do the tracking for you. If you can trust yourself to use a credit card to make all the purchases you need to make, and no more, your expenses will be tracked on your credit card statement. As long as you avoid the temptation to go into debt and pay excessive interest on a credit card balance, a credit card is an excellent financial tool.
When your statement arrives, simply classify the amounts into categories such as ‘groceries’, ‘entertainment’, ‘car running expenses’, and arrive at a total for each category. Some credit card companies will even do the categorizing for you, and print the totals on your statement, so that all you need to do is compare the figures with your budget. Don’t be shy about using your credit card to make small payments: this is the way of the future.
All you need to do is to decide which one of the four methods best suits your expenditure pattern and lifestyle. If you make a number of large payments each month, and only a few small cash transactions, collecting receipts may work for you. For anyone with a large number of small transactions, a notebook detailing these purchases may be the way to go. Everyone else simply needs to choose between the cash withdrawal receipt or credit card method, or a combination of the two, to gain perfect control over recording personal spending.