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How to control and track your spending effortlessly



Occasionally a family member or friend will ask me how I manage my finances and how they can get started down a path of financial control and peace. Getting control of your finances can be a daunting task. Finances are one of the biggest sources of stress and can cause deep rifts in relationships. The fact is, there’s no quick fix when it comes to managing your finances. It takes time and must be done step by step.

One of the first steps of sound financial management is tracking your spending. Once you track your spending and are able to see where the money goes, it’s easier to attempt to control your spending. How can you control something when you have no idea what it is you need to control? The bottom line is, tracking your spending goes hand in hand with controlling it.

Tracking, but no control

However, despite the wonderful resources available to track your spending, it still seems to be out of control for most people. Money management programs such as Quicken and MS Money are great tools to help you track your spending. In fact, electronic methods of payment such as debit and credit cards are also great at helping you track your finances. Every transaction can be easily downloaded or viewed. But if these tools are so wonderful at tracking expenses, why are most people’s finances out of control?

Despite the ease of tracking spending using credit cards, credit card debt is rampant. Americans carry, on average, $5,800 in credit card debt from month to month (www.cardweb.com). The Federal Reserve states that, on average, the typical credit card purchase is 112% higher than if using cash. It seems the convenience of using credit cards makes it a little too easy to spend money.

Control, but no tracking

On the other side of the fence are cash and check transactions. While spending with paper currency gives you a higher degree of control (especially cash), it’s a pain to track. Nobody enjoys balancing their checkbook, compulsively saving receipts, or entering expenses into a spending notebook.

The secret to tracking and controlling your spending effortlessly

So what’s the solution that will allow you to track what you spend and maintain total control over your spending? The answer is CASH.

“What? Cash? I thought you just told me that cash is a pain to track? Plus I LOVE the convenience of my credit card.”

Ok, before you blow me off, just hold on for one more minute. I’m not saying that ALL spending needs to be cash, just the categories that are out of control. As my wife and I worked out our financial plan we realized there was a very small set of categories that were out of control. These will vary from person to person but our hard-to-control categories were:

o Grocery

o Household

o Eat Out

o Clothing

o Personal

This is by no means an exhaustive list. Figure out your own hard-to-control categories and you’ll know which ones you should use cash for. Your other expenses will be dealt with separately and I’ll explain how you should manage them in another post. As a first step, we just want to get these categories under control.

So, here are the steps to tracking and controlling your spending effortlessly. And the great news is you can start it TODAY!

1) Identify which categories are problematic (you tend to overspend).

2) Commit to not buying ANYTHING in that category with a credit card.

3) Go to the bank and withdraw the amount you think you will or should spend on the category UNTIL THE END OF THE MONTH.

4) Put that money in an envelope and write down the date, how much you took out, and the category. To simplify things you can just write this information on the envelope, but feel free to record it in any trusted place.

That’s it! Financial peace has just been achieved. Well, not quite. One of two things will happen. 1) You won’t spend all the cash and will have money left over at the end of the month or 2) you will spend all the cash before the end of the month and need more.

If the first scenario happens, great! Keep the money in the envelope and just add to it at the beginning of the next month. On the other hand, if you spend all the money and need more, don’t stress! Just go withdraw the additional cash that you think you need for the rest of the month and record it on the envelope.

Either way at the end of the month you will now have an idea of how much is needed for that category and will be able to estimate next month’s amount more accurately. Don’t worry about getting it exactly right for now. It will typically take doing this for about 3 months until you have a really accurate estimate.

Even then, these problematic categories are problems because they tend to fluctuate so much. If you’re tight financially, this is a great time to see if what you think you’re spending is in touch with reality. It’s also a perfect way to control your spending by deciding before hand how much you really think you should spend on that category. Just like they always taught me in Sunday School, it’s important to decide ahead of time how you’re going to respond in tough situations. Similarly, you should decide how much you want to spend BEFORE you’re standing the grocery aisle trying to justify purchasing that extra bag of cookies.

