Do you track your daily expenses? Do you keep records of your spending?
If not, then you’re not the only one. For many, the prospect of opening their bank account and tracking each transaction into a personal budget sounds like the most stressful and meaningless job in the world. But what if you know there are several benefits to tracking your expenses?
You can track expenses manually by writing down any purchase you make. To ease the process, you can use the expense tracker apps to connect your credit cards and bank accounts.
Here are the number of benefits of tracking your expenses. Before that, first, know why should you track your expenses.
Why Should You Track Your Expenses?
The main reason for tracking your expenses is to control your finance. You take complete control of your finances while tracking your spending. Other than that, there are several other reasons for expense tracking. Some of them include:
10 Reasons Why You Should Track Your Expenses
- Helps to maintain complete control over your finance.
- Tracking expenses keep you accountable for your financial goals.
- Keeps you motivated on the way of your financial progress.
- Keeps your finances stay organized.
- Tracking spending improves your financial security.
- Reducing your financial stress and keeping you stress-free.
- Provides more options to save more money.
- Helps to reduce impulse spending habits.
- Keeps you away from creating a debt situation.
- Helps to stay focused and financially happy.
What are The Benefits of Tracking your Expenses
Tracking your monthly expenses keeps you responsible for your finances in a few main ways.
1. It Helps You Stay Within Budget
When creating a budget, a monthly spending strategy that considers your income and expenses, tracking the everyday expense is necessary to keep you on that budget. If you don’t keep track of your finances, you won’t know when to stop spending money on food, clothing, etc.
At the end of each month, you review your expenses and track them to compare what you’ve spent versus what you expect on your budget. Cut your expenses into a certain category if you are overspending. You can save money each month and reduce your debts if you spend too little.
A budget is a dynamic process that seems to evolve and change to match your needs and wants. Knowing that you are regularly overspending or underspending in one category of expense in your budget will help you decide if you need to make cuts or changes in that category for the budget for next month.
2. Tracking Your Expenses Shows Your Bad Spending Habits
Another important benefit of tracking your expenses is identifying your spending each month which makes you more aware of your spending habits. If you don’t know where your money is going, you can’t understand the impact of bad spending habits that you can quickly change and make your money work for you.
Tracking your expenses can also help you identify significant problems with managing your financial resources.
For example, as you track your expenses over months or even years, you might notice that your annual, monthly rent is an outsized percentage of your monthly income or that you don’t earn enough to lead the lifestyle you’ve imagined. You might need to make more drastic changes in your life, such as moving to a more affordable residence or getting a second job to earn more money to correct problems like these.
“True wealth is created when you spend less than you earn, and to do so, you need to be aware of your spending and cut or reduce expenses that ruin your budget.”
3. It Helps You Achieve Your Financial Goals
Sticking to your budget isn’t enough if you don’t take steps toward saving for your financial goals. Expense tracking is essential whether you set a financial plan, build an emergency fund, pay down debt, set aside retirement money, or save for college, vacation, or other short-term goals.
You are more likely to achieve those goals if you budget for them, create a savings plan, and then track your spending to ensure it matches your priorities.
For example, if paying off high-interest debt is your highest priority, include debt repayment as a fixed expense in your budget. Contribute the budgeted monthly sum to that debt, and then track your expenses to ensure you have paid down as much debt as you had expected. When you pay it off, focus on other goals you couldn’t finance when in debt, such as retirement savings.
4. Expense Tracking Differentiates Budget Categories to Reevaluate
How much of your net income do you spend on transportation, food, and housing? How much do you set aside each month? How much money do you have to spend independently? You can find your answer by tracking your expenses.
If you want to save money in your budget, there are a few categories you can reevaluate. One category you might want to look into is your food budget. Are you spending too much on eating out or buying processed foods? Another budget category you may want to reevaluate is your entertainment budget. Are you spending too much on movies, concerts, or other forms of entertainment? These budget categories can quickly deplete your monthly budget if you’re not careful. For more details read, How To Stop Spending Money On Food, Clothes, and Entertainment.
5. Keeps You From Overspending
There is nothing worse than realizing that you have overspent your budget. For your monthly expenses or a one-time purchase, overspending can affect your financial goals.
Tracking expenses are a perfect way to avoid overspending. You can do this by recording every purchase you make, no matter how small. Look at your spending at the end of each day or week and see where you can cut back.
