"Beware of little expenses. A small leak will sink a great ship." – Benjamin Franklin
"Those who attend to small expenses are always rich." – John Adams
"No man is rich whose expenditure exceeds his means; and no one is poor whose incomings exceed his outgoings."- Thomas Chandler Haliburton
Expense tracking is really nothing more than a detailed record of every dollar that has left your budget. I would make the strong argument that, the degree of accuracy in your expense tracking determines your overall success in your overall budgeting efforts.
By the way, if you haven't yet started budgeting, I highly recommend this post and printable pdf guide to get you started with a zero based budget.
Expense tracking is really the only surefire way to make sure that you don't overspend in any one (or more) budgeting category and throw your whole budget into a ditch. I can remember the days before I started religiously pre-budgeting and expense tracking that I was always trying to do "mental math" trying to figure out what I spent and how much I had left to spend and I almost never got it right.
So developing this expense tracking muscle will very importantly externalize this process of tracking every single penny and will see you passing from "foggy memories" of what you spent to "precision confidence" that you're mastering your money.
This expense tracking process will help you ensure you have the proper amount of currency set up for each category and that you're sticking to those amounts. And please, don't worry if you feel like you're not "nailing it" at first. I constantly remind my students that this process will take about 90 days before it feels comfortable and habitual.
There are tons of ways to track expenses and some of the more popular ones these days are digital like: Excel, Google Sheets, Mint, Every Dollar or my personal favorite, YNAB (You Need A Budget).
While I love tracking expensed digitally, it's my strong recommendation (having coached thousands of students over the past decade) that you track expenses on paper for at least the fist 90 days.
Why? Just like with budgeting, expense tracking is complicated enough to cause you to get frustrated and quit really easily. AND, when you combine the skill (of expense tracking) itself with the "machinations" of an app... double failure potential...
So, ,my strong recommendation is to do it on paper for awhile until the muscle is sufficiently developed. And, one of the best things you can do in this realm is to keep very receipt and write down every penny you spend from today on (here’s a free expense tracker printable to help you). Yes, I know I’m repeating myself here, but this is what's required to learn the skill and master your money. :)
There's really no right or wrong way to track expenses AND it's totally okay for you to employ a couple or even several methods at the same time while your'e trying to find your "groove".
Here are a few ways that work great:
1. FREE Expense Tracker Printable - this is on paper and my absolute first recommendation.
2. The Cash Envelope System - This is saving expense receipts in the envelope and writing them down on the outside of the envelope. There's also a "digital version" of this, which is to say, creating an envelope or note card with each budgeting category. You just write the budget category name and amount on the note card or envelope and diligently track each expense as you spend, subtracting each amount as you go and spending no more when the amount gets to "zero".
Here's a "how to" video for the cash envelope part:
3. Using Excel or Google Sheets - Again, nothing wrong with this but I strongly recommend doing it on paper if you're just starting out.
4. YNAB (You Need A Budget) - The best budgeting, expense tracking software on the market in my humble opinion. But again, I recommend paper and pencil for your first 90 days. :)
If expense tracking is new for you, I just want to set a realistic expectation as to what it might feel like at first.
Developing a new behavior like expense tracking is inconvenient, a pain and hard at first to the point that you won't want to do it. Believe me I remember how hard it is to get started, but I harp on the importance of it because it is the literal teeth in your behavior modification plan that will ultimately lead to you to mastering the skill of budgeting and therefore to masting your money.
At first you almost have to force yourself to become just shy of hyper aware of the money that’s likely bleeding out of your household. But I only ask that you trust me here; I promise it gets easier over time and your future self will love you for it.
In fact, this habit is something that my wife and I have used for over a decade and we're still über disciplined about it even to this day. This is how we paid off over $43,000 in consumer debt in 2.5 years AND then went on to save/invest over $500,000 inside of 5 years! It works, I promise it does!
And again, it will be painful at first, but you’ll get used to it and this is a habit that will make your finances behave, get you out of debt and possibly get you to financial independence within 10 years. Can you imagine that? Financial independence within a decade? I'm here to emphatically demonstrate to you that it's possible and I want to show you precisely how to do it.
And a little pro tip: Stop all auto-pays until you’ve been able to successfully rewrite your budget for 90 days.
Why? Because you MUST get a precise accounting of every dollar leaving your household before you can put ANYTHING on auto-pilot again.
Trust me, we'll get there, but let's do it all manually for now.
So hopefully I've convinced you that tracking every single penny of expenses will dramatically increase your odds of becoming a wildly successful budgeter and ultimately the master of your money.
This follows the general principle in personal finance of taking steps to reduce overwhelm by 1) breaking things down into bite-sized, highly ingestible pieces and again, more specifically 2) going through what I call this pivotal "pre-budgeting" step.
I've also hopefully buttressed in your mind why budgeting (and expense tracking) is such an important and, I would argue absolutely essential, life skill. Indeed, if you ever want to win with money, you absolutely have to be on a budget and I want to help you learn how to do that almost more than anything in the world! :)
All of this consumption of content is great, but it's just "infotainment" if we don't put it immediately into practice in some way. If you hang out on my platform for any amount of time, you'll see that I'm big on "calls to action". Here's what I want you to do:
Go ahead and download this PDF that will guide you through this all-important process, you can get that by clicking here: The Forgotten Budgeting Step (aka "Budget Insurance") Downloadable PDF
Also, as an ongoing means of supporting your personal finance goals, I want to encourage you to:
1) subscribe to our YouTube channel for ongoing strategies and encouragement and
2) go ahead and join Zero Debt Tribe, our private Facebook community aiming at helping you to connect with others, to get your questions answered and to stay the course.
As always, please don’t hesitate to reach out to me at: [email protected] when you have questions, need help or just need someone to talk to during this difficult time. We love you, want the best for you and are here for you during this time.
Next, let's talk about how my free and complete system to master your money for good!
0. Stop All Retirement Investing (Until Step 4)2. Starter Emergency Fund of $10003. Eliminate Debts Smallest To Largest (a.k.a The Debt Snowball)4. Full Emergency Fund of 3-6+ Months’ Expenses5. Invest A Minimum of 15% Income Into Retirement Accounts (and increase savings rate to 50%+ if possible)6. College Funding (if applicable)7. Pay Off The Home Mortgage8. Build Wealth, Serve, Be Ridiculously Generous And Go FI (Financial Independence)!
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