Now, if you already track your spending electronically (e.g. in Quicken or online) you should be able to make very accurate estimates from the get go. If that’s the case, great! Your just one step ahead and this process will be a little easier. Even so, you may have trouble tracking some spending such as single transactions that cover multiple categories. Wal-Mart is one of the biggest offenders. I can’t tell you how many times, in the name of tracking every penny, we agonized over a Wal-Mart receipt trying to determine which portion was grocery, household, medical, etc.

Goals of the process

While going through this process there are a few goals you should work towards.

1) Figure out how much you really spend.

2) Make your spending habits more conscious.

3) Control your spending.

Figure out how much you spend (get in touch with reality)

One of the huge benefits of going through this process is that over a few months you will get a very accurate idea of what you spend with very little effort. One thing many of you will have noticed is that you won’t have a perfect “to the penny” record of what you spend. Rather, you will just know the total amount you spent for the month. Enjoy this fact. Enjoy the freedom, the need to not have to calculate every single transaction. You just open the envelope and if there’s money you can spend it.

At the end of the month it will be very clear if you didn’t budget enough; your envelope will be empty and you will feel like you just didn’t have quite enough.

The analytical crowd may cringe at not tracking every cent but let me ask you, what’s the benefit of tracking every penny versus the total amount? There are very few situations in which it really matters. These days, most of the expenses will be at Wal-mart anyway. The goal is really just to get an overall amount that you tend to spend. By not tracking every penny we will still have an accurate budget but it will be accurate on a summary level rather than a detailed level. As we address your non-cash expenses you’ll see that you WILL know how much you spend every month to the penny but you won’t necessarily have a record of WHERE you spend your cash expenses.

Now I can still see the analytical people out there still cringing. If you REALLY want to track every single purchase, go ahead. If you really have no idea where you’re spending your money, it would be very useful to see where it’s going. If you currently use credit cards you can just look at your statement. Otherwise, feel free to keep receipts and enter them into a notebook or Quicken. In fact, my wife and I had used Quicken faithfully for years so we already knew where we spent our money. Most people have a pretty good sense where the money goes. They just need a way to control the outflow.

Make your spending habits more conscious

Really the goal for now really isn’t to reduce your spending, although for most people that will be a natural result. Instead, you just need to make your spending more conscious. Don’t just pull out plastic and not worry whether or not you have the money.

One great thing about cash is that it’s very tangible. Most people have a visceral reaction to spending cold hard cash. It can be hard to see those Georges sniff, Hamiltons (baby) sniff-sniff, and Franklins triple-sniff fly out the window. Plus it’s a very visual medium. An empty envelope definitely sends a signal that credit cards simply can’t duplicate. I can’t tell you how many times I told myself I’d pay with a credit card and just worry about where the money would come from later (I only did this in a previous life, of course).

Control your spending

Notice that I said “control” your spending, not “reduce” your spending. The main point right now is to simply control what you spend. Decide ahead of time how much you are going to take out; how much you think is reasonable for that category. By making that conscious decision you have already increased your chances tremendously that you won’t overspend. If you run out, you will have to make a very conscious decision whether or not to withdraw more. True, it’s not as convenient to withdraw more many than just using a credit card. And that’s exactly why you won’t spend the 112% more that I mentioned earlier.

Credit cards in their place

By promoting a cash-based spending system, I’m not saying credit cards are bad or evil. I used credit cards for years and paid off the balance each month. I still carry a credit card with me for emergencies and reimbursable business expenses. If fact, I actually work for a company that provides merchant accounts (the ability to accept credit cards) to small businesses.

However, the very statistics I use to promote credit card acceptance at work proved to be the reason I decided to stop using them for most purchases. At our company we constantly pitch that customers spend 2-3 times more when paying with a credit card versus cash or check. While this is a great way for a small business to grow their sales, it’s also happens to be a great way for you to grow your expenses. Credit cards are like that kid telling your first grade son potty jokes; they just aren’t a good influence on your personal finances.

