A few years back, I’ve always wondered why I was never able to grow any money in my savings account. It wasn’t until I started to account for my expenses that I realized how much I am actually spending on a daily basis. As we go about our lives, we often only remember the expensive things we bought or the bills we regularly pay. We tend to overlook the small expenses which usually sums up to a significant amount at end of the month.

How To Keep Track of Your Expenses

Carry a tickler notebook or put a small piece of paper in your wallet to jot down your expenses. Using the notepad function of your PDA or mobile phone is also effective. It is important that you take note of your spending as soon as it was made because you might forget about it later on (Trust me, this has happened to me so many times.)

Make a simple spreadsheet document to list your expenses. Include the following columns: date, amount, particulars and type. The last column is where you will classify the expense to be necessary, investment, avoidable and frivolous. These four expense types are the ones I use but if you want to create your own classification, then go ahead. Just make sure that you can differentiate which among them are necessary and unnecessary expenses.

Necessary expenses are essential costs of living, some of these include food, transportation and rent. Investment expenses are expenditures where you expect your money to return, lending money to a friend is a basic example. It can also include the purchase of items that will make money like buying an item which you plan to sell for profit.

Avoidable expenses are those you incurred under circumstances where a cheaper alternative was possible, example of which are cab fares you took because you don’t feel like riding a bus that day. Frivolous expenses are those which are totally unnecessary - that shirt you bought impulsively just because it’s on sale or that new can opener you bought from that television infomercial.

What happens next?

Now that you’re tracking your daily expenses, it will be easier to see if you’re living within your means. Some friends of mine found out that they are spending more than what they are normally earning after tracking their expenses for a couple of months; they changed their spending habits immediately and their savings account suddenly started breathing with life.

Moreover, tracking my personal expenses made me realize how I can save more money each month. I basically lessened my avoidable expenses and tried to abstain from frivolous expenses. Furthermore, I started looking for good investment expenses - like buying and selling computer parts online.

Learning how to live within our means is an important step in building wealth and a good grasp of our spending habits is an essential task we need to learn to achieve this.

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