Hi Reader!

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In the last newsletter, I introduced the four common issues with budgeting. This week we’ll look at why tracking expenses can be a great starting point and how to make it actually work for you.

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Often the first thing budgeters do when starting is to look back at the past month’s spending and see where the money went. It's a good place to start; after all, it's hard to change a situation if you don’t know what that situation actually is.

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But how do you actually start tracking without being overwhelmed? Spending happens so quickly and easily today thanks to credit cards, online shopping, buy now pay later options, targeted ads, and the digitalness of our lives and money. Money moves fast and quietly.

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Two strategies make tracking more manageable: Automation and Focus.

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​Automation:

Using a modern budgeting app that connects to all of your various accounts can do most of the tedious work for you. It can learn your spending patterns, apply rules so transactions are categorized correctly as they happen, and give you reports that help you see and understand the flow of your money in and out. You get informative visibility into your spending habits with less effort than manually tracking.

Focus:

Tracking gives you good information, but it can be far more than you need, especially when you are just starting. So start at a high level and focus on what you need to know. Generalize your spending: bills, savings, and discretionary spending. Then decide what specific expenses you want to watch closely.

So which expenses are worth tracking separately? There are three reasons to keep track of specific expenses separate from other expenses.

1. You want to curb your spending - If you want to stop spending so much on something, calling it out by name creates accountability. Want to cut back on coffee runs? A dedicated coffee category lets you see exactly how you're doing against that goal.
2. You want to protect your spending - Sometimes a separate category isn't about cutting back; it's about making sure something important doesn't get forgotten. A dedicated date night category keeps that money safe from being spent on friends' nights out before the month is over.
3. You want to know your spending - Curiosity is a valid reason to track something. Wondering if your meal kit subscription is actually worth it? Track it for a few months and let the numbers tell you.

You don't need to track everything with equal precision, and how you track may be different from others. Add some automation, start at a high level, pick two or three specific categories that matter most to you right now, and add more as you get comfortable. Tracking should give you clarity, not more stress.

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Next week we're tackling the second budgeting hurdle: forecasting income, and why looking too far ahead can actually work against you.

Questions about how to set up your tracking system? Schedule a FREE Penny for Your Thoughts Q&A Call​

Remember, small change adds up. Step by step and penny by penny, we’re building a better life. Have a shiny day!

Laura

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