Back To Basics: Track Your Spending

Pop Quiz: How much money did you spend on food last month?

I’ve been blogging about money now for almost two years, and I’ve been wanting to put together a kind of distillation of all the things that I’ve learned. All these posts are the equivalent of rough drafts, so comments are welcome.

Taking a step back and thinking of what is the first step to setting yourself up for financial security, the first thing I thought of was to make a budget and make sure you spend less than you earn. But then I thought, before even doing that, I think you need to first sit back and observe your current habits. What are you spending now?

There are lots of way to do this – the simplest is to simply keep a small notebook with you or just a scrap of paper and write it all down. Another way to is to get receipts for everything and keep them in an envelope. If you use credit cards, you can use the statements to aide you.

Whichever you choose – Do this for one month and add it up. I guarantee you’ll be surprised. You’ll realize that you spent $200 on clothes, or $80 on dry cleaning. Or maybe you spend more eating out than on groceries. Or maybe your spending is exactly what you thought it was (but I doubt it).

Armed with this information, you can make a realistic budget. It’s too easy just to sit there and say “Hmm.. how about $200 a month for groceries? And $100 for eating out. That’s sounds about right.” But then you blow your budget in the first month and give up.

Is this tracking exercise a realistic Step 1? Or is it just another thing for people to stumble on and never even get to Step 2?

Comments

  1. It probably is a good idea, but requires great follow through. It’s definately a hassle writing down everything you buy and sticking with it for 30 days. Not to mention that you may just track an atypical month, making results unrepresentative of your spending. (and each month seems to be unrepresentative for me. lol)

    As such, even though I planned to go through this step, I never did. Instead, I made a serious effort to be mindful of my spending each day. It is now a habit. If I’m talking cash or credit out of my pocket, I definately think twice whether it is worth it. I compare my spending to my bimonthly paychecks. I have expectations on how much of each paycheck I should be banking, and I think in terms of how it will affect my savings rate. I know XX% of my first check is spent on rent/groceries and I have XX% left over. I back my potential expenses into these numbers and decide whether I want that digital SLR for $XXXX or would rather see my networth not increase by $XXXX. It works really well for me, since I’m cheak and usually pick the net worth increase. lol

    Surprisingly, I can’t answer your pop quiz. To me, spending $50 more or less on groceries – while substantial – isn’t that big of a deal. Instead of deciding whether the latest batch of fresh food and meat will take me over my grocery budget, I think it’s more important to think about money making opportunties that far superceed it. (reselling items on Ebay for example) Ultimately, you are not going get weathy by saving your paychecks. You are going to get wealty by making bigger paychecks so you can invest more.

  2. Interesting. I have done it before for a month, using a combo of Quicken and credit card statements. I simply assume that all my cash withdrawal went to food – which is 95% true.

    I did a survey before about How You All Budget. I think you’re similar to me you’re in the group of ‘closely watch’ people that don’t necessarily need to budget to save money. But I still think this exercise is a good one and still maybe surprise even the most frugal of people.

  3. I spend about $450 a month on food and entertainment. Usually about half of that is groceries+fast food. I learned this after allocating about that much for gas, food, entertainment, and dry cleaning; then wondering why my budget didn’t work. Gas and dry cleaning now receive their own line items.

  4. If you track categories in Yodlee closely, this quiz becomes a breeze. Especially if you use multiple rules to teach it that various grocery stores’ names showing up in a transaction line item automagically mean Groceries.

    All said, I may know how much I spend on food, but that doesn’t mean I like how much it is =).

  5. I have been saving for a house and my first step was to determine exactly how much I am spending so I can see how much of an increase in housing costs I can stand. I did a little searching and found a simple (free) budgeting program at http://buddi.sourceforge.net/en/ .

    I spend exclusively on my credit card (and pay it off each month) so I just went back to last December’s statement and put in all my transactions up until now. The program lets you classify your expenses as you enter them and then shows you how much you’ve spent in each group over time periods you specify. Then you can set your budget based on that and keep entering your purchases and see how your actual expenses compare to your budget.

    It is free to download and is written in Java, so as long as you already have that installed there is no install for this program. I found it to be much easier to use to plan a budget than most personal accounting software as that is all it is designed to do.

  6. I track my finances through Quicken, and I have to say that I spend way more on food and eating out than I like. I average about $465 total per month with $160 going towards groceries and the rest to eating out. The majority comes for eating out for lunch every day and also treating my friends and I out every now and then.

  7. Great topic.

    I’m also in the “closely watch” group and have never bothered with a budget, but I never really knew where my money was going until I started tracking my spending by downloading bank and credit card data into Microsoft Money.

