Do You Know Where Your Money Goes?
Do you really know where your money goes each month? If you’re tracking your spending, you do. If you can’t say for sure, don’t automatically assume that your money just goes to “bills”. Chances are a surprising amount of it doesn’t.
And that’s why you should care
When you don’t know where your money is going, chances are you’re missing out on some great opportunities to buy and do some interesting things — especially if you’re living paycheck to paycheck.
In other words, you may be trading the things you really want for the things you want right now. But once you know where your money is going, you can redirect it to where you actually want it to go. You can do fun things. You can save for your future. You can get ahead.
The past
Before I started tracking my spending and budgeting, I’d “try” to save up money for things like trips and gifts, but would constantly come up short. I blamed that on unusual things that just seemed to happen each month, instead of acknowledging that I had no idea what all I was really buying.
If you’d asked me what I spent my money on at the time, I would have answered “bills, gas, and a little food”. In reality, it was probably more like car payments, car repairs, gas, insurance, a lot of food, and who knows what. (That was back in my early 20s, when I still lived at home, so I didn’t have that many expenses.)
Bills vs. spending
Which brings me to bills vs. spending. I felt like I had a lot of bills, when what I really had was one bill (car insurance) and a car payment. The rest was all just me spending money on whatever. When you can’t even remember what you bought, it probably wasn’t that important.
Also, it may seem strange, but I didn’t realize that bills are recurring monthly expenses that I had agreed to pay, and that spending was everything else I did with my money. (Yeah, I know, savings and investing could have been in there too, but they weren’t.)
Knowing where your money goes
There are some definite advantages to knowing where your money goes. Think of something you’ve been wanting to buy or do, and imagine being able to go right ahead without guilt — because you’ve planned on it and have the money available. Imagine getting a bill in the mail and not being stressed, because you were expecting it and already had the money set aside. Tracking your spending can be a giant leap forward toward getting there.
If you haven’t tried it before, give it a shot for one day and see what you think. Just write down everything you spend money on, and how much it was. It’s a few seconds that can change your life.
If you track spending regularly, what benefits have I missed? What has it allowed you to do? Leave a note in the comments — I’d love to hear your experience.
Tracking spending is definitely key, especially in the scenario you describe. If you can’t handle spending, moving to budgeting is the next logical step. Luckily something like Mint.com or Quicken (I know, technically the same company) can help – so it’s worth looking into a software solution.
Yes, some people find things like that very handy to help them keep on track :)
I find it so important to track where I spend my money. I use Quicken to do it, but it helps keeping my expenses reined in.
Lots of people are right there with you with using Quicken. I use it myself, but not for the tracking part. I use a spreadsheet for that.
Less chance of getting an overdraft bill too :)
Good point :)
Those are never fun to get!
Tracking expenses is important, but reducing expenses is equally important.
The funny thing about tracking is that it does tend to naturally lead to reducing expenses. (Maybe it’s that “Wow, that can’t be right…” moment?)
Our expenses were quite high in October, but at least we know where it’s going. Now, we’ll work on reducing it.
As krantcents mentioned, that’s always a good idea :)
I like the idea of periodic “audits” of how I’m spending. Taking, say, 1 month to record and analyze all expense. By this, I literally mean everything down to the penny. Absolutely everything. This way, I can get an idea of where I can cut back, and what I can plan for. I don’t do this every month, but occasionally it’s good to do to keep things on track.
That sounds like a good plan for people who aren’t as addicted to tracking as I am :)
I used to record expenses more faithfully than I do now. With more time spent on the blog, less time to do expenses on a spreadsheet. Right now I’m running a few months behind.
Doh, if it were me I think I’d just skip those months and start with this month :)
Most people don’t realize they have less money then they think they have. It’s usually through their first budget that they realize they don’t have enough to spend it on everything they planned in their head, which is why they turn up short each month.
Knowing where your money goes is probably one of the most important aspects of money management.
Once you know where your money IS going, you can redirect it to where you WANT it to be going.