Why tracking your spending matters
First things first, why should you bother tracking your spending? Well, it’s simple: if you don’t know where your money is going, you can’t control it. Keeping tabs on your spending helps you:
- Budget like a boss: Tracking your expenses gives you a clear picture of your financial habits. This knowledge is your superpower when creating a budget that works for you.
- Avoid debt and build savings: By understanding where your money goes, you can make informed decisions about how to save more and steer clear of falling into debt.
- Achieve financial goals: Whether it’s saving for a dream holiday, a new gadget, or your university education, knowing your spending patterns will help you make steady progress towards your goals.
The basics of tracking your spending
1. Keep a detailed record
The first step to tracking your spending is to keep a record of every penny you spend. You’ll need to be specific and include the date, amount, and what you spent it on.
You can do this in various ways, such as using a notebook, keeping a spreadsheet, via an envelope budgeting system (also known as cash stuffing), or nowadays there’s also plenty of apps that will help automate a lot of this record-keeping.
Your banking app might already have this functionality, particularly if you use a Challenger bank like Monzo, Revolut or Starling.
Otherwise, look for a budgeting app. Tracking your spending and budgeting go hand-in-hand, so lots of budgeting apps have this functionality.
2. Categorise your expenses
Now that you’re tracking your expenses, it’s time to categorise them. This helps you see where you’re spending most of your money.
Think about categories for fixed expenses like rent, gas/electric and your phone contract. Also consider categories for variable expenses that change from month to month, like food, transport and clothing. Be sure to also include a category for saving or investing, and for fun things like shopping, movies and going out.
Three Top Tips
The first step in tracking your spending effectively is selecting the method that suits you best. The methods we mentioned above were using a notebook, spreadsheet, envelope budgeting system or budgeting app. If you’re into taking notes, paper and pen could be great. If not, how about an app?
If you decide to use an app, there are countless options available, so here’s what to consider:
- User-friendly interface: Look for an app with an intuitive, user-friendly design. You want an app that makes it easy to enter and categorise your expenses.
- Automatic data import: Many budgeting apps sync with your bank accounts and credit cards to automatically import your transactions. This saves you time and ensures your data is up-to-date.
- Customisation: Choose an app that allows you to create and customise spending categories to match your unique financial situation. The more flexible the app, the better it can adapt to your needs.
- Security: Ensure the app you select has robust security measures in place to protect your financial data. See more detail on this below!
- Budgeting features: It’s helpful to use the same app to manage your budget. Therefore, check out the app’s budgeting features. It should allow you to set spending limits for each category and track your progress.
- Cost: Some budgeting apps are free, while others may have a monthly or annual fee. Consider your budget and willingness to invest in an app’s premium features.
Take a look at our article: Apps to help invest or save money
For tracking your spending to be effective, you must regularly input your expenses and income. Consistency is key.
Here’s how to do it:
- Set a routine: Designate a specific time each day or week to update your spending tracker, whether that’s your notebook, spreadsheet or budgeting app. This consistency will help you stay on top of your finances and make it a habit.
- Keep receipts: Whenever you make a purchase, hold onto the receipt. This can help you accurately categorise your spending later and avoid forgetting smaller expenses.
- Review transactions: Regularly review your bank and credit card statements to ensure that all transactions are accurately reflected in your spending tracker. Mistakes can happen, and correcting them promptly is important.
See how much money you’re spending in each category. Is it what you expected? Are there areas where you can cut back to increase your budget elsewhere? Make use of any insights to review and adjust your budget.
If you’re using an app to track your spending, it likely also comes with analytical tools built-in. If available, the following features might offer helpful insights into your financial habits:
- Expense trends: Most apps provide detailed graphs and charts that illustrate your spending patterns over time. Review these trends to identify areas where you consistently overspend or areas where you can cut back.
- Category breakdown: Analyse your spending categories to see which ones consume the most of your budget. This can help you make informed decisions about where to allocate more or less money.
- Income vs. expenses: Compare your income to your expenses. It’s a crucial step in assessing whether you’re living within your means. If your expenses consistently exceed your income, you’ll need to make adjustments.
- Financial goals tracking: See if your apps will allow you to set specific financial goals, like saving for a holiday or paying off debt. Use these tools to monitor your progress toward achieving your goals.
- Alerts and notifications: Enable alerts or notifications within the app to keep you informed about your spending status. These can help you avoid overspending and stay on track.
Check before allowing access to your banking data!
There are hundreds of apps out there claiming to fix your spending habits, but how can you tell which ones are safe to try?
Most ask for details that will allow them to access your banking data – that’s sensitive information. Not only should you check that the app is legit, but that it also has proper security measures in place to protect your data in the event it’s hacked.
Along with having a look at customer reviews, there are three key places to check:
1. Check the FCA register – A company’s regulatory information is usually found at the bottom of their website. You’ll see their trading name and FCA reference number (called FRN). This number helps ensure they’re legit. Check if it matches what’s on the FCA register. If they’re not on the FCA register, find a different app to use.
2. Check openbanking.org.uk – Visit openbanking.org.uk to see if an app or service is approved. Keep in mind, not all regulated apps may be on this list, as some access open banking via another approved company. But in that case, you should be able to find the details on the company’s website alongside their other regulatory information, such as their FCA reference number.
3. Check your data permissions – The information you share through open banking is protected by GDPR laws. That means your personal data can only be used for what you’ve specifically agreed to. It can’t be shared or stored forever, and you should be able to say ‘stop’ anytime.
If an app doesn’t show up during these checks or doesn’t follow these rules, it’s better not to give it access to your data.
Summary
Tracking your spending is a game-changer for your financial future. It’s not about restricting yourself but gaining control over your money so that you can make it work for you.
By selecting the right app, consistently inputting your expenses, and setting and monitoring the analytical features, you can work towards your financial aspirations with confidence.
Remember, it’s your money, so let it work for you, not the other way around!