When it comes to excuses for not monitoring your spending, we’ve heard them all.
“I’m not living paycheck to paycheck.”
“It takes too much time and effort.”
“I don’t want to know.”
“I can budget and save later in life.”
If you ask someone how much they spend in a month or a year they will probably give you an estimate but likely have no idea of an exact number. The amount is likely much more than they think. When it comes to spending the reality is that what you don’t know can hurt you and hinder you from reaching your goals. Here are 5 reasons why you should track your spending.
1. See where your money is going.
Knowledge is power. It is too easy to overspend and be oblivious to the consequences. Tracking your spending requires you to be honest with yourself about what your money is being spent on. By looking at what you’ve spent this year versus what your financial plan recommends you can clearly see how you are doing in comparison to your targets and goals.
2. Identify your weaknesses or patterns.
Once you can see where your money is going you can detect any areas where you may be overspending. Maybe it could be the “treat yourself” mentality that drives up your spending much more than you realized. For others, it could be finally looking at what you spend on your impulse buys (anyone else guilty of overspending on a Target run?) that helps you recognize your problem areas.
3. Prioritize your wants and needs.
Identifying your spending weaknesses will help you determine priorities. Once you know what you find important to spend on you can prioritize those things above others and make adjustments if your actual spending is not in line with your goals. You work hard for your money so wouldn’t you want to be mindful about where your money goes?
4. Monitor your progress.
Tracking your spending allows you to hold yourself accountable. It is a quantifiable way of measuring your progress in your financial plan with immediate, constant feedback. Set up a schedule to check in on your spending. What type of schedule depends on your financial situation but typically ranges from monthly to quarterly check ins. As Cameron discusses in his book, Where Family and Finance Meet, budgeting and tracking your spending “[…] is focused on the short term but ultimately has long-term results.” If you are able to meet your spending target regularly, you are setting yourself up for a better financial situation long term.
5. Reduce your risk of fraud.
While monitoring your spending you will be regularly viewing the transactions on your credit cards and bank accounts. By doing so you will be able to spot irregular transactions that look out of place early and prevent bigger issues of fraud from occurring.
Are you ready to start monitoring your spending but not sure where to start? We offer an in-house cash flow monitoring system for our continuous service clients. Other methods include Quicken, Mint*, or a good, old-fashion spread sheet.
Do you need help determining a healthy spending level for your financial situation? Contact us today to get started on a financial plan. If you are a current client and would like help implementing cash flow monitoring, speak with your advisor today for help getting started.
* Since Mint is a free service, it does have advertisements – often for credit card offers. Ignore these.