Tracking your spending

You cannot improve what you cannot see. Tracking for just one month usually reveals at least one surprise, and that surprise is where your easiest savings are hiding.

Why tracking comes before budgeting

• A budget is a guess about the future. Tracking shows you what really happens.
• The CFPB suggests filling in a spending tracker for at least two weeks, or ideally a month, to get a clear picture of your habits.
• Track every payment, including small cash amounts, card taps, in-app purchases and money you send to friends.
• Knowing your monthly spending helps you pay bills on time, manage any debt and save.

Three ways to track

• Banking app: many bank apps sort card payments into categories automatically. Check the categories, because they are not always right.
• Notes or a spreadsheet: write the date, amount, what it was for and whether it was a need or a want. It takes about a minute a day.
• Envelopes: the envelope system puts cash into labelled envelopes for each category, such as food or transport. When an envelope is empty, you stop spending in that category.
• Chase notes that seeing cash physically decrease gives instant feedback, but carrying lots of cash has security risks and money in envelopes earns no interest.
• A digital version of envelopes is a set of separate savings pots or sub-accounts, one per goal or category.

Reviewing a month: a worked example

• Income for the month: AED 1,200.
• Spending: food out AED 420, transport AED 180, phone AED 75, clothes AED 300, gaming AED 120, gifts AED 60.
• Total spending: AED 420 + 180 + 75 + 300 + 120 + 60 = AED 1,155, leaving AED 45.
• Food out (AED 420) is over a third of income. Cutting it by half would free AED 210 a month for savings.
• Clothes were AED 300 in one month: ask whether that was a one-off (a wedding outfit) or a pattern.

Questions to ask at the end of the month

• Which costs surprised me?
• Which spending now looks unnecessary?
• Am I paying for subscriptions or services I do not use?
• Could I avoid any card or account fees?
• How does my weekday spending compare with my weekend spending?

Keep the habit going

• Pick one fixed time each week, such as Sunday evening, to update your tracker.
• Do not judge yourself harshly. The point is information, not guilt.
• If wants are taking too much, the CFPB suggests cutting back on some of them in the month ahead.
• After three months, you will have real averages to build a much more accurate budget.