End-of-the-month anxiety hits you when the money starts running thin. Unmanaged and unnecessary expenses are the number one reason behind budget overflow.
To avoid budget overflow, you must practice financial discipline. One way to do that is by tracking your expenses.
Many people confuse expense tracking with budgeting. Though they do overlap, they’re two distinct processes.
A budget is an overview of your expenditure and its limitations, while tracking your expenses provides you with deeper insights into your purchasing behavior.
Cracking the code of your purchasing behavior will help you make better financial decisions in the future.
Not only will you be able to prioritize your spending objectives, but you will also be able to weed out the unnecessary expenses, eliminate them entirely, or at least cut back on them.
Here are 8 tips you can follow to easily track your expenses.
1. Consider Seeking Objective Financial Advice
Despite our best efforts, sometimes financial management can seem like an impossible task to carry out, let alone master. In such situations, instead of winging it, consider seeking professional financial advice.
We are often biased when it comes to our spending habits. We spend when we should be saving or investing. Luckily, if you are struggling with expenses, a financial investment advisor can help you identify the best investment opportunities, so you can make more than you spend.
Not only do they manage your finances and set up your budget, but they also create a customized financial strategy and familiarize you with your best investment options.
2. Observe Your Cashflow
Observing your cash flow is the first step toward managing it – where the money is coming from, is as important as where the money is going.
Knowing your income streams and their schedules helps you streamline your expenses without worrying about late payments or debt.
One great way to observe your cash flow is by checking your account statements. Pinpoint your spending habits by cataloging all your accounts – saving or current.
3. Categorize Your Expenses
Monthly expenses are usually divided into two categories – fixed expenses and variable expenses.
Fixed expenses can rarely ever be trimmed since they are mostly expenses like bills, mortgage, commute expenses, insurance, etc.
Your financial discipline and insight can come into play when managing variable expenses. These can include travel costs, impulse purchases, subscriptions to streaming services, etc.
First, group your expenses into fixed and variable expenses, and then further group them into specific categories like entertainment, commute, department store visits, etc.
Doing so will pinpoint precisely which category is taking up most of your income. It will also help you prioritize the categories that need your foremost financial attention.
For example, if you realize that your bills usually get paid late with an additional late penalty fee, but you never miss your morning Starbucks, then you will know which unnecessary purchase to cut back on to prioritize a necessary expense.
4. Use an Expense Tracker App
Gone are the days when you had to keep a thick ledger to manage your finances and track your expenses. A simple expense tracker app can do it for you.
Most of these apps can also be synced with your accounts to generate a real-time report of your expenses and sort them into categories.
But be careful – these apps are never the ultimate financial solution. Even with these apps, you will have to put in the effort to timely log your purchases, set certain limits, and customize them according to your finances.
5. Track In Real-Time
A major expense tracking mistake is delaying it. Many people would make the purchase and log it later.
Expenses like these get lost under a pile of other expenses and are trickier to pinpoint later.
The best way to avoid such common but frustrating mistakes is to track your expenses in real-time. Take a minute after each purchase and log it in, save your receipts, or simply list it in a spreadsheet.
Doing so will make it far easier for you to get back to it later in the month.
6. Track Your Income
Tracking income is especially useful for people with irregular incomes or side hustles. Tracking your income as it comes into your account is tremendously important.
Your expense planning is reliant on your income. If your income tends to fluctuate, chances are your expenses will have to be tracked and managed dynamically too.
Each month you manage to make more than you expect, set aside a portion of it for when the money will be in shorter supply. You should look to either save or invest the surplus.
While for each month you make less than you expect, you can use the saved-up money to help you past the rough times.
7. Set Up a Budget
Now that you have pinpointed your cash inflows and outflows, fixed and variable expenses, and have a proper record of your expenses, it’s time to set up a budget.
Many people make the mistake of setting up a budget without first tracking expenses and identifying their purchasing behavior.
Doing so only adds to their financial anxiety and troubles, as budgets usually emphasize expense limits rather than expense management.
Setting up a budget after getting all the data related to your purchasing behavior will help you plan for a financially stress-free and practical month.
8. Plan Your Savings
Normally, your income should cover all your expenses. Ideally, once you have paid for all your expenses, you should have some amount left.
Those are your savings – when it comes to saving, people have varied attitudes toward it. Some like to spend it, some put it in their saving account, while some like to roll it forward to the next month.
What is yours is yours, and you are free to spend as you like, but with a little effort in assessing your financial needs, you can better enjoy your splurge money guilt-free.
The Bottom Line
There is no hard and fast rule when it comes to tracking your expenses. People go through a wide array of financially tricky situations and what works for one, may not work for the other. The above-mentioned tips will help you assess your expenses and income objectively and make intelligent decisions to achieve a financially stress-free month.