Do you know exactly where all your money goes? According to a study of 1,000 people by the National Foundation for Credit Counseling, 56 percent of Americans don’t budget or track where their hard earned money is being spent.

About ten years ago, when I wanted to start building up a savings account, I stumbled on the book Your Money or Your Life by Joe Dominguez and Vicki Robin. The authors state that the only way to find out how much is coming out of your pocket is to track every cent. Yes, it sounds daunting, but you have to do it. It’s amazing how those “little” items add up: daily lattes, parking meters, chewing gum packets and trips to convenience stores. In fact, the term “latte factor” was coined by financial author David Bach to describe those items that slowly whittle away our cash.

I first started tracking my expenses in a small notebook that I kept in my purse.  At the end of each month I would put the amounts into an Excel spreadsheet. It was difficult at first. I was tempted to skip a few items or just round the amounts up or down. However, I stuck to it.  After the first three months, I was amazed at where my money went. Clothing and gas was much more than I thought it was, and all those trips to Home Depot for home projects…yikes!

Now, after about twelve years of tracking my daily expenses, I’ve increased my net worth by $220,000. I’ve been able to pay cash for a new car and will be paying off my house in about 5 years.

Of course, I’ve updated my tracking skills and now use an app on my iPod Touch called iXpenseIt.  Although, I still do my monthly expense sheet update in Excel. The spreadsheet also tracks my savings and net worth.  The less I spend, the richer I become.

If you really want to pay off your debt and start accumulating savings, here are a few tips on how to take that first step and track your daily expenses.

You Don’t Have to Know Excel

The authors of Your Money or Your Life used just a piece of paper with a grid pattern on it to track their expenses. The columns will represent each month, and the rows will represent each category (mortgage, home, gas, clothing, baby, etc.). Use a new sheet (or Excel tab) for each year.

Track Expenses For Three Months

Three months of tracking will give you a nice overview of where your money goes. One month is not enough time to really see how you spend your cash.  Some months may be less expensive than others.

Don’t Wait to Record Your Expenses

The app I use to record my expenses gives me a daily reminder on my iPod to make sure I get those amounts in there. If you wait too long to record your daily expenses, you are bound to forget a few of them.

Use the “Miscellaneous” Category Rarely

It’s convenient to just put some of those expenses into the “miscellaneous” category and chalk them up to being a random cost. However, you might find yourself putting your crafting hobbies, bank fees or kid’s lunch money into “miscellaneous” every month.  It’s best if you create categories specifically for those expenses.

Don’t Double Count Your Expenses

A few years ago, I was teaching a friend how to track expenses, and I found out from looking at her spreadsheet that she was tracking her daily expenses and the payments to her credit card. What is on your credit card should already have been tracked the day you made the purchase on the card. Don’t record it again as you make a payment to that card.

Look at Each Category Every Month

Once you have gotten about three months of expenses together, take a good look at each category. Can the food category be reduced (with coupons!)? Can you spend less in the transportation category? What about reducing the beverages and snacks category? Having an overall view of what has been added up over the month will give you a better idea on how to reduce your spending.

Record Your Savings Too

Once you have reevaluated your spending and balanced your incoming cash with your outgoing expenses, it’s time to start tracking your savings. Create categories for short term and long term savings, as well as retirement accounts, IRA accounts, and education savings accounts. Over time, you’ll realize your savings will start to grow as your expenses continue to shrink.

This has been a guest post by Christine from Reno, NV
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How to Track Your Daily Expenses