What about debit cards?

Debit cards play an important role in managing your finances and will be discussed in later posts. Debit cards combine convenience with a more responsible approach to spending; the money has to be in your account or you can’t spend it. They are great for expenses that don’t vary much. In fact, we used to pay for gas with cash but after a while we realized that we didn’t really reduce our spending by paying with cash and it was a LOT more inconvenient having to walk into the convenience store. The bottom line was that I didn’t drive to work less because I was paying with cash so it made sense to use the debit card.

Give cash a “30 day trial”

So here’s the challenge. Try this today! Try it for a month. You’ll be surprised at the insights you gain. Sure it’s a little more inconvenient but one of the ultimate benefits will be stress-free financial control and you probably wouldn’t be reading this if that weren’t attractive to you. I encourage you to take a look at Steve Pavlina’s article on the 30 day trial concept. It would be a great approach to get your finances kick started.

Please post your comments and experiences as you try this out. If you happen to already use cash, let us know how you manage it physically (via envelopes or some other way).


Posted in Budget, Budgeting, Budgets, Cash, Credit Cards, Debit Cards, Finance, Finances, Money, Personal Finance, Spending | 19 Comments »

19 Comments to “How to control and track your spending effortlessly”

  1. James Says:

    I have been involved in helping people deal with extreme debt situations for the last year. This mostly deals with taking people through bankruptcies and settlement negotiations with creditors in the UK. Your information is extremely useful advice as a method of rehabilitating oneself after years of relying on ‘plastic’.

    Thanks. I think I’ll even trial the approach myself :-)

  2. .: Family Camp :. » Blog Archive » Control your spending Says:

    [...] I stumbled upon this blog (Getting Finances Done) the other day and have read a few posts on it that I really like. Here is an excerpt from How to control your spending effortlessly: Really the goal for now really isn’t to reduce your spending, although for most people that will be a natural result. Instead, you just need to make your spending more conscious. Don’t just pull out plastic and not worry whether or not you have the money. [...]

  3. Colin McDougall Says:

    Wow! You have done a great piece to help consumers out here with spending habits!

    Control is certainly a major factor people miss in budgeting.

    I have been speaking a lot about the emotions associated with letting debt get out of control on my blog at Crediteria.com/CreditChat.

    I will be referencing this entry on some upcoming blog posts that I do. Your information is rock solid and I feel the masses need to hear what you have to say.

  4. Mighty Bargain Hunter » The 50th Carnival of Debt Reduction Says:

    [...] Getting Finances Done serves up a very detailed article on tracking your expenses — no doubt a key to getting spending under control to keep that debt in check. [...]

  5. woonzai.com » Monetary Issues, and Expenses at Silicon Valley. Says:

    [...] Managing your budget. I’m overwhelmed by the number of receipts I have to handle – Albertson, Walmart, Target, Safeway – Does anyone have any good ideas on how to handle all those paper receipts that is piling up on my desk now? I think I might want to try using cash to keep track of my expenses rather than analyzing every single expense through quicken. Just found this great article on controlling and tracking your expenses . Will employ this tactic effective from Sep 1st. [...]

  6. Mark from Cool Personal Checks Says:

    Great article on controlling spending, so often its easy to get in a rut and just be putting everything on credit

  7. samantha Higham Says:

    Hello,

    I see that the Getting Finances Done website gives really useful information. We have created a public interest website at http://www.moneyexpertise.co.uk focused on managing your money, which I thought may be of interest to your visitors.

    We don’t make any profit from the site but we’d like to spread the word and get the information out to as many people as possible. Links from sites like http://www.gettingfinancesdone.com/blog/archives/2006/07/how-to-control-and-track-your-spending-effortlessly/ are really valuable to us and I was wondering if you could place a link to MoneyExpertise?

