Years ago, a friend was alarmed to discover $2,000 missing from her bank account. She couldnt imagine how someone had managed to steal from heruntil she had the dawning realization that she was that someone. Over the course of a very stressful six-week period, she had blown two grand in dribs and drabs, never shelling out more than $45 at a time.
My friends situation is a textbook example of why understanding your spending is crucial to budgeting. But unless you happen to be the sort of person who actually enjoys spreadsheets (and, yes, they do exist), tracking your spending is probably about as appealing as a colonoscopy.
Thankfully, there are ways to keep an eye on your spending that dont require you to track every penny. Heres what you need to know.
Why your spending habits matter
At its core, a budget is a framework for determining how much money comes and goes each month. To reach your goals, you should be making active choices about your money, rather than simply letting the money flow through your hands without any forethought.
And this is why its so important to understand your spending habits, since that is the part of personal finance were least likely to think about before acting. While my friends loss of $2,000 was an extreme example, every single one of us has had a similar experience. Spending money is remarkably easy (especially in the time of one-click purchasing), but keeping a mental tally of our expenses is impossible.
There is no shortage of opportunities to spend and overspend and borrow to spend, meaning were fighting an uphill battle in trying to keep our expenses below our income. Tracking your spending is a way to force yourself to know your spending habits and think about your money choicesbut its not the only way.
Creating a budget without tracking
There are several ways to get a handle on your spending habits without having to track your expenses. Any of these strategies can give you the information you need to make proactive budgeting decisions.
Let a robot do it for you
Virtually every financial institution now offers a spending analysis tool that will show you where your money is going every month. All that you have to do is set up a regular date with your money to go over what information the banking robot has aggregated for you.
For many people, a monthly check-in will be sufficient, although newbie budgeters or anyone who struggles with overspending may want daily or weekly money dates. The good news is that the spending analysis tool is doing all the drudge work. All you have to do is figure out how the information they give you will affect your financial decisions going forward.
Limit your ability to spend
Tracking your spending is designed to keep you from going over your budgetbut you can also do that by setting and enforcing hard spending limits. Certified Financial Planner Roger P. Whitney developed this system, which he calls the Cash Flow Bucket.
Under this plan, youll start by having your paychecks deposited into your savings account, rather than your checking account. From there, youll set a maximum monthly spending limit for yourself, and have that amount automatically transferred to your checking account. Then you can simply spend money without tracking it throughout the month.
Just remember, you will need to regularly check your account balance to make sure you havent accidentally overspent. (But remember, the banking robots have your back here, too, since you can set up low-balance alerts when your account balance gets below a certain amount.)
The benefit of this system is that it gives you a monthly spending framework without asking you to track your spending. Since your income is deposited into savings, it also makes saving automatic.
Only track problem categories
Many of us are perfectly capable of making good spending decisions in most casesbut then make it rain the minute we find ourselves in a bookstore (or another den of sin and temptation).
If this sounds like your money situation, you could only track the specific categories that consistently cause you to overspend. Instead of having to keep track of every single purchase you make, you will only have to remember to log the purchases in your problem categories, and will still get a good sense of how much extra money youre spending.
This strategy also increases the likelihood that you will think twice before making a purchasebecause you know youll have to write it down. If you choose your two or three problematic spending categories to track, you still benefit from reconsidering the purchase before pulling out your credit card.
Take control of your spending
Despite what you may have learned, you do not have to track every penny to create a budget that works. However, you do need to basically understand where your money goes so you can make the best decisions about your finances. But there are a number of strategies that allow you to do that without becoming a spreadsheet geek.
To keep an eye on your money outflow without tracking your spending, consider using your financial institution’s spending analysis tool and setting up regular check-ins. Alternatively, you could have your income deposited into savings and only transfer your monthly spending amount into checking each month to limit how much you can spend. And for would-be budgeters who are generally frugal, only tracking the problem categories can provide the necessary spending insight to stay on budget.
Knowing exactly what you spend is less important than making sure you proactively think about your spending habits. Thats because its the active spending decisions, not the tracking, that prevents what happened to my $2,000? panic.
