As a budget consultant, tracking expenses is one of the first exercises I recommend to my clients. Personally, it's what I do as soon as something changes in my family life.
All too often, underestimating small expenses is what makes a budget go sideways. A few dollars spent here, a few dollars there… it can sometimes add up to more than a car loan payment.
The solution? Tracking every single expense, no matter how small and insignificant, for a month. You then compare the outcome to your budget forecast and adjust accordingly!
The best way to track your expenses is to have a notebook handy so you can write down your transactions as you go. Online accounts may provide tools that help with this, too...
A word of caution:
- Don't trust your memory. If you wait until you're sitting at your computer to record your expenses electronically, you'll probably forget some.
- Don't rely solely on receipts. You won't get any for tipping your barista, and it's easy to lose them or not ask for one.
What I Learned by Tracking My Spending
I thought my budget was balanced, but I found out that I was underestimating when it came to four things.
1. The Cost of Going to the Movies
Now that we have two preteen girls, our movie outings are getting more expensive. A children's combo gets replaced by an adult one, including a bag of candy. For us, that's a $14 increase per outing.
2. The Cost of Friends' Birthday Parties
I originally planned to spend about $20 per party. By the time I add taxes, the gift bag, the card etc., I saw that in the month when I was tracking, it was more like $35 per invite for 3 parties. That means I spent $45 more than expected.
3. Unplanned Donations
Over the course of a single month, our children's school had three fundraisers. Although we do budget for an annual donation to a charitable organization, these unplanned donations weren't factored in. We spent $60 we hadn't planned.
4. Child-Related Expenses
We give our two daughters a weekly allowance, so they can cover some of their expenses and learn how to manage their money. I realized that there are other expenses that we should pass on to them. For example, we spent $32 on books that they could have paid for with their own money.
Why Track My Expenses if I'm Not in Financial Trouble?
Knowing exactly where your money goes allows you to make better financial decisions, but above all, it helps ensure that you don't have to postpone your plans because of your spending.
As a result of this exercise, I realized that in one month we spent $151 more than expected. Even though we're not in debt, we should still reconsider our habits. For example, we could:
- Have our children contribute more when it comes to pocket money: extras requested at the movies, extra expenses related to gifts for their friends, etc.
- Say no to certain donation requests or choose our causes more carefully
- Reduce the cost of birthday parties by making cards and reusing gift bags
If we hadn't tracked our expenses, we wouldn't have known that these adjustments could be made.
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