bluntmoney.com

“Track your expenses for a month” is common advice for people who want to put together a budget or who find themselves running out of money before the end of the month, but I haven’t seen many directions on exactly how to track them. The actual physical method you use probably won’t matter — different things work for different people. You could use an Excel or OpenOffice spreadsheet, a paper notebook, a software program like Quicken or Money, etc.

What matters (at least for me) is how you decide to categorize things as you note them. For example, if you shop at Target a lot, it may seem logical to put down “Target” as a spending category. But what did you buy at Target? Soap? Cards? Clothes? DVDs? Frozen pizza? If you just have a category called Target, you won’t have a clear idea of what you actually bought or where your money is really going.

The same thing is true if you use credit cards — you might have a monthly credit card payment of $50. While it’s useful to know that you need to send $50 to your credit card each month, it’s much more useful to know what you actually used the credit card for during the month. Was it used for gas? Eating out? A subscription? Your cell phone bill? Those are the actual expenses — the $50 is just the payment that you’re making. (Unless of course you’re not using the credit card at all anymore. In that case, I probably would title the $50 payment something like “debt”.)

Only you can decide what types of categories best suit you. I have my own categories broken down and then organized by generalities as well. Occasionally I’ll add a new one, delete one that I no longer use, or modify one to make it clearer. I track my expenses every month, and find it useful to see the changes from month to month. (I track my income using this same method as well.) Every person’s list will be different, but the idea is to organize yours in such a way that you get the most benefit from it.