Learn Where Your Money Goes

Budgeting, Investing & Retiring

Did the money gremlins sneak into your bank account and drain it again? Surely, the problem cannot be that you spent too much! There must be some other reason….

Perhaps it is time to get a handle on your spending. If you do not track your spending, you cannot distinguish between gremlins and your own spending habits – or any other reason for your dwindling bank account, including fraud.

Try these simple steps for getting a handle on your cash.

  • Capture All Spending Methods – You cannot track your spending until you monitor every possible method that you have for money to flow from your hands to somebody else’s.

    Do you have multiple credit and debit cards? Are any bills set up for automatic payment? Do you use PayPal or mobile payment apps? It is important to sum up payments from all sources, including cash. That also includes money that your friends borrow from you and forget to pay back.

    Most sources provide a record of transactions that allows you to categorize the purchases. For cash purchases, the only way to track and categorize your purchases is to keep all the receipts, or keep a small notebook with you to log all purchases. It can serve as a useful double-check if you do both.

  • Set Up Your System – You have many choices to track your payments, from budgeting programs to Excel spreadsheets to the old-school pencil and ledger paper. Choose whichever one works for you.

    As long as you can enter all types of purchases into your system and attach the type and location of the purchase, any system should work.

  • Balance Your Account – Balancing your account is not as straightforward as it was for your parents, when all there was to worry about were checkbook and bank entries. However, it is still important to make sure you have accounted for all of your expenses.

    Pick a time period for a reference point (a month is typical). Verify that either all of your expenses for that period are accounted for as a difference in your cash balance or a debt assigned to one of your credit cards. You can check your credit score and read your credit report for free within minutes by joining MoneyTips.

    Budgeting programs and spending apps cannot do all of this work for you. There are still some elements, including cash purchases, which you will have to input into the program. The program or app may be able to tell you that something is off, but it is up to you to figure out what is off and how to correct it.

  • Categorize Your Purchases – Once you are sure you have captured all your purchases, categorize them.

    We suggest the four main categories of long-term debts like mortgage and student loan payments, necessities such as food and gas, regular monthly bills, and discretionary purchases. Subdivide the discretionary purchases into as many categories as you need to see where most of your money is going. You will probably be surprised by the answer.

    Once you realize where your money is going, you are more likely to think about purchases before you make them.

  • Stick With It – Do not just categorize your spending for one month and then ignore the results. Make tracking your expenses a regular routine.

    Get in the habit of tracking your expenses, and you are likely to save money once you can assess where your money really goes.

You will also never have to worry about a visit from the bank account gremlins – or your mooching “friends”. They will quit borrowing money from you when they realize you are going to remember the loan and eventually expect repayment.

If you are interested in a personal loan, visit our curated list of top lenders.

Photo ©iStockphoto.com/Pogonici

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