Three Ways to Track Your Spending

Many Americans who find themselves living from paycheck to paycheck simply spend until they run out of cash—a recipe for disaster. Instead, an accurate system of accounting for expenses is key to a healthy financial life.

Get control of your money by tracking how you spend it. Consider one of these three easy methods to help:

Envelope System—This basic system is great for those with a tendency to overspend. Simply cash your paycheck and place the bills in envelopes corresponding to your budget categories: housing, food, clothing, entertainment, etc.

If you budget $50 for entertainment, put $50 cash in your monthly “entertainment” envelope. As you attend movies, concerts, plays, and sports, pay with money from this envelope. When the envelope is empty, you’ve reached your limit. If you find yourself tempted to “rob” another envelope, re-evaluate your budget. Put your receipts in each envelope to later analyze your spending patterns.

Ledger System—This system, which works similar to a checking account, requires more accountability and time but offers better spending information. Deposit your paycheck and use a ledger or a notebook to record your spending. On separate pages, write the monthly budgeted amount for each category. Expenses are subtracted and deposits are added to this figure in a continual increase and decrease to the account.

Take the same $50 entertainment budget and write it on your entertainment page. If you spend $10 at the movies, write “movies -$10,” leaving a balance of $40. Do this with each expense. Next month, write “deposit +$50” and add it to the current balance. If you have a negative number, you need to reassess your budget—are you spending too much in this area? Can you spend less in another area to compensate? If you can’t find a solution and you’re consistently in the red on several of your accounts, consider using the envelope system.

Electronically—If you own a computer, track your spending electronically. Quicken and Microsoft Money are two good financial programs that not only track your spending but also help with extras like recording your household inventory for insurance purposes.

Their versatility allows you to analyze your spending in a variety of ways, even providing a “net worth” graph as an incentive for saving and reducing debt. Both programs are relatively easy to use and are inexpensive (about $30).

Any of these three methods will help you track your finances and manage your money. Choose one that works best for your temperament and lifestyle, and stick with it.

John Nardini, a Michigan financial adviser, is a frequent contributor to American Profile.

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