    I was definitely surprised to see that groceries were our second largest expense and that we were spending a lot of money on gifts. Once I knew this, I found some ways to cut back on this spending without impacting our lifestyle.

    Oh, and to answer your original question, we spent $443.15 on groceries and $137.65 dining out in August (September data is not in MS Money yet), while we spent $715.98 just on groceries in August 2003 before I became a reformed grocery shopper. :)

  8. This is pretty simple for me: I hardly ever carry cash and use a check card for almost everything. I keep my check register in an Excel file, therefore I can easily calculate my expenses each month.

  9. Using Microsoft Money and paying with credit cards is what helps me keep track. Without those I doubt I would do it. It would just take too much time.

  10. I always use my credit card online statements to look over what I spend. My rough budget for food (from grocery store) is 80 per month. However, I dont mind going over that, even if it’s by a few hundred!! Simply because, I dont go out to eat, I pack my own lunches, I dont buy snacks, and I buy in bulk. I also only go grocery shopping 1 time per month. Sometimes I only go once every 3 months and live off what I have in the basement.

    -Wilks

  11. It?s definately a hassle writing down everything you buy and sticking with it for 30 days

    Hipster PDA to the rescue!

  12. Dudes… i use MSN money similiar to quicken.. the key is when you buy stuff ask for receipts for everything.. at the end of the week input all receipts kept in the computer.. do this for two months.. and you can easily see where your money is going..

  13. It really amazes me that more people aren’t using Quicken/MS Money. It makes everything so much easier, whether you have one account or many accounts.

    -Wes

  14. i tracked every cent spent for several years … it was a real eye-opener … and that alone has likely been responsible for the bulk of my current net worth

  15. Probably roughly $500, quite a big sum for a single guy. Partly due to eating out a lot and shopping at Whole Foods :-)

    The good news is that I have developed the discipline of entering in Excel all my expenses (even the small ones, like quarters for parking meters) since 2003, so I know how much I’m spending and saving.

  16. You cannot save a lot by depriving yourself of little pleasures.Youc ans ave a lot by skipping those “big-ticket items”.
    Example: how many espressos does it take to justify owning $45K BMW as opposed to 18K Hyudnai?

  17. I have tried this method several times and always stopped short of my month-long goal. To get myself started this round, however, I bit the bullet and purchased Quicken.
    The software isn’t fool-proof however it is helping me get a quick idea of where the money is going.
    I plan to begin 2007 with a familiarity of what I’m spending in each category and use the initial results from Quicken to develop my budget.

  18. That’s why traveling on business is the way to go – nothing like a $75 per diem every day for food.

  19. Can anyone recommend some good Palm budgeting software? Hipster PDA doesn’t work with my Treo. :D

  20. Oh, yeah, forgot to put in our numbers: $415.85 on groceries and $184.86 on dinning out for September. Seems about average based on other responses. (But don’t forget the 5% back on groceries and 3% on restaurants :) )

  21. I sort of agree with Dmitry that tracking things in too much detail isn’t what is important. If you’re saving enough for retirement, it doesn’t really matter how much you spend on individual items–that’s just a personal value judgement. I wrote up my approach to using a budget which is pretty simple and has served me well.

  22. Food expenses for my wife and me for 30 days:

    Groceries – $193
    Eating Out – $37.23

    I’m cheap. I can’t stand paying much more than 6 bucks per person per meal when dining out.

    Why is there so much discussion about buying fancy software for finances when Yodlee is free and awesome?

  23. Looking at September, I spent $350 on eating out and $90 on groceries. August was similar with $360/$40.

    I usually eat out lunch every day, and often dinner since I don’t feel like cooking for just myself.

    This is probably excessive since I am a student and don’t really have a job. Hmmm…

  24. I really recommend MS Money or Quicken. Getting started will be a bit of a hassle but once you have everything setup on those finance programs, it only requires 30 seconds a day to update. I guess if you’re someone who doesn’t use a computer everyday, it could become burdensome to keep track of things. But for most, using these programs becomes second nature, just like checking your email daily. Oh…and ask for receipts everywhere you go.

    As for me, I’m living in one of the most expensive cities in the world…

    $58/mo for groceries (based on 1 year of data)
    $98/mo for dining out (includes lunch fee at my workplace)

    Yes, I’m cheap. I usually cook everyday and know how to look for bargains.

    Anyway, using MS Money or equivalents is very easy once you get everything setup. It really has become second nature, just like checking your email daily.

