How to Track What Comes In and Goes Out

Maybe you have debts you'd like to be rid of. Maybe you’re tired of living paycheck to paycheck, or just want to know where all your money is going.

Trying to meet a financial goal without first knowing where your money goes is like trying to fill a bucket with a hole in it. The solution is to pay attention to every dollar you spend.

Tracking your spending is simple. The hardest part is to remember to do it. (And there are ways to help with that too.)

The Basic Process

Three simple steps will give you all the info you need:

1. Every time you get money or spend it, write down where, what, when, and how much. (But don’t worry about tracking your balances; just the transactions themselves.)
2. Write out a list of categories for your spending. You can include whatever categories make sense to you. (For example, some people might have Groceries, Dining Out, Work Lunches, and Snacks. Others might just have Food.)
3. After a few weeks, add up how much you spent in each category.

Below, we’ll show you a few ways to use all this info you’re gathering.

Making It Work

Once you get going, the most important thing you can do is not stop. If you have a hard time keeping your list going, try a couple of these tips:

• Round each transaction to the nearest dollar.
• Use a tracking tool that automatically downloads your bank and credit card transactions.
• Carry an envelope to put your receipts in. Wait till the end of the day to add them to your tracking sheet.
• Put a note in your wallet as a reminder to write things down.

Helpful Tools

What’s your style? Tracking your spending will go a lot smoother if you make it fit with your normal daily routines. Do you usually use cash or credit cards? Do you keep handwritten lists? Are you on the computer all day? Here are some of the most popular tools for tracking spending:

• A small notebook or a legal pad .
• A spreadsheet program like Excel or Google Documents.
• A money-management program like Quicken or Money.
• A free online tool like Mint, Yodlee, or Wesabe.

Using paper or a spreadsheet program means you’ll need to enter and categorize everything by hand. Money-management programs and certain online programs can help with that by connecting to your online accounts and pulling in the information. They can also help categorize it.

What's Next?

Tracking your spending for even one week is a big accomplishment! A lot of people find they’re spending a lot more than they realized—often on things they don’t really care about. Chances are, you’ll get inspired to change some of your habits so you can meet the goals that are most important to you.

So what will you use all this info for? Here are just a few ideas:

• Work on spending less in certain categories.
• Compare each month to the one before.
• Encourage yourself by tracking your progress.
• Check up on how your plan is working out.

At first you might want to do a weekly review of your spending and any goals you’ve set. Once you get into a routine, you could do it monthly and still be confident that your new habit of writing everything down will keep you on track in between reviews.

Here’s what a check-up might look like:

• Put each transaction into a category if you haven’t already.
• Add up each category and compare to your previous spending.
• Take note of any expenses that happen repeatedly, and start to plan for them so you aren’t taken by surprise.

And remember-even if facing up to your spending is painful at first, before too long you’ll be glad you did.

Make This Work for You ...in 15 minutes or less  Check out a free online money-management tool like Mint, Yodlee, or Wesabe.  Start listing out your spending categories. ...in 1 hour or less  Pick a tracking tool (and a back-up in case your top choice doesn't work out).  Talk through your plan with your spouse or close friend.

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