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When we first started our journey towards paying off over $100,000 in debt, we really had to dig in to where our money was going every month. We felt like we had a decent income coming in, but we weren’t making a huge dent in our debt and many months actually added to our credit card balance. Every month we were asking ourselves where all our money went. We needed a way to track our spending and hold ourselves accountable to the amounts we listed in our family budget.

Color coded expense tracker for spending

I sat down and wrote out every single thing we spent money on in a three month period, and it was like a slap in the face. Our actual amount spent far exceeded what we had budgeted, and we didn’t even know it.

Maybe you can relate to this. You feel like you’re living paycheck to paycheck, barely getting by. You feel like you should be making progress towards your goals but don’t understand why that isn’t happening. There is no way to know how to move forward without complete transparency in your finances.

This is why it is essential that you actively track your expenses throughout the month. And I mean track EVERYTHING.

Free 25-Page Ultimate Budget Binder

Why You Need to Track Your Expenses

Most of our budget failures come down to setting unrealistic amounts in our budgeting categories. For example, you write down a number in the grocery category that fits within the parameters of your budget, but you have no idea if that’s what you actually spend each month. Maybe you grab a coffee when you’re out running errands or a quick lunch on the go. But what does that add up to over the course of a month?

Related: 10 Categories You’re Probably Forgetting to Include in Your Budget

Oftentimes, you can make the biggest immediate impact in your monthly budget by looking at the $2, $5, and $10 amounts that you are spending on a daily basis without even thinking about the impact over the long-term. It’s important to get a realistic picture of how you spend your money daily, weekly, and monthly to know which habits you will need to shift to make a greater impact on your monthly bottom line.

As a bit of a real life example, when we first started tracking our spending, we both took daily trips to Starbucks. That $2.45 coffee for me and $3.15 latte for him didn’t seem like that big of a deal. Well, guess what? That coffee habit that we had both adopted aded up to about $170 per month, which explained why we weren’t able to make a bigger impact on our debt. We were able to make some easy changes to our daily habits that had a fairly significant impact on our ability to pay off debt faster. And that’s just on one area of our budget.

How to Track Your Expenses

There are a variety of different apps out there, both free and paid, but I am a true pen and paper person. We have tried a variety of apps over the years, and they just haven’t worked for us for various reasons. Tracking our expenses on paper has also made it a lot easier to sit down for our weekly money meetings and quickly review our spending.

Expense Tracker with Spending Color Coded

Each month I start a new expense tracker that acts a bit like the old school method of check registers our parents used to use. You’re not writing checks anymore, more than likely, but the same basic method applies. How much money is coming in and where is it all going down to the last cent.

Related: A Simple Cashless Envelope System to Track Your Spending

The expense tracker is where you will track your expenses as they leave your bank account. This includes all of your bills along with your variable expenses. If you are using the cash envelope system, you will pay your bills out of your checking account and withdraw cash for the remainder of your expenses. Regardless of how you are paying for things or which account it comes from, it will all be tracked on your expense tracker.

Color Coding Expenses for Easy Tracking

I like to color code all of my expenses as I track them so that I can easily add up the categories at the end of each month. This helps me quickly tally up where our money went to see how we did. You can include as many categories and colors as makes sense for you, but I break everything up into 8 categories:

  • Bills- This includes bills with both fixed and variable amounts.
  • Grocery- This includes both food and consumable products like toilet paper, personal care, etc. Basically, anything that I would purchase at Costco, Target, or a grocery store.
  • Dining Out- This is all meals, snacks, and coffee out.
  • Entertainment- This includes all family outings along with anything my husband or I do socially.
  • Gas- I keep this separate only to make sure that my budgeted amount is on target based on current gas prices.
  • Savings/Sinking Funds
  • Debt
  • Miscellaneous

At the end of the month when it’s time to close out our budget, I can easily tally up the eight categories so we can talk about where all our money went that month, good or bad. Even if you find that you didn’t fall within your goals, you have better knowledge of your spending habits to make a positive change.

Outside of food, what do you find yourself spending the most money on mindlessly?

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Sarah Nichols

Sarah Nichols, founder and CEO of Let's Talk Mom Business, has a background in business, research, advocacy, and family finances. LetsTalkMomBusiness.com combines her Masters in Business Administration (MBA) and her love for budgeting and frugal living to help others take their family finances into their own hands by teaching budget basics, how to earn income from home as a mom, DIY tutorials, and frugal fun.

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