Why Keeping Track of Expenses Is Important

My first goal in my quest to pay off my student loan debt is to track every penny I spend in the month of January. It’s tedious. It’s sometimes hard to remember. And it’s hard to wait a whole month before really setting up the budget. But tracking expenses is important, when it comes to debt repayment.

Expense Tracking Shows You Why You’re in Debt

If you’re in debt, most of the time it’s because you’ve overspent. Exceptions would be if you only have mortgage or student loan debt. But most Americans have credit card debt. In fact, the average amount of credit card debt for each household in the U.S. is $9,797.38. That’s a lot of debt.

Without tracking your expenses, it’s hard to know where you’re overspending. How many times have you walked into Target and spent $100, only to forget what you bought a week later? I know I’ve done that more times than I can count!

But if you separate your Target receipt into categories and write down what you’ve spent in each category, after a month you will have a pretty good idea of where your money is going. Maybe you have a tendency to pick up a 20 oz. bottle of soda, while you’re in the checkout line. At $1.50 a bottle, that can add up quickly. Maybe you’re tempted by cute clothing that’s on sale. Tracking your expenses will show you how much you’re really spending on clothing in a month. It might be more than you think!

And at the end of the month, you can compare your tracked expenses to your actual income. When you have the numbers in front of you, there will be no denying it, if you’ve spent more than you earned.

Expense Tracking Shows You How to Get Out of Debt

The flip side to seeing why you’re in debt is knowing how to get out. And expense tracking can help you do that too. Tracking your expenses will show you how much you spent on necessary thingsā€¦and how much you spent on unnecessary things. Looking at those unnecessary expenses will show you where you can cut your budget, so you have the money available to pay off debt.

What are you spending on clothing? Eating out? Entertainment? Can you cut the grocery budget by shopping at another store? Couponing? Cooking more from scratch?

Looking at your recorded expenses will point out areas of excess spending or budget leaks. By reigning in the spending and plugging the leaks, you’ve taken the first step towards getting out of debt. Know what you earn. Know what you spend. And make sure what you spend is less than what you earn.

16 thoughts on “Why Keeping Track of Expenses Is Important”

  1. It’s true, most of the Americans are have credit card debt. In a way it’s become part of the culture, but I guess that if you wouldn’t use it, you would be more aware of your expenses. Using cash to pay for things for example, will definetly show you where the money go!

  2. The MoneyMans idea is good – I also like a whiteboard with details written on – then it’s clear to see all the time. I agree… on a computer you can choose not to look!

  3. Still use credit cards? SECURITY???? ;)

    In terms of keeping track of your expenses…how do you all do it?

    I found that if I kept my records on a computer I didn’t look at/update them that often. So now, at the beginning of every month I start a new envelope. Every time I spend money, I put the receipt in the envelope and on the outside of the envelope I keep a running tally of how much I’ve spent that month in various categories.

    So 1970s, I know.

  4. Now that we are at the beginning of the new year, i need to recheck our budget, to see if any category is out of wack. This is only possible if you track spending.
    Whenever I tell people about how we paid stuff off, they look at me like I am some kind of possessed accountant or something. So far from the truth. ZEven though we have been tracking for a while, we are still surprised by charges that ocme through that we have to sit back and say, what on earth was that for.
    Okay, i just let it slip that we still use credit cards. Shoot.

  5. I’ve done this for two years now….I just carry a spiral and keep track of every penny spent and what receipts I can and then at the end of the month post it to a spreadsheet I have set up….very informative…. wish I could do as good with calories!

  6. We’ve been tracking expenses for 18 months now. It has definitely made a big difference, we’ve reduced our spending by thousands without a diminished quality of life. However, after reviewing our first full year we found out we were missing something big. I just admitted to our mistake on my blog with the post Budgeting Review = Red Flags. This year we are not just going to track expenses, we are going to track every dollar.

  7. I’ve done this before and it’s amazing how much it makes you “think before you buy”. Just knowing you’ll have to go write it down makes impulse spending less attractive.
    (This also works with calories too! Sometimes I just won’t eat the cookie, knowing that I’ll have to note it. )

  8. Great post. I have used Mint some, but it would track much better if I broke down the receipts to the correct breakdowns. I know for the past few months I have tried to walk around Wal-Mart or Target with blinders on except for the things I need. I was just at Wal-Mart this morning and started to look at the $5 DVDs – thankfully I stopped myself as there are more important things I need.

    TheMoneyMan-Leo – Great idea about giving yourself the month by month resolution. I think that it is easier to keep to something when you can actually see the ‘return’ in a shorter amount of time.

  9. Great “how to” or “why to” post! We just started really detailed tracking of our spending last week, and I’ve already been amazed at how much we spend outside of our specified budget! Yikes!

  10. I use Mint too Elle. The good thing, although I rarely do it, is it allows you to assign multiple categories and amounts to a single transaction. My Wal-mart transactions are usually categorized as Groceries even though I know that I buy some household items when I’m there too. I’m going to be more diligent about checking Mint weekly. Last year, I rarely looked at it because I knew my spending was out of control, but this year, I’m on top of it. I’m working on building my Emergency Fund and I’m cutting expenses way back. Thanks for the post!

  11. In our house when I was growing up, it was always thought okay that if we overspent *here* it was okay because we always underspent *here*. I changed that when I got married so that the budget reflects what we spend and in what area!

    I tend to check it every couple of months just incase it needs adjusting, but so far we are doing okay!

  12. Good plan…don’t resolve to do this for a year…just a month.

    At the end of the month you can resolve to do it again for just one month.

    You don’t have to do it forever…the Rockefeller boys did and they turned out OK…but 30 days will give you good insight.

    Keep asking for those receipts!

  13. I think you bring up a good point in tracking expenses down to the item. I use Mint to track my expenses, but I usually just categorize receipts from Wal-mart or Target as household even though it also include a couple of food items and some clothing.

    As tedious as it can be at first tracking expenses has been a huge help for me and it helped us to eliminate credit card debt and pay off our car loan. Thanks for the great post!

  14. We are hitting our debt hard this year, so I am tracking our expenses every month. I noticed last year when I did this, after going over where we overspent the month before, we always did better the following month!


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