Record Every Penny You Spend in a Month (5/365)

Record Every Penny You Spend in a Month (5/365)

One of the most generic personal finance suggestions is to “create a budget.” The advice usually revolves around setting aside money from your paycheck for all of your known expenses, then making smarter choices with what’s left over.

Here’s the problem with that suggestion: a lot of people who are in financial trouble have no idea where their money is going from month to month.

I’m speaking both from my own experience and from the mountains of emails I’ve received from readers who are struggling to get control of their own finances. Between impulse buys, credit card purchases, debit card purchases, purchases made with pocket money, and so on, it can be extremely difficult for a person without at least some exposure to personal finance to understand where their money goes.

Without knowing where your money goes, a budget is useless. It’s nothing more than a guess about the reality of your financial situation.

The first step, then, in creating a budget and getting your financial life under control is to understand as completely as you can where every dime of your money is going.

I suggest doing this for a period of at least one month. This allows you to get through one billing cycle on your utilities and your debts. While it does not cover irregular bills (like insurance), it can at least provide the foundation for regular monthly budgets.

So, how do you get started?

What I did is I designated a shoebox in which to collect receipts for every dime I paid out for a given month. If I bought gas, I saved the receipt and put it in the box. If I bought groceries, I did the same. The same goes for all of my silly incidental expenses.

If I paid cash for something and didn’t receive a receipt for it, I would write down that expense on a piece of paper and toss that paper into the box.

My regular bills also went into the box after I paid them. If I paid the bill online, I would write down the bill name and the amount on a piece of scrap paper and toss it into the box, much like my cash expenses.

At the end of the month, I would also take my bank and credit card statements and use those as a basis for comparison to make sure I didn’t miss anything, like an automated payment that I forgot about.

What do you do with all of this information? Simple. You take all of it out and sort it into groups that make sense for you. For example, you might have a group for essential bills (like electricity and rent or your mortgage payment), a group for non-essential bills like Netflix, a group for groceries, a group for eating out, a group for entertainment and hobby expenses, and a group for everything else.

Then, go through each of these groups and total up the receipts in that group.

Once you have those totals, you can spend some time asking yourself whether that spending level needs to stay in place (for example, with essential regular bills) or it can be cut a little bit (as with entertainment expenses or eating out).

What do you have after you’ve done that? A budget. That’s the end result of all of this work: a budget that actually matches how you spend your money and provides realistic guidance for your financial future.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book 365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. Images courtesy of Brittany Lynne Photography, the proprietor of which is my “photography intern” for this project.

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  1. LaDonna says:

    Facing a big box of receipts at the end of a month would be pretty torturous for many people. A different option would be to sign up at Mint.com, which tracks your expenditures for you (minus cash). I used it for several months, barely paying attention to it, before I realized with a shock that we were spending half of one paycheck just on restaurants! I got serious and categorized all our expenditures (you can even do this with cash withdrawals), and now budgeting is pretty painless. Not only is the budgeting easier, but keeping an eye on what’s going out is a snap using Mint’s budget tracking feature. For example, I noticed today that last night’s grocery purchase put us just a little over where we should be at this point of the month. I’ll adjust our grocery spending to accommodate this.

    I know there are other similar services out there, but Mint works for me.

  2. lurker carl says:

    Record the information as you spend the money, dealing with a mountain of receipts at the end of one month is intimidating.

  3. Tracy says:

    +1 LaDonna

    That’s how I keep track – it takes all of the stress out. Plus not only does it break it down by month, but you can look at how it changes over time. AND you don’t have to worry about if a spouse else is or isn’t turning in all of their receipts.

    When I first broke down my budget, I just looked at my bank statement online and did it off that. That lists absolutely everything – cash withdrawals, debit, checks. Just make a determination to not use ANY credit cards (or if that’s not practical, just use ONE credit card and look at that as well) for the month and your information will be parsed out for you electronically.

  4. Tracy says:

    (Plus, then you don’t have to wait an entire month to start setting up your budget … you can do it the very day you decide to take control)

  5. Lesley says:

    I also use Mint. Based on a friend’s experience, I waited a few months before setting up budgets in the program so it had time to capture more irregular expenses and I had more data to work with. I love being able to sort by category and look at habits over time.

  6. kc says:

    I used a large spreadsheet to track expenses – took about a minute per day.

  7. valleycat1 says:

    Although recording & sorting the box of receipts all at once may be overwhelming for some, on the other hand just looking at the box of receipts can be a lesson in itself. You might get a great visual that shows you’re spending too much time, as well as money, shopping. Additionally, not everyone is capable of setting up a spreadsheet or table on the computer that will facilitate sorting into categories.

  8. Andy says:

    I use a credit card for almost all of my purchases, and since Mint tracks that, it’s astonishingly simple to track monthly purchases. Of course, this method requires that you have enough willpower to not overspend. If you have a pretty good idea of what you buy, switching completely to a credit card for just one month could give you an easy picture of what you’re spending, and you can switch back to cash/check/bartering with chickens and cows/credit after the “tracking” month.

