While the idea of tracking your spending may not always seem appealing, knowing how much money you have and where it’s being spent is important for a variety of reasons. In addition to helping you know whether you can afford something, like a new car or a vacation, this knowledge can also help you reorganize your finances to ensure that you can afford your priorities. It’s incredibly easy to overspend when you don’t track your finances, and it can be even easier to forget to make a payment.
How to start tracking your finances
There are many ways you can start tracking your finances, but they all begin with creating a budget. By listing out your recurring bills and expenses, you’ll be able to project your spending and compare it to your income. To create your budget, you can use tools that vary from a simple organizer to sophisticated budgeting software—it all depends on your preferred method of organization. Some free tools you can use to track your home finances include:
- Spreadsheets: By using a spreadsheet (Microsoft Excel or Google Sheets), you can utilize formulas that simplify tracking.
- Worksheets: Most worksheets include recommended categories and percentages to assist with budget creation, and some are free online.
- Envelopes: Using a cash envelope system for expenses provides a highly visual way to stay on track.
- Banking tools: Your bank may offer tools on its website to categorize spending and track expenses.
What to include when you track
If you’re creating a budget for the first time, you need to know what to include. Start by making a list of your recurring monthly expenses—your rent or mortgage, student loan, car payment, car insurance, credit card payments, etc. Think carefully to be sure you include all regular spending, including groceries, gas, gym memberships, music or movie subscriptions, and anything else that occurs every month.
Once you’ve listed out each expense, along with its estimated cost and due date (for fixed payments), you’ll have a clear picture of your spending. Your total monthly spending should not exceed your total monthly income, or you’ll start accumulating debt. If this is the case, start looking for areas in which you can reduce or eliminate spending. Debt caused by living beyond your means can add up quickly, so you need to make sure your lifestyle is affordable.
If your total monthly spending is less than your total monthly income, you have extra money that you can decide how to allocate. Whether you decide to save, invest, or spend this excess money elsewhere, try to make sure every cent is assigned to a category. It’s much easier to overspend or waste money when it isn’t being tracked.
Popular apps for home finances
To track everyday spending, you may find that an app can do most of the work for you. Most budgeting apps track spending from accounts linked by users, plus they can send notifications when you come close to overspending.
Both Investopedia and NerdWallet compiled lists of some of the best budgeting apps to try in 2021. Noted on both lists, the Honeydue app is a popular option for couples because it shows both sets of finances in one spot (though you can customize what is shared) and allows built-in communication for both people. Try downloading several apps to see which one is the best fit for you.
Other important things to track
Since your credit score, credit utilization ratio, and debt-to-income (DTI) ratio can all fluctuate, these are also important numbers to follow. Tracking your credit statistics can help you maintain a healthy financial status, plus you’ll be aware of sudden changes that could point to identity theft.
You should also track your credit cards—both secured and unsecured. A secured credit card is usually intended to help rebuild credit and requires a security deposit as collateral, in the event you cannot repay your debt. An unsecured credit card does not require collateral. For any type of credit card, it’s important to track your spending and make your payments on time. Tracking the amount of interest you may be paying each month can also provide further insight into your budget.
Certain credit cards offer reward programs that allow you to redeem accumulated points for cash, statement credit, gift cards, or other incentives. Just like real money, you should keep track of any points you accumulate or redeem. Receiving even a small amount of money back can make a difference to your finances, so be sure to take advantage!