In our previous article, "Creating a Budget," we discussed different methods for developing a budget. In today's article we'll be sharing ideas for how to actually track our expenses. Creating a budget won't do us much good if we can't develop a system for tracking every penny we spend. To track our spending we'll discuss two methods.
Personal Finance guru Dave Ramsey published a book in 2003 entitled The Total Money Makeover. In the book, Dave suggests using a system of envelopes each week if you are going to pay cash for daily expenses instead of using a debit card. At the beginning of each week Dave believes you should put enough cash in an envelope to cover one category of expenses. For example, if you plan on spending $40 dollars on eating out, then on Monday morning you put $40 dollars in an envelope titled food. You should do the same for gasoline and other expenses. To implement this you could take the dollar amount you expect to spend in a month and divide it by 4, thus giving you the expected weekly amount. You are only allowed to spend the amount of money in the envelope within the week. This forces you to stick to your budget and also insures that you are tracking your expenses.
Another method is to simply use a debit card, keep your receipts, and then each night record your spending into the budget. The envelope method has an advantage, since it's quite clear as the week progresses if you are spending too much. When using the debit card method it's more difficult to know if you are about to go over your weekly spending allowance or not.
Though Dave is a firm believer in using the cash/envelope method, I believe either one can be sufficient. The envelope system may not prove suitable for everyone. If you find yourself using the debit card and keeping receipts, the key to success is recording the receipts into the budget each day or two. Implementing a budget is likely to prove flawed unless you focus on it daily!