  9. Another Katie says:

    I strongly (or is that deeply?) disagree with this advice. I was raised on the record every penny spent school of thought, and I tried to do it many times as an adult. That level of accounting drove me crazy, and I failed at it every time. The first budget I had that actually worked for me had no recording of expenditures. There was no looking back only forward.

  10. Vanessa says:

    I used Quicken when I first started tracking and I’ve been trying to find an equally good program for the Mac. For the last year and a half I’ve been using just pencil and paper which has worked out surprisingly well. I do miss running reports, though.

    My sister has just started showing interest in budgeting, but I think she’s still a bit overwhelmed by the idea of tracking every single penny. So I’m encouraging her to just track a few categories at first; like food, gas, eating out–areas where she’s pretty sure she’s overspending. Then once she gets into the habit she can add more.

  11. cathleen says:

    I use Quicken and download from my credit union all transactions weekly. This takes about 3 minutes including categorizing new items, if needed at all. (It “learns” your categories after a short period)

    I use a debit card for everything so it’s very detailed. Exactly how much I spent in every category. I watch it weekly so i can make adjustments if we’re getting close to my limit in any particular category. I love the reports and charts. I can see exactly how much I spent in a few different ways. Great for taxes too.

    For this year’s budget, I printed out last year’s detailed report, subtracted bonus income as a hedge, divided by 12 to get actual average monthly expenditures for each of my categories.
    Then we sat down and adjusted (vet bills will go down, but we need a “new” vehicle this year, etc.) This took us about 1 hour to discuss and agree. We’ll revisit as needed during the year.

    I feel fantastic going into 2012.

  12. cathleen says:

    #10 Vanessa: I use Quicken Essentials for Mac

  13. Cheryl says:

    We’re using Quicken 2007 for Mac. We’ve used Quicken and Quickbooks both on all the Mac’s we’ve had. Most banks support downloading to it (except our current credit union.)

  14. valleycat1 says:

    Trent’s post is about a one-time period of tracking as a basis for a budget, not a system for ongoing tracking. I don’t track every single penny out these days, but I have almost 40 years of experience handling my money as an adult, and I have pretty much gotten a handle on living within a budget.

    One thing Trent doesn’t take into account is that your spouse & others in the family also need to get all their receipts into the box.

    But, if you don’t want to take the time to set up Mint, or want to have all your details online, the benefit of using actual receipts instead of your bank statement & CC statements is that you’ll also be able to track literally every penny. Instead of just knowing you got $20 cash out of your bank account & now it’s gone. Those $20 withdrawals for cash in the pocket can add up pretty quickly.

  15. jim says:

    First, I personally tink that its OK and plenty good enough to “track every DOLLAR” as opposed to every penny or every dime. Theres really no need to count everything down to the penny. Just round it to the nearest dollar. Makes it a lot easier and only going to put you off by a couple dollars total a month due to rounding error.

    I agree that a large box of a months worth of receipts can be an intimidating task for most people. So doing it as you go or automating it can work better for many people. Personally I used to do my tracking weekly. So I had a pile of receipts but it was only a weeks worth. I can however see that some people might do better with a months worth all at once though.

    Pick what works best for you.

  16. Des says:

    What I don’t like about using Mint or credit card statements for this type of exercise (or even for tracking longer term) is that it doesn’t actually tell me what I bought, only where I bought it. For restaurants and specialty stores I can guess pretty easily, but for Walmart and Target I have no clue what category the items I bought go in. Was it gifts? Or groceries? Or clothing? Or (often) all three in one transaction? Even grocery store entries don’t tell me if it is regular meal shopping, or picking up a nice bottle of wine for a gift.

    For that reason, I think it is worth the hassle of going through a month or two of actual manual tracking to see where your money is going. You can always go to Mint later when you have a better idea of what you spend your money on, but it is a valuable exercise to do at least once.

  17. kc says:

    If anyone wants to use a spreadsheet and doesn’t feel like creating one, I’ve offered a free Excel file on my site for years that totals your spending by category and creates a pie chart so you can see where the lion’s share of your money is going.

    Just check out the “Free Downloads” section of the site. I just added the 2012 version.

  18. dugsdale says:

    My “spreadsheet” for tracking expenses is a large-format “Airplanes of WWII” calendar, and as I sit with my morning coffee, I grab the calendar and write down all the previous day’s expenses while they’re fresh in my mind. I’ve pretty much stopped budgeting, since my life and expenditures are so predictable, but I still track every penny, so that if I ‘had’ to start budgeting, I’d have all the tools. It’s a pretty “old-school” approach, but I like having a physical artifact handy that I can just pick up and skim if I need to recall a purchase.

  19. Vanessa says:

    Quicken Essentials for Mac got horrible reviews on Amazon so I hesitated on getting it. I found some used copies pretty cheap on eBay so maybe I’ll give it a try despite the negative reviews.

    I would love to try Quicken 2007, but I think my computer’s a little too upgraded to run it. I saw some used copies for around $150 so it must be a pretty good program if people are still selling it that high.

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