I started tracking my monthly expenses after reading Your Money or Your Life. One of the fantastic pieces of advice this book gives you is that it is important to understand where your money is going and how much you are taking in. Out of all of the spreadsheets I have created, this is by far the easiest.
I created my Excel tracking sheet based on the template from Your Money or Your Life, but I’ve edited the expenditures to match my spending habits. Others will have different expenses, but the important thing is to start understanding where your money goes, and tracking it definitely tells you.
To get in the habit of tracking my expenses, I started carrying around a small notebook. I write the date, then an “In” and “Out” column. Under each column I write down what has come in and what has gone out that day. I’ll then record the numbers in my monthly tracking Excel file when I have time.
Here is what my monthly tracking sheet looks like:
At the end of the month, I end up with a picture of my finances for that month. I then use this picture to calculate my Net Worth.
So why do I track my expenses?
That's easy: by tracking my expenses, it shows me how I am spending my money and allows me to see where I need to make a change. You can see that in this month, I spent $91.08 going out to eat/happy hours. I had set a budget of $60 for this, so I overshot that by $30. Oops. This tells me that either I need to update my budget and allot myself a little more than $60, or reign in my spending for the next month.
I don't always hit my goal, but at least I see where I'm not meeting my expectations. This spreadsheet also shows me that almost $300 is going to minimum payments on my student loans. Seeing this every month is another motivator for why I want that debt paid off. I could be putting $300 towards retirement or a trip! Alas, that money is tied up in student loan repayment.
I recommend that everyone track their expenses in some way. Set up a system that works for you and then stick with it!