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    MoneyExpertise

  8. Credit Card Analyzer Says:

    Your trial idea is great! Worth being recommended to anyone who is in credit trouble.

  9. spendingdiary.com Says:

    hope you don’t mind me mentioning – I’ve recently launched a site that could hopefully help people understand where their money is being spent

    The site is spending diary it allows users to log their spending by day and category, and either analyze on the site, or download the data in csv format.

  10. Jess Says:

    Good article! I prefer to make a plan of spendings every month and then I try to stick to this plan. Besides, I have a spending diary. It might seem to be old-fashioned to put down all your spendings, but it does help me to control my spendings.

  11. Best Credit Quote Says:

    Some excellent points about not spending beyond ones means. I’m afraid far too many of us fall into this habit. It’s as if we believe we will suddenly come into some serious money by some magical happenstance and suddenly everything will take care of itself. This truly is a dangerous mind set.

  12. Alan with Personal Checks Unlimited Says:

    Great article Sam! This really does lay the foundation in a practical way for working towards financial freedom. Once you know what’s coming in and going out, as well as where it’s being spent, you can begin to allot certain amounts for savings/investing. I’m looking forward to the article on using your debit card. It’s a big part of my money management system, along with smart personal checking.

  13. Art Says:

    I think the best way to control and track your spending is simply to note all the expenses that you make everyday and at the end of the month browse all the expenses that you listed and try to rationalize which of those overheads could be avoided or eliminated. You will realize if you do this simple step that many of our petty expenses are not needed at all and believe me I can attribute that at least 15% of your expenses can be lessened. The other way to control your expenses is to lessen your variable expenses, these are expenses which could be minimized like dinning very often which is very expensive, keeping the lights on when you are not using it and satisfying your wants rather than just meeting your needs. The saying that there is enough for men’s needs but not for men’s wants is really worth emulating for. The other way around to control your expenses is merely to delay your instant gratification for investment purpose. Instead of buying immediately a new suite, delay it and invest instead the money in Time Deposit and as you buy time you will earn interest income instead which will now form part of your passive income. Isn’t that practical enough, instead of spending your resources it is now providing you income instead. Small it might be but that income is earned honestly and you pay your witholding taxes and that means that small interest income you have earned in the bank is worth a solid gold bar for you growing as the years go by.
    Money is there to spend it, true and correct but we must also see to it that money spent should be done in way that it will provide us more income in return rather than incurring liabilities instead.

  14. jake Says:

    Try using . I wrote down one-month spendings and I was shocked how much I spent on food :) . It is online so you can access it from every place (ie work) and control your spendings all the time.

  15. jake Says:

    I ment http://outgoings.eu sorry :)

  16. [URL="http://www.checks-for-less.com/"] Justin H. with Checks For Less[/URL] Says:

    I had read about using envelopes to manage monthly spending on different things. After reading your post I’ve decided on taking the 30 day trial. Thanks for the helpful advice you provide.

  17. Accepting telephone credit card payments Says:

    I don’t know why it’s so tough for people to control spending. Boy, if you spend more than you earn, it’s painful… so why sail that close to the wind? Spend only what you can afford to spend. If you can’t afford something, go without until you can save enough to by it. Simple rules for happiness.

    George.

  18. How to Create Wealth on Just a Few Dollars a Week | Happy-Healthy-Successful Says:

    [...] Controlling your spending, though, isn’t all there is to being a smart person and finishing rich. You also must make a point of saving a portion of every dollar you earn. No matter how large your paycheck is, if you don’t save, you will never live a life of financial abundance. [...]

  19. The Most Important Step in Making Your Dreams Come True | ccstudio.com Says:

    [...] Spend the next thirty days just focusing on that habit. Some examples could be, writing every day, tracking your finances, learning one new thing a day. If there is a habit you need to break to move forward than pick that [...]

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