How to Track Spending and Find Your Budgeting Style

Effective financial management begins with understanding where your money goes. Tracking your spending lays the foundation for crafting a practical budget that aligns with your goals. By keeping tabs on your expenditures, you gain insights into your financial habits, pinpoint areas to cut costs, and establish a clear path towards savings, investment, debt management, and intentional spending adjustments. Monitoring your progress through consistent tracking enables you to fine-tune your financial strategies as circumstances change.

How to Track Spending

There are different ways to track your spending, depending on your preference and convenience. Here are some common methods:

Use a budget app

A budget app is software that helps you track your income and expenses, categorize them, and create a budget. Some popular budget apps are Mint, YNAB, and EveryDollar. These apps can sync with your bank accounts and credit cards, automatically update your transactions, and show you graphs and reports of your spending habits. Some of them also offer features like bill reminders, goal setting, debt payoff plans, etc.

Use a spreadsheet

A spreadsheet is a document that allows you to organize and manipulate data in rows and columns. You can use a spreadsheet to track your spending by creating a table with the following columns: date, description, category, amount, and payment method. You can then enter your transactions manually or import them from your bank statements. You can also use formulas and charts to calculate totals, averages, percentages, etc. You can use online tools like Google Sheets or Excel to create and access your spreadsheet from any device.

Use a simple notebook

A simple notebook is a paper-based method of tracking your spending. You can use a notebook to write down every transaction you make, along with the date, description, category, amount, and payment method. You can then add up the totals for each category at the end of the month or use a calculator to do so. You can also use different colors or symbols to highlight important or unusual transactions.

How to Choose the Right Budget Method

A budget method is a system or rule that helps you allocate your income to different categories of expenses and savings. There are different types of budget methods that vary in complexity and flexibility. Choosing the right budget method for you can make a big difference in your financial success and satisfaction. Here are some of the most common budget methods and how to decide which one is best for you.

The 50/30/20 budget

This budget method involves spending 50% of your after-tax income on your needs, 20% on your goals, and 30% on your wants. Your needs are the expenses that are essential for your survival and well-being, such as food, housing, medicine, and education. Your goals are the expenses that help you achieve your financial objectives, such as saving, investing, paying off debt, or donating. Your wants are the expenses that enhance your quality of life but are not necessary, such as eating out, shopping, traveling, or hobbies.

This budget method is simple and easy to understand. It also helps you balance your essential and discretionary expenses while saving for your future. However, this budget method may not work well for everyone. For example, if you have a low income or high debt, you may not be able to afford to spend 30% on your wants or save 20% for your goals. Or if you have a high income or low expenses, you may be able to save more than 20% for your goals or spend less than 30% on your wants.

This budget method may be best for you if:

• You want a simple and straightforward budget that does not require a lot of calculations or adjustments
• You have a moderate income and expenses that fit well within the 50/30/20 ratio
• You value having some flexibility and freedom in your spending choices

The zero-based budget

This budget method involves assigning every dollar of your income to a specific category or purpose until you have zero dollars left. You start by listing all your income sources and all your expense categories for the month. Then you subtract your total expenses from your total income and make sure the result is zero. This means that every dollar of your income has a job to do, and there is no money left over or unaccounted for.

This budget method is detailed and precise. It also helps you avoid overspending or wasting money on things that are not important to you. However, this budget method may also be time-consuming and tedious. You need to track every transaction and update your budget frequently. You also need to plan ahead for every expense and adjust your budget as needed.

This budget method may be best for you if:

• You want a detailed and accurate budget that gives you complete control over your money.
• You have a variable income or expenses that change every month.
• You have specific financial goals that require a lot of discipline and focus.

The envelope system

This budget method involves dividing your cash into different envelopes for each category of expense. You can only spend the money in each envelope for that category until it runs out. For example, if you have $200 in your food envelope, you can only use that money to buy groceries or eat out until it is gone. If you run out of money in one envelope before the end of the month, you have to either stop spending on that category or borrow money from another envelope.

This budget method is visual and tangible. It also helps you control your spending and stick to your limits. However, this budget method may also be inconvenient and risky. You need to withdraw cash from the bank and carry it around with you. You also need to keep track of how much money is left in each envelope. You may also lose or damage your cash or envelopes.

This budget method may be best for you if:

• You want a visual and tangible budget that helps you curb your spending habits.
• You have trouble managing your credit cards or digital payments.
• You have mostly fixed expenses that do not vary much every month.

The pay yourself first budget

This budget method involves saving a certain percentage of your income before paying any bills or expenses. You can choose how much you want to save based on your financial goals and time horizon. For example, if you want to save $10,000 for an emergency fund in one year, you need to save about $833 per month, or about 17% of your monthly income (assuming no interest). You can then spend the rest of your money as you wish.

This budget method is simple and flexible. It also helps you prioritize your savings and achieve your financial goals faster. However, this budget method may also be unrealistic or irresponsible. You may not be able to save enough money to cover your essential expenses or pay off your debt. Or you may spend too much money on unnecessary things and neglect your other financial obligations.

This budget method may be best for you if:

• You want a simple and flexible budget that does not restrict your spending choices.
• You have a high income or low expenses that allow you to save a large percentage of your income.
• You have no or low debt and no or low fixed expenses.

The value proposition budget

This budget method involves asking yourself why each item is included in your budget, whether it creates value for yourself or others, and whether the value outweighs the cost. This method is a mindset about making sure that everything that is included in your budget delivers value for the business. For example, if you are spending money on marketing, you need to ask yourself how it helps you attract and retain customers, how it differentiates you from your competitors, and how it contributes to your revenue and profit.

This budget method is strategic and analytical. It also helps you align your spending with your business goals and values. However, this budget method may also be subjective and challenging. You need to define what value means for your business and how to measure it. You also need to consider the opportunity cost of each expense and the trade-offs involved.

This budget method may be best for you if:

• You want a strategic and analytical budget that helps you optimize your spending for the best results.
• You have a clear vision and mission for your business and what you want to achieve.
• You value creating value for yourself, your customers, your employees, and your stakeholders.

Considering these methods, you have the option to select a budgeting approach that aligns with your requirements and inclinations. Additionally, you can explore various methods to determine the most suitable fit. It's important to note that you retain the flexibility to modify or adapt your chosen budgeting method in response to shifts in your circumstances or objectives.

Conclusion

Tracking your spending and choosing a budget method are two essential steps to taking control of your money and achieving your financial goals. You can choose the best budget method for you based on your income level and stability, your expense level and variability, your financial goals and time horizon, and your personality and preferences. You can also experiment with different methods and see what works best for you. 

Moreover, it's worth exploring various methods to discover what aligns best with your circumstances, and you're always free to adapt as your situation evolves. By following the tips and tools in this post, you can make tracking your spending and choosing a budget method easier and more enjoyable. Remember, the best budget method for you is the one that you can stick to and that helps you live the life you want.