Keeping track of your expenses can help you be more mindful of your spending habits and make it easier to stick to your budget. It can also help you identify areas where you may be able to save money. So if you want to get your finances back on track, start by tracking your expenses.
6. Helps in Reducing Your Debt
Expense tracking is a great way to help reduce debt. By tracking your expenses, you can see where your money is going and adjust your spending habits. This can help you free up money to pay off debt. Additionally, expense tracking can help you identify areas where you may be able to save money.
Your spending records will show how much you pay creditors each month, especially when you have credit card debt, student loans, car payments, and other monthly debts. By looking at your credit card bills, you can go even deeper by calculating the percentage of your monthly loan payments that are spent on interest and other fees.
You’ll be motivated to focus on paying off your debt as quickly as possible. Additionally, you may not want to take any further loans.
7. Helps in Reducing Impulsive Spending
Keeping an expense record is extremely important for you to consider your purchases. Knowing your spending history will make you less likely to make impulsive purchases. By reviewing your receipts and documenting your costs, you won’t look out of the house for hundreds of dollars each month to spend on impulsive shopping.
8. Reduces Stress
If You Don’t Know Where Your Earned Money Goes Every Month, it is not good for your financial life as it leads you to stress. And financial stress can lead to many serious health problems. So to avoid financial stress, you must track and reduce expenses to save enough money in the bank to pay all your bills.
Better money management reduces financial stress, removes money worries, and promotes health. If money is a big stress source, keep track of your monthly expenses and focus on better money management.
9. Improves Your Relationship
My partner and I did not keep track of our expenses and budget and did not try to know our financial status in the initial years of marriage. We split expenses equally because we didn’t have a significant income gap. We believed that since we both had jobs and neither had expensive priorities, we didn’t need a monthly budget, and things would go well on their own.
Once life took such a bad turn, this strategy turned into a grave error. Then we learned how important it is to keep track of expenses for a happy life. After tracking our spending, we can align our financial thinking.
Before spending, discuss with your partner how much to spend and where to spend money. This discussion will be a necessary step in your financial journey. Make a budget and start saving to achieve your short-term and long-term goals.
Work in teamwork with your partner, which will improve your communication skills. Budgeting as a couple keeps them together, starting with keeping track of expenses.
10. Helps in Identifying False or Misleading Transactions
Regularly Checking account statements helps to identify false or misleading transactions.
Checking statements help to identify false or misleading transactions by comparing the information on the statement with what is happening in the account. Tracking your expenses with a bank statement can help catch errors and prevent fraud. Sometimes, false or deceptive transactions may not be obvious at first look but can be detected if you observe details more closely.
For example, a check may be drawn for an amount different from what was originally agreed upon, or someone may use a credit card for a purchase that is not authorized. By carefully reviewing the statements, it is possible to catch these differences and take appropriate action.
How to Track Your Expenses?
There are a few methods that may help you to streamline and speed up the expense identification process, and the best approach is one to which you feel confident enough to commit every day. Here are a few methods for tracking your expenses.
#1 Record Expenses With Pen and Paper
If you want a tech-free method to track your expenses, write down every dollar you spend and where you spent it in a notebook. Create a page in your budget for each expenditure category, or use one page and mention the category next to each expense.
This approach will tell you where your money is going every month. While recognizing spending patterns on paper might be more complicated, the approach at least makes you more aware of your spending.
#2 Make Tracking Easier With an Expense Tracking App
A spreadsheet or a web-based financial app is more efficient and easy to manage expenses. Personal finance apps provide creative graphs and charts to explain your spending patterns. Still, both options allow you to enter your expenses quickly and easily into an expense category the same day you make them.
#3 Work Together as a Couple
When you’re in a relationship, you need to manage your finance as a couple, and you will have to track your expenses correspondingly. Choosing budgeting apps for couples or other expense tracking tools that can synchronize your expenses with your partner’s so you don’t blow your budget is a smart idea.
The applications allow you to track your spending accurately. It will prevent you from spending in the same category simultaneously and give you a sense of how much you left in a particular category so you can keep up with your budget.
Keep Tracking Even When You Overspend
If an expense tracking chart shows that you are overspending in many categories, it can be easy to stop spending. It is necessary to keep tracking your monthly expenses to determine what you need to adjust and how much.
The process should not take more than a few minutes per day if you follow an expense tracking method that works for you. Still, if you keep track of your expenses regularly, you’ll be able to save more, spend less, and make other critical financial improvements that will allow you to develop wealth and go after the things you want in life.