How well do you track your spending habits?

I ask that question because a great number of people have absolutely no idea how or where they spend their money. This ends up with folks looking at their bank statements wondering where their money went, and sometimes leads them to either overdraw on their bank accounts or go over the limit on their credit cards.

buying food at a restaurant

Why is this important? Because while the Justice Department shows that the number of bankruptcies has decreased 5 years in a row since 2010 (the study goes through the end of 2015), Nerd Wallet shows that overall personal debt has increased over at least 12 years. Their points are:

* The rise in the cost of living has outpaced income growth over the past 13 years. Median household income has grown 28% since 2003, but expenses have outpaced it significantly. Medical costs increased by 57% and food and beverage prices by 36% in that same span.

* Total debt is expected to surpass the amounts owed at the beginning of the Great Recession by the end of 2016. [2] Americans will soon owe more than they did in December 2007.

* The average household with credit card debt pays a total of $1,292 in credit card interest per year. This could increase to $1,309 after the Federal Reserve voted on a rate hike of a quarter of a percentage point.

I go into each month with a general spending budget and what I call the “play” spending budget. The general budget covers monthly bills and general expenses such as gas for my car and part of my food budget. The play budget is entertainment and being able to eat out when I’m not in the mood to cook or go shopping for food to prepare at home.

I have to stick to my budgets whether I have a lot of money or finances are tight, because often what I generate has to last me a good long time. As an independent consultant, my income fluctuates. It’s harder for me to stick to a specific budget every once in a while so I need to make sure I take care of the important things first.

I don’t always write my figures down, but I can mentally keep track of everything I need to pay because the dates are the same every month. The general budget rarely changes (except for occasional yearly fees or medical bills) so it’s easy to keep track of the bills, which then helps me keep track of my overall spending.

Bills always come first for me; we need to make sure we take care of our living space before doing anything else… well, except for eating. Financial experts say we should pay ourselves 10% of our income first, but we don’t always have 10% to spend on ourselves first, do we? I’ve talked about finding different ways to put extra money aside in case you have emergencies coming up and, although it might not be 10%, saving any money is better than not saving at all.

Rachel.Adams via Compfight

Only by tracking your spending can you both ensure that you can cover your bills and still live your life and make sure you don’t credit and spend yourself into debt, which could require extreme solutions to get out from under it. I’ve worked hard to eliminate most of my big bills so that I only have to worry about monthly bills that can’t be stopped (such as utilities, internet, etc).

People hate the word “budget”, but I believe it’s essential to giving us peace of mind. However, just because there’s a connotation of what a budget should be doesn’t mean it has to be cast in stone (although I would recommend tracking some of it on a spreadsheet to make sure you’re not missing anything). Even though I’ve helped people get control of their money so that they’ll show positive growth by budgeting, I also meet a lot of people who can’t handle something like that on a consistent basis.

With that as a background, let’s look at a few ways you can help track your spending that might be simpler to keep up with:

1. Set up automatic bill payments with your bank.

This one can work pretty well for most people as long as you have consistent income and are willing to do direct deposit, since most banks won’t work with you unless you allow it. It’s also the most flexible because every once in a while you might be able to get away without making a payment for a month or two and it’s easy to go online and change your dollar amount settings temporarily.

2. Set up automatic bill payments with your creditors.

If you have life insurance you’re already used to doing something like this. It works best if your payment will be close to the same amount each month and will save on any possible fees your bank might charge you to do it for you (yeah, some banks charge fees but not all of them; it might behoove you to work with a local bank). The downsides are that it’s harder to change the monthly amount, and that if you set up an account where sometimes your monthly payment is higher (such as if you have a business American Express card, which has a yearly fee that must be paid once a year) and you forget about it you might find yourself in a bit of financial distress for a short period of time.

3. Keep a running tab of how much you’re spending whenever you buy something.

This one will require a bit of work but you can make it a bit easier by only recording purchases over a certain amount. I’d probably say $10, which you can track using the memo function on your smartphone (or something like Evernote) or go into your online store and download a tracking app. If you’re buying a lot of things over $10 that should tell you that you should be more cautious on how you’re spending because you’ll find out that a lot of small purchases adds up pretty quickly, but maybe you can still buy your coffee and burger daily.

4. Use cash

This one will scare you, but I’ve found it helpful. It’s too easy to spend money these days because we put everything on a card, whether it’s a credit or debit card. I’ve found that we’re more cautious with our spending if we have to use cash. Time Magazine did a study which concluded that not only do people spend less money when using cash but they enjoy what they purchase more. I’m thinking that’s a pretty good benefit of using cash along with your money staying with you longer.

All of this requires some personal responsibility but it’s pretty simple stuff once you put your mind to it. You’ll also have more peace of mind when you know your bills are covered and you still have money to spend so you can enjoy a few things in life without worrying about phone calls and people showing up at your door looking for payment. Am I right?

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