Even though sticking to a financial plan is one of the most common New Year’s Resolutions, many people end up discouraged and frustrated in their attempts to budget. A Gallup poll found that only one in three Americans keep a budget. But the fact that the cost of living (especially housing, healthcare and education) consistently outpaces income growth, budgeting is more important than ever.
Tracking expenses can be tedious. Most people don’t have the time or patience for keeping every receipt or a detailed spreadsheet listing every penny. Luckily, that isn’t necessary. But to determine a budget, you must know how you are spending your money, and there are easier ways to do so.
The single biggest mistake I see in budgeting is in how people determine what they’re spending. Technology has changed the way people manage their finances, but you must be sure to use it in the right way.
When I talk with people who are struggling with their budget, they’re often looking at their checking accounts to see how much money they’ve spent. They get frustrated when they try to figure out whether or not they have money to spend in a particular category. When they see that their checking account has a large balance, they assume they must be under budget.
Instead of only reviewing your checking account statement or hassling with receipts, I suggest you find a program that will track your spending.
Some banks offer this feature, which shows how much money you’ve spent by category in a selected time period. This helps you keep tabs on your spending in specific areas. It’s easy to check your account and think you have money to spend when you see a large balance, but a track money feature allows you to see how much you’ve spent in any particular category.
If your bank doesn’t offer a track money feature, there are many apps and programs that will aggregate your information and break your spending into categories for you. Mint or You Need A Budget are a couple you might try.
Using the track money feature is a way to shortcut the budgeting process and makes it much more convenient to follow through on it.
Here are a couple more pieces of advice for using a money tracking tool.
Be sure that your categories are correct. This means taking 5 to 10 minutes every week and making sure your transactions are falling in the right category. Many times “uncategorized” is the largest section, which shows how losing track of your spending is easy to do and why getting accurate numbers is so important.
Find a system that will work for you. Whatever your system is, it needs to be convenient and something that you look at on an ongoing basis. For me that’s my bank’s tracking feature that I can check online or on my phone. Finding a system that you find easy to access and intuitive will increase the chances that you’ll use it.
Monitoring your spending doesn’t replace your budget. Your expenses will always rise to your income unless you have a plan in place. The easiest way to start a budget is to review the last several months and see where you’ve been spending money. Being aware of your spending is the first step to really gaining control of your finances.
Money tracking tools are a great way to see your spending more clearly. By making it easier on yourself to track your spending, you’ll be more successful with your budget.