If you feel your money just vanishes or you are worried your budget isn’t realistic, tracking your spending will give you the facts you need to take control. Without knowing what you actually spend, all too often plans to cut back are just good intentions that don’t work in practice.
Why you need a spending diary
Many people have little idea about what they spend – it feels as though their income should be enough but most months are a struggle and some are a disaster. The money just seems to trickle away.
Keeping a spending diary will help:
- you find where the money leaks are. You may be shocked at how much you actually spend on lunches or snacks or how a few eBay “bargains” really add up over the month.
- until you actually keep a record it’s too easy to think you are being frugal because you keep a look out for sales or meal deal offers.
- knowledge is power – when you have the facts, then you can change them.
- some people find that just having to write down “magazine and chocolate £2.45” means they decide they don’t really want them that much!
What to record
If your smartphone is always with you, you will probably find using an app the simplest way. There are a lot out there – friends have recommended the Easy Spending Expense Tracker for iPhones.
Or get yourself a notebook and write things down as you spend them. This approach is simple, you just need to keep a small notebook and a pen with you.
You don’t have to do this at the time, if you can get receipts for everything and scrawl on the back “magazine” if it’s not clear what one is for. Then at the end of the day (or week) stick everything into a spreadsheet. This relies on you not losing any of the receipts and it may mean you miss some small purchases, such as a newspaper from a street seller or dropping a pound in a collection at work. If you have got into the habit of tapping your contactless card and saying you don’t want a receipt, it isn’t going to work well.
Whatever you use, you do need to be a bit fanatical about putting everything in. Leaving off that lottery ticket because you don’t often buy them or a Friday night takeaway because you were so tired is only cheating yourself.
The longer you can do it for, the better picture you will get about the unusual items. Two weeks should be a minimum but a month would be much better, or even two.
Or use magic! Otherwise known as a budgeting app
You can go for a full-blown budgeting app. This may sound complicated but actually, the app does almost all the work for you – once you have signed up and linked your bank account and credit cards to it, it records automatically what you spend.
The only thing it can’t help with is what you spend cash on. For someone people that is very little!
See Apps that help you budget or save money for my suggestions for which app to get.
Adding up the items
If you are using an app, the items will already probably be in categories (“food”, “clothes”, “entertainment” etc) and be added up for you. Otherwise the easiest way is to enter them all into a spreadsheet at the end of each week – or each day if you feel very keen or have a tidy nature.
You should use categories that are most useful to you, for example using different columns for adult’s and children’s clothes. Keeping lunches at work and snacks separate from eating out with friends and family is often sensible. A Sundries bucket is good for rare stuff – perhaps you only get stuff dry-cleaned once a month – but don’t over-use it.
Don’t have “cash spending” as a category! The whole aim of this process is to find where the money is going not whether you used cash or plastic.
Do you know what your regular bills are?
Most people think they know what they are spending on their regular monthly or quarterly bills. But unless you check your bank statements each month, you could be very wrong! One survey found:
“bill payers underestimated their main expenses (which include council tax, utilities and TV, phone and broadband) by an average of £1,459 last year, estimating their typical bills to be £2,528, well below the actual annual total of £3,987“.
So to have a realistic budget you need to see what is going out from your account on these sort of bills. And also see if you can reduce any of them!
Is anything jumping out at you?
The next step is to get a well worked out budget. But you don’t have to put down what you are actually spending if something obviously has to change. Do you over-indulge in treats, having them not as a rare indulgence but as a routine part of your life?
Keeping a spending diary may make you realise that you tend to have a takeaway or buy some clothes if you have had a bad day at work.
Keep a note of any patterns like this, because this will make it easier to break bad habits and establish better ones.