Keeping an expense log is an amazingly powerful tool in your personal finance arsenal, especially if you combine it with your predictive budget. You can learn exactly where your money goes and comes from. I have been using expense logging for many years now, and have a pretty good idea of what I spend money on and how much.
The basic principle of an expense log is simple – track what happens to your money. Where it comes from and where it goes. Every penny – I can tell you to the cent how much I have spent on groceries, or eating out, or rent/mortgage, or any of my other tracking categories over any period of time in the last few years. My personal preference is to use Excel because it is a simple program readily available, but there are plenty of other ways to do it.
To start expense logging, you need to get into a new mindset. First: keep all of your receipts. While this is good practice anyway, most people don’t do it – a lot of places even ask ‘do you want your receipt’ knowing that most people won’t. Know how much you pay in tips – count the handful of change before you drop it into the jar and take a note of it.
Most people have a pretty good idea of where they spend most of their money. Take a moment and think about your major expenses; this will help you with the creation of what I call your tertiary categories. There are several things to think about, and which categories you track all depends on how detailed a look you want to take at your finances. I track seventeen tertiary categories in my personal expense log, but you may want to do more or less depending on your situation.
Some to think about may include:
- Rent/Mortgage
- Insurance
- Gasoline
- Loan Payments
- Medical Expenses
- Utilities
- Groceries
- Clothing
- Travel
- Car Payments
- Subscriptions
- Eating Out
- And so many others…
Some people include far more categories – I know someone who tracks how much they spend on coffee, donuts, and tips (I lump these in with ‘Eating Out’).Obviously, each of these suggested categories can be broken down even farther, and the more you take it, the more beneficial it becomes. Insurance can be broken into home, health, car, and a variety of other categories. Utilities – electricity, natural gas, internet, phone, cable, and so forth. Just don’t take it too far, or the information becomes useless! The most important thing is that you make sure they are logical to your lifestyle.
Now set up a spreadsheet or some other system to tally all of your expenses, and keep up with it. Every time you spend any money, even if it’s just a quarter for a pack of gum, enter it into your expense log. I keep track of the last time I updated it with a date marker. I also note specifics about the purchase if it is unusual – for example, I recently spent $6.23 shipping a package. I don’t have a tertiary category for shipping, so it went into ‘miscellaneous.’ Break up your log into time segments as well as expense categories so you know how much goes out every month.
Quick note – mark your purchases on a credit card when you make them, not when you pay off your card. Some people who have multiple cards find it helpful to note all expenses paid for by credit card in another column and compare them to make sure everything matches up. The same goes for ‘cash back’ programs or ATM withdrawals. Enter any fees you pay but only record the money when you spend it. This can get a little confusing, but will make everything easier in the long run.
Do the same thing for your income. Where does your money come from? Most people just say ‘my paycheck.’ But how about the $50 grandma sent you for Christmas? The quarter you found next to your car? All of these add up pretty quickly and it is good to know where all of your money comes from as well as where it goes.
In later articles, I will describe how to use and analyze your expense log to the greatest benefit, but for now start by creating and managing one. Your tertiary categories are important, so be sure to be flexible with them and adapt them over time. Keeping an expense log is a lot of work, and you may not want to keep one on a permanent basis, but try to commit to doing a full and complete one for at least three months. The commitment and effort is well worth the rewards.
Tags: Budgeting, expense log, finances, lists, money, savings, setting goals, tools, tracking
