Tracking spending is an important part of building (and sticking to) a healthy budget. It also helps you work towards your financial goals. Keeping track of expenses and getting a realistic understanding of all of your outgoings is vital to making the most of your income. Loqbox has simple tips for the best way to track spending and budget.
Why should you track your spending?
Using a budgeting tracker helps you to manage spending by identifying where you might be overspending or wasting your money.
You need to be able to effectively track weekly spending and get a clear idea of where all of your money is going in order to plug unnecessary financial leaks and work out where savings can be made.
Creating budgets is half the battle when it comes to working towards your financial goals. The most difficult part of any budgeting tracker is actually sticking to the plan. The more information you have about your finances the more control you have of your budgets. Give yourself the best chance of success by using a personal finances tracker.
How to keep track of spending
Use budgeting tracker apps to track expenses
One of the easiest ways to track spending is by using a budgeting tracker app or website. Lots of banks now provide online tools and apps that let you record and categorise your expenses at your fingertips. These can be really useful depending on how you like to organise things (on screens, in spreadsheets, or on paper).
Apps let you keep an eye on your income and outgoings, automate your savings, use round-ups when you spend, and sort your money into pots. But whether you use a digital tool to track expenses or you manage spending with a humble pen and paper, understanding how budgets work will put you in the best position to succeed.
Popular budgeting tracker apps include: Money Dashboard, Mint, and You Need a Budget (we’re recommending these services as ways to track your spending, but do read the T&Cs to see if they are right for you). A lot of banks will also offer budget trackers as part of their regular online services, so check what tools they have. It’s important to mention that some apps will have monthly or annual fees to use them, so make sure that they give you enough value.
Check your statements and gather your finances
The first thing you need to do if you’re building a budgeting tracker is grab all of your bank statements, and check in with any companies that you pay money to regularly (like energy bills and phone contracts). Gathering your finances in one place can be tricky the first time, depending on how organised you are, but it’s well worth it.
Once you have this information, check over a few months to identify regular outgoings, spending trends, and any expenses like gym memberships and subscriptions that you no longer use. You will also need to have a clear idea of what your monthly income is, including income and outgoings from anybody else who is included in your budget.
Set categories for tracking spending
To help you manage spending, put all of your expenses into categories like food shopping, transport, energy bills, rent or mortgage payments, and entertainment. This is about getting a clear overview of where your money is going and identifying areas where you may need to cut back.
Once you have put all of your expenses into categories, work out which are essential to your life (things like your utilities and living costs) and which are more of a luxury (like entertainment and nights out). Be honest, what could you live without? Now put all of your expenses into two bigger categories: let’s call them ‘want’ and ‘need’.
Set a realistic budget
Once you have a clear understanding of your spending habits, it's time to set realistic budgets. A budget helps you to put your money into different categories and gives you enough saving power to achieve your financial goals. There are lots of budgeting rules that you can use but we’ll focus on the 50-20-30 rule.
The 50-20-30 rule works by breaking your income into three percentage chunks. Each chunk represents a realistic amount of your income that you should be putting towards your various categories of expenses. So how does this work?
- The monthly expenses that you’ve allocated to your ‘need’ category should take up roughly 50% of your income. This is a big chunk but it’s for the important stuff that keeps you fed and watered, and with a roof over your head.
- 20% of your income should go towards your financial goals. This could be the amount of your income that you put into a savings account, or it could be how much you pay off against your debts each month.
- If the money you’ve allocated to your ‘want’ category exceeds 30% of your income, you should look at what you could realistically live without. Be honest with yourself and trim the fat from your expenses.
These percentage chunks are useful guides to help you check whether you’re spending too much on your rent and bills, or your nights out and entertainment. Cancel unused subscriptions and memberships, contact utility companies for better deals, and use price comparison sites to make sure your finances are working for you.
Pay yourself first and automate your financial plan
Working out how to manage your income is the first step. But now you need to commit to your plan. We can all lose our motivation to pay off our debts or hit our savings goals, or be tempted into unnecessary spending. So give yourself the best chance with these two simple tips:
- Pay yourself first. This means as soon as your income lands, you prioritise your financial plan above everything else. The 20% of your income that is going towards your savings or debts is paid first.
- Automate your financial plan. Use Direct Debits to automatically split your income and pay into your various goals and obligations. Set them up so that they go out on payday (or whenever you receive your income) so your financial plan has been sorted before you even get your hands on your money.
Track weekly spending
Keeping track of expenses is an ongoing process that requires discipline and adaptability. It's essential to stay committed to your budgeting routine and make adjustments as you go.
Checking your expenses every week will help you to spot spending patterns and identify where you can save money or redirect funds towards your financial goals.