  25. Brian: “Why is there so much discussion about buying fancy software for finances when Yodlee is free and awesome?”

    If you get your Money/Quicken at tax time you get it for practically nothing (you might pay for salex tax) after buying your tax software. I use Money strictly for cash flow forecasting. I have probably earned a fair amount in extra interest by sweeping uncessary cash out of my bank account over the years. I don’t even want to think of the effort this would require without my fancy software.

  26. I have tracked my spending for about 10 years now. I developed an Excel file, with about 20 columns for things like groceries, telephone, books, etc. It was a pain to enter everything in the beginning, but now I am used to it.

    Doing it has been very useful, as I can see where the money is going. It also helped me realize where I can cut back on, esp. during the 2 times I was laid off.

  27. My family, 2 parents, 3 kids, 2 grandparents, spends about $1400 – $1800 on groceries every month with occassional $600 upticks due to long term / volume purchases.

    With the newborn, we don’t have too much time to eat out, but probably spend $350 per month, when not on vacation. Taking the entire family out to eat can cost $90 – $130.

    We track out expenses in Quicken. We download transactions and categorize them daily.

    Although we’ve used Quicken’s automated budgetting tools to create a budget, we rely more on the following:
    1. comparing money in to money out – ensuring there’s more money in.
    2. place saving money as the priority; i.e. money is automatically saved for college, emergency funds, etc… before we spend other money
    3. directly manage our cash flow – our spending is stable enough that we enter 16 weeks worth of anticipated expenses directly into quicken. On a daily basis, we convert anticipated expenses to actual expenses. This way we know exactly how much cash we’ll have in our main operating accounts four months from now. You can do this by using the scheduled transaction function.
    It provides a wonderful what if analysis for new expenses and helps ensure that you have enough cash in your operation accounts while trying to earn the most money elsewhere.

    I should write a post on this in my blog.

    I’d provide a link to my detailed 2006 budgetary analysis, but as usual blogger is experiencing painful paroxisms and my blog is inaccessible.

    Have a wonderful day.
    makingourway

  28. I have been tracking all of my expenses through a simple Excel spreadsheet I found through LifeHacker at: http://pearbudget.com/. It’s fully customizable, and best of all, free. This Excel spreadsheet, combined with Google Spreadsheets, almost exclusive credit card usage, and online banking (especially Yodlee) has helped me to track almost every cent I have spent each month. Since I started keeping track of where my money goes, I have definitely noticed a decrease in my spending.

  29. In September, $702.05 total for two — $465.78 on eating out and $236.27 on groceries. We eat out every single day, and often twice per day. I’m too lazy to cook and we buy more processed food than we should.

    On the happy side, 90% of the time we eat out, we have a coupon. About half of our eating out counted as 50% deductible business expenses.

  30. i have meticulously recored all my expenses since Feb, but then I lost my job last month, and it’s discouraging to see the numbers, so I haven’t been keeping track as well as I used to. it was more fun when I was making money, and now I am in the red and not sure how to get out

  31. I’ve been using an Excel spreadsheet for tracking my expenses, but after reading this thread, I’ve signed up with Yodlee. Its so awesome to have all my accounts on one page. Thanks for the info.

  32. You definately have some good advice and ideas to offer. Good luck.

  33. Ted Valentine says:

    I diligently budgeted for about 2 years when I was in debt. I had intense desire to be debt free and paid about 30,000 debt off in two years. After you get out of debt it is much harder to stay as focused. I’ve been debt free for almost 10 years now. The only times I get focused is when something big happens that is going to cost money (like a new baby or new car purchase).

    I need to find a way to direct that focus to the positive (gaining wealth) and not just to the avoid the negative (being in debt).

  34. One way that my wife and I budget for food is we decide on a monthly set amount ($1100). This includes groceries, take out and resteraunts for a family of 5. Now the incentive is any dollar saved from that budget amount is money she can keep. So she is directly motivated to coupon clip, by specials and keep track of the outputs. So far that budget amount has not increased in 5 years.

Trackbacks

  1. Keeping track of what you spend at simplbudget says:

    [...] I read this article on the excellent money blog My Money Blog and have to say I completely agree with the author. The most fundamental step in getting in control of your finances is to figure out where the money goes. In today’s age of credit cards and online transactions it is too easy to lose track of exactly where you are spending your money. [...]

  2. [...] More than a month ago, I wrote a post about tracking your spending for a month. I tried to think of the best way to budget, but I don’t think there is anything that works for everyone. [...]

  3. [...] More than a month ago, I wrote a post about tracking your spending for a month. I tried to think of the best way to budget, but I don’t think there is anything that works for everyone. [...]

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