How To Track Your Finances In 3 Steps

In July 2023, financial services company Empower published a survey of over 1,000 Americans. Fifty-three percent of the survey’s respondents revealed that budgeting (and tracking expenses) was their biggest financial lesson.

Sixty percent of respondents also wished they had learned their most significant financial lesson when they were younger.

Are you in the same boat and don’t budget and track your finances? Start doing it now.

In the first weeks of the pandemic, tens of millions of Americans lost their jobs. We’ve seen firsthand the economic and financial instability an event like the COVID-19 pandemic can cause, so preparing our finances for the future is paramount.

If you don’t know how to start tracking your finances, don’t worry. This article will teach you how to take control of your financial future in three steps.

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1. Identify Your Spending Habits

If you’ve never tracked your finances before, the best place to start is with your spending habits.

Thoroughly review bank and credit card statements in the last 12 months, and find the things you often spend on but don’t need.

Do you always buy the latest gadgets? Do you buy coffee from Starbucks almost every day? Maybe you eat at different upscale restaurants every weekend to reward yourself for all your hard work.

To successfully track your expenses and improve your financial security, you must be honest with yourself about unnecessary spending.

A $5 iced latte from Starbucks may not seem expensive to some people, but it can add up. One $5 drink from Starbucks daily for one year is $ 1,825 that you can put towards other more important things like savings or investments.

Meanwhile, eating out in the US can cost around $20 per meal—and this is if you’re eating alone and doesn’t include the tip. If you’re paying for another person, then make it $40. The price of eating out also increases when you go to upscale restaurants, where one meal can cost $100 or more.

It doesn’t mean you must deprive yourself of some luxuries—everyone deserves to treat themselves occasionally.

The point is to understand your spending habits, minimize unnecessary expenditures, and put the money you save toward your financial goals.

If you see daily charges for Starbucks, reduce them to once or twice weekly. If you realize you spend hundreds of dollars monthly on fancy restaurant dinners, you can either lower the number of times you eat out or eat at less expensive places.

2. Create A Budget

Creating a budget can help you act on your plans to limit unnecessary expenses. It’s also easier to follow through on your financial plans if you clearly and explicitly lay them out.

All budgets vary because everyone leads different lives, but here’s a look at what should typically go in your budget.

Fixed Expenses

Fixed expenses don’t change (or only change after a specific period) and can include the following:

Housing – includes your rent or mortgage payments that often consist of fixed monthly amounts, property taxes, and homeowners association (HOA) fees
Health insurance – the monthly premiums you pay your provider
Other insurance – life insurance, dental insurance, and auto insurance
Internet – your monthly bills to your internet service provider (ISP)
Car payments – Your monthly auto loan payments

Variable Expenses

Variable expenses don’t have a fixed monthly amount and usually involve minimum to maximum amounts (e.g., $100 to $150 monthly for a specific expense). Expenses in this category can include

Food – should include only the amounts you spend on grocery store visits for food you cook at home (Trips to coffee shops and restaurants belong to a different category)
Clothing – how much you spend on clothes monthly
Utilities – you likely don’t pay fixed amounts for water and electricity, but you can easily estimate the minimum by looking at your billing history
Gas – how much you spend on gas for your car (or cars)
Childcare – depends on whether you have children and how often you need a babysitter

Savings

Your savings include any amount of your income that you set aside for the following:

Retirement – your safety net when you reach retirement age
Emergency funds – to pay for unforeseen expenses like home repairs, unexpected car breakdowns, injury or sickness, or natural disasters
Major purchases – saving for a new smart TV, laptop, or a vacation in Europe
Other savings – any amount you put into your savings account that you won’t spend

Wants Or Luxuries

This category involves anything you spend on but don’t need to survive, including the following:

Unnecessary food expenses – trips to your favorite coffee shop, lunch outs to the spot near your office building, or fancy dinners at local restaurants
Entertainment – concert tickets, movie tickets, or video games
Subscriptions – payments to services like Spotify, Netflix, Amazon, or Apple TV
Personal Items – expensive bags, shoes, clothes, and other luxury items

Break down your expenses using the 50/30/20 budgeting rule, with your monthly income as your base.

American bankruptcy expert, law professor, and politician Elizabeth Warren introduced the 50/30/20 rule of budgeting in her book “All Your Worth: The Ultimate Lifetime Money Plan.”

Using this budgeting concept means dividing your income into the following components.

50 percent should go to necessities like your mortgage or rent payment, utilities, and food
30 percent should go to your wants, including lunch or dinners at restaurants or items like jewelry and fancy clothes or shoes
20 percent should go toward saving for your future

This rule is a simple yet effective budgeting tactic because it lets you know where you’re overspending.

For example, say you spend 60 percent of your income on necessities instead of 50. You look at your spending and realize that most of that 60 percent goes to housing. In this situation, you may be spending more than you can afford on your mortgage or rent.

If you’re single and live in a multi-bedroom condo, consider moving to a smaller, more affordable place once your current lease expires to lessen your financial burden.

You should also always put aside money for your savings first when budgeting. The rest of your income can go toward necessary expenses and wants. Consistently setting aside a specific amount monthly gets you into the habit of saving.

If you don’t have enough to cover your expenses after saving, you have two options:

Save what you can rather than force yourself to save 20 percent each time. You can start at 5, 10, or 15 percent and increase the amount once it’s more financially feasible.
Find ways to minimize expenses to fit your income, like the example above, where you find a more affordable housing income.

3. Use A Finance Tracking App Or Finance Tracker

Writing your budget with a pen and paper or creating a worksheet on Excel or Google Sheets will always be helpful, but it can also be time-consuming and inconvenient.

The thing is, it doesn’t have to be.

You can simplify your budgeting with a financing tracking app or finance tracker.

Finance trackers (budget tracking or expense tracking apps) are apps or software that automate your budgeting process. These apps have different features, but here are some of the benefits you can expect from a finance tracker.

Save Time And Effort

You don’t have to calculate your expenses manually each time. With a finance tracker, simply input a specific amount monthly, and the app will perform all the logging and calculations for you. It saves you time and energy from thinking about confusing numbers every time you need to budget.

Account And Asset Integration

Some finance trackers let you connect your checking, savings, retirement, and investment accounts. You can also link payables like mortgages, student loans, and credit cards. Some apps also let you add assets like your home so you can see your net worth.

Credit Monitoring

Some finance trackers monitor your credit in real-time and notify you immediately whenever it changes. You also receive credit report updates and insights into your score, letting you better understand the factors that increase or decrease it. You can even request your credit score anytime by requesting a “soft pull” of your credit report, which doesn’t affect the score.

The beauty of using a finance tracking app is that it doesn’t just help you with budgeting. It can also make other aspects of your finances more manageable.

Take, for instance, an app that lets you link your investment accounts. You can monitor your investments on the fly and know whether they’re making or losing money. These on-the-go insights allow you to make better and quicker financial decisions.

However, if you have many investments, consider using other tools. Finance trackers may be unable to provide comprehensive investment insights and functionalities. With Robo-Advisor Pros, you get sound investment advice, including financial planning, effective investment techniques, and other financial services designed to help you manage and grow your wealth.

Start Tracking Your Finances Today

Financial tracking has become more crucial than ever, especially now that the US—and the world—is still recuperating from the disastrous economic effects of the COVID-19 pandemic. You need to track your expenses, budget your money, and prepare for the road ahead to avoid falling into a financial rut should something disrupt the economy again.

It’s never too late to plan your finances. As long as you have the discipline and knowledge and follow the steps in this article, you can still forge a path to a brighter financial future.