What’s often interesting about being interested in personal finance is the realization that many people who aren’t so inclined view money and manage it very differently that we do. Actually, a great many of those folks, I believe, don’t even manage their money, per se.
For those that do, it’s generally expected that we have at least a working knowledge of our cash inflow and outflow. After all, it’s important for us to live within our means and make sure our income exceeds our expenses. If that equation is out of balance, we won’t be building net worth.
So back to that latter part of the equation. Do you track expenses?
I do, but I’ve done it differently over the years.
The Early Years
I actually tracked every single expense when younger. I mean, I spent about a year tracking every single thing. Every. Single. Thing. Even down to spending 25 cents at a parking meter, I recorded everything.
The approach, which seems now like it was from the stone ages but was probably advanced back in the day, was to write down on a notepad my expenses each day. Then, I would periodically transfer those expenses into Excel, in a preformatted spreadsheet with about 25 line items, and a column for each day. At the end of the month, I would have a sum total of all my expenses overall, as well as in each category. When looking at multiple months, I could then establish an average or baseline, and see how I was trending.
The net effect of this is that I was able to see my spending habits as they truly were, learn from the data and make adjustments, and then budget accordingly. I felt enlightened 
The Later Years
After a while, I simply got sick of manually entering data into Excel, and recording each and every transaction. I realized that this was too much work, even though the information was valuable. Sometimes, we just have to make decisions based on tradeoffs, and mine was to stop tracking every single expense in that way.
What I ended up doing instead was simply “auditing” my expenses. In other words, what I did was select one month out of the year to track expenses. Then, I would get a general idea of where my money was going, and what habits were driving those expenses. At that point, I would simply make conscious decisions to adjust my spending throughout the year.
Today
These days, I use Mint. At first, I liked my Excel-based approach, as it was customizable to how I liked to look at things. But as I mentioned before, it became too much to regularly track – so I simply did it one month out of the year. With tracking online, I thought I would be able to save my time through automation, while also getting a regular idea of what expenses have been.
That generally seems to be the case. It’s WAY easier to use something like Mint (or another platform) than manually tracking each item in a spreadsheet. Linking credit card activity allows transactions to automatically show up, and also be categorized.
Now, it’s not perfect. Categories aren’t always a perfect match for each expense, and cash expenses aren’t accounted for in how I track. That part I have to just estimate based on withdrawals, and perhaps allocate separately. However, by trying to make most expenses via a credit card, the bulk of the expenses are recorded.
What about You?
Do you track expenses? Why or why not?
If so, how do you accomplish this?
I do track expenses but like you my approach has evolved over the years. I think that it is very impartant at the begining to write down everything – it is important both for noticing what happens to/with your money and to develop discipline in spending. Once this has happened one can go by categories (I have a budgeting form; and there are some nifty apps); once in a while a ‘brush up’ is important.
Have a great holiday as well!
Maria – sounds like we’ve followed similar paths. Speaks to the importance of each of us handling it the way that best fits our lifestyle and preferences.
I am too lazy to track expenses, and Mint or similar doesn’t work for me since I have accounts in three currencies. I just track my net worth and as long as the amount goes up I am happy.
Pauline – net worth going up is a positive sign, no doubt!
My budget is somewhere between a traditional budget and tracking expenses. I project my cash flow out several months at a time and update the balance every so often.
Edward – good point about projecting cash flows. If someone is on an irregular income, that’s probably a good idea.
I also started out tracking everything in Excel and like it a lot. I didn’t make a lot of transactions so it wasn’t onerous to enter them all. When I got married, though, my husband refused to track by hand, so we started using Mint and it works pretty well for us. We transfer money in and out of targeted savings accounts frequently so a lot more transactions show up than I would have if I were doing it manually but it’s OK.
Emily – yeah, I think you hit upon something noteworthy there, that it can become more challenging with 2 people. With one, I can imagine it was much more simple because there were no information gaps for the person entering the transactions.
I track everything, it helps me focus on where our money is going. I think I’m just one of those people that needs to have a very active role in our finances.
Merry Christmas.
Jen – I know what you mean about needing to have an active role in finances. I’m the same way!
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I really prefer tracking my expenses on my phone with the use of mint.com. I really helps and it’s good for beginers. Recomended
Dave – thanks for sharing your experience!
I do it through my online banking tools – it’s super easy since I pay for everything via cards, never cash. That said, I don’t track every single dollar these days…
eemusings – that’s a great advantage of paying with cards, it’s so much easier for tracking/categorizing expenses than paying with cash
We need to monitor all our expenses. This is the only way to know where the money goes and if spending was done wisely. It is better to start early on. The technique may not matter provided the goals are met and we all find out how we are doing with expenditures on a monthly basis.