Why writing down expenses is important and how to do it?

Before you start tracking your expenses

A household budget isn't a diary where you record what you did at the store today. A budget is about planning. It’s about organizing your expenses into categories and trying to predict how much each one will require. This allows you to give every dollar a specific job for the month.

The reason for this is simple. You need to know how much you’ve already spent in a specific category and how much you have left to spend. Only then can you objectively assess at the end of the month whether your budget adds up or if it’s bursting at the seams.

Tracking receipts without first preparing a budget is pointless. Let’s say halfway through the month you see you’ve already spent $200 on groceries. What does that tell you? Absolutely nothing. That information is worthless because you have nothing to compare it to; you haven't set any goals.

However, if you assume that $250 should be enough for groceries each month, and you’ve already spent $200 halfway through, you get a clear message: something is wrong. Money is disappearing too fast. If this is your first month, you might have made incorrect assumptions about your spending levels. If you’ve been budgeting for a while, either inflation has hit your wallet, or it’s time to change where you shop. Or maybe you’re just overeating, but let’s assume that’s not the case.

If the discrepancies between your plans and reality persist, don’t give up. For the first few months, you are getting to know your true costs and learning how to set target levels. The easiest way to do this is by taking an average over a full year or at least a few months. Give yourself time and don’t quit.

Why should you track your expenses?

Tracking expenses and income is pointless if you only intend to record them passively without later analysis. Remember that receipts are just data points you need to plug into an equation, but to make it complete, you need the full picture. You need not only your assumptions but also to compare them against reality.

By monitoring the monthly ratio of your expenses to your income, you can determine how much in savings (or debt) you are generating each month. This is exactly how you know if the money set aside from each paycheck will be enough for irregular expenses six months from now, like car insurance, property taxes, or a seaside vacation (where you’re actually relaxing, not selling waffles). You’ll also find out if you’re overspending in certain categories, even if you think you have them under control.

How to track expenses without wasting time?

To start, I’ll show you a popular method promoted by many financial personalities and how much time it wastes—so you can realize the gap between good and bad advice.

The bad method:

• Collect receipts and card payment confirmations.
• Assign them to the right accounts and sort them into piles.
• Do this all week long.
• Spend your weekend recording the expenses.
• Have no idea what was what anymore.
• Spend at least an hour doing it.
• Cry, just like when your first school crush laughed at your efforts.

Do you really want to spend 4 hours a month logging how much you spent on a candy bar or painkillers just because your head is spinning from the absurdity of it all? That’s 48 hours a year—two full days wasted. Or perhaps you’re running full accounting for a limited liability company and have slightly misunderstood the concept of working from home?

Let’s face it. There is no reason to waste that much time. There’s a better way. I’ll show you how I track my own expenses in less than 15 minutes a month.

A better method:

• Open a separate account or sub-account for your shopping.
• Use it for all your payments.
• Log your expenses daily.
• Build the habit, and with practice, you’ll get faster and faster.

Personally, when I get home from shopping, I leave my receipts by the computer. When I sit down, I enter the day’s expenses into Excel. It takes me 20–30 seconds, and everything is categorized correctly. Believe me, a quarter of an hour a month is no exaggeration. I tracked it for a blog post, and it came out to exactly 14 minutes and 57 seconds. You won’t be that fast at first, but you’ll get better as you get comfortable with your tool. It’s just a matter of habit.

Even faster expense tracking

Not every receipt can be assigned to a single category. It’s obvious that when you go for a big grocery run, you’re buying food, cleaning supplies, small gadgets, and various other knick-knacks. Picking out individual items from a receipt longer than your vacation is time-consuming and exhausting. You don’t have to do that at all. There’s a simple workaround. Just group your products on the conveyor belt at the checkout and ask for separate receipts—for example, one for food and one for household chemicals. A moment of thought at the shopping cart will save you from the tedious task of adding up dozens of items at home.

Furthermore, if you don’t like Excel or simply prefer a mobile app, you can enter the data right as you leave the store. This completely eliminates the ritual of sitting down with your receipts and setting aside dedicated time for it.

As for time management, beyond logging expenses, all that’s left is analyzing and planning your budget, but we’ll cover that in future posts.