Why do you need to keep track of your expenses?
This is a question that has been asked many times yet many people still do not keep track of their spending - planned or unplanned.
The responsibility of taking care of your own finances is an important skill to develop. If you don’t learn how to manage your finances, you may find yourself in a very uncomfortable financial situation... CONSISTENTLY.
You may purchase many things over the course of a month, things in isolation, seem trivial… a cup of coffee here - a pastry there. It’s not a lot but when done frequently, by the end of the month, it can add up to more than you realise.
If you don’t keep track of your expenses it is easy to go beyond your income.
I’ll take that coffee to go please… a simple example
My coffee and me
You purchase your morning coffee at a coffee shop before starting your day. You are conservative with your money so you purchase the small coffee and refuse the ‘upsize’ deal. Also, you drink your coffee black so you are not purchasing the higher-priced flavoured coffees. You purchase it ‘only’4 days during the week. It costs you $2.00 (an under-estimation of the real price but we will use it for the sake of this example).
- Cost of 1 coffee a day = $2.00
- Cost of coffee a week = $2.00 x4 = $8.00
- Cost of coffee per month (assuming 4 weeks in a month) = $8.00 x4 = $32.00
- Cost of coffee per year = $32.00 x12 = $384
Cost of a thermos to carry your own homemade brew (including an ‘upsize’) = NOWHERE NEAR $384!
No one is saying; don’t enjoy the simple things in life... by all means, do! …but track your expenditure so that you are confident you can afford them.
5 reasons to keep track of how you spend your hard-earned income…
1. Better understanding of your spending habits
When you know better you can do better. As in the example above, having a better understanding of your spending habits can provide the information you need to make more informed decisions.
Tracking your expenditure is key. Relative to your income, $384 for your morning boost may be fine but you would have made that decision based on the financial visibility of your own situation.
2. Less impulsive spending
When you see the numbers on paper and realise what you have spent for the month, it can be a harsh but a lesson learned reality check.
When you are aware of your actual situation you can better decide if that new purchase is truly worth the price you need to pay. You can accomplish this by tracking your expenses.
3. Awareness of unauthorised charges
You can more easily detect if someone has gained unauthorised access due to the variance in your figures e.g. if the month-end figure between your bank balance and tracker are different you can review your bank statement for that month and match it against your tracked expenses.
Unauthorised charges are much easier to identify when you are tracking your expenses which you can then query with your bank.
4. Build better relationships
One of the main reasons for disputes and divorce between couples is the issue of money and how it is managed.
When you are tracking your expenses, you create accountability for the way you spend. It becomes easier to work as a couple to ensure shared financial commitments are met.
5. Increased confidence in attaining financial goals
Knowing how much money you have remaining, after all expenses are cleared, can give your confidence a boost especially when considering financial activities such as investing.
This can be accomplished by tracking your expenses. When investing, regardless of the amount, budgeting is crucial to ensure you don’t severely compromise your quality of life because you are unable to meet your basic living expenses.
The ABC way to keep track of your expenditure
Become proficient with budgeting!
Fundamentally, that’s all there is to it. I know this is a cliché, but it is a cliché for a reason; you can't manage what you don't measure.
Learn the skill of budgeting as a priority if you want to enjoy a healthy financial life.
When you track your spending, you know how your money is being used and you can ensure that it is being used wisely.
There are financial tracker tools you can use to help you automate the process and avoid errors. Budgeting tools make it easier to keep track of your finances.
Many budget trackers can be difficult to understand as many of them are made for business use.
It contains all you need to manage your expenses, is easy to use and costs less than your weekly coffee expenditure.
... remember, stay curious and keep learning.
The Institute for Achievement and Excellence ©