Track Income and Expenses to Improve Personal Finances
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With the fourth quarter of the year just starting, I’ve heard a lot of chatter about planning and goals. Today, I wanted to share another way you can use your planner—to track your income and expenses to improve personal finances.
I started tracking my income and expenses at the beginning of this year as a way to keep an eye on the mountainous pile of debt I’d been accumulating. I like using Google Sheets, but you can easily do a quick tally at the bottom of a daily planner spread to record your income and expenses for that day.
Why hadn't I tracked my personal income and expenses before?
I guess I thought if I ignored my debt it would, one day, magically disappear. But once I realized I needed to get real and deal with my finances, tracking everything going in and out of my bank account became the natural first step.
Improve awareness to improve spending habits
I was happy to make like an ostrich and stick my head in the sand when it came to my finances, but by doing that, I was ignoring the problem. The first step to getting your spending back on track is becoming aware of what you’re doing with your money. This opens many pathways to improvement.
Once you realize what’s going in and out of your accounts, you can see where you need to make changes. I was constantly scrambling to transfer money from one account to another because I’d forgotten about an upcoming automatic payment. It took me about three months of tracking my spending to finally have all my payments accounted for so I could plan for them and make sure I had enough money in my account to cover them.
Make it a daily habit by linking it to an existing habit
The key to improving your personal finances by tracking your income and expenses is making it a daily habit. It’s not such a big deal when you do it every day, but if you wait until the end of the week or the end of the month, not only will you feel overwhelmed with the amount of transactions you have to record, you will also have missed opportunities to plan for upcoming payments.
I think it was in James Clear’s Atomic Habits where I first read that it’s easier to make a new behaviour a habit by linking it to an existing habit. Try tracking your income and expenses while you’re having your morning coffee or maybe while you’re winding down for bed. Set a reminder for yourself so you’ll get in the habit of seeing what’s going in and out of your bank and credit card accounts every day.
Compare your balances
A quick and easy way to check that you’ve recorded all the transactions in your bank or credit card account for the day is to compare the balance you calculate to what is showing in the reference you are using (that might be a bank statement or your online account).
For example, if your bank balance is $125 and you see that service charges of $10.95 and a cell phone payment of $65 came out of your account, you would calculate your new bank balance as 125 -10.95 - 65 = $49.05. Then you need to check the balance showing in your account. If it says $52.05, then you know you’ve missed something. It’s the exact same process you would follow to balance your cheque book.
If you write a cheque and the person you give it to doesn’t cash it for a while, you will have a difference between the balance you record and the balance showing online. As long as you know why there’s a difference, that’s okay. For example, if we start with the $49.05 from the last example and you write a cheque for $30, your new bank account balance is 49.05 - 30 = $19.05. If the person you give the cheque to doesn’t cash it right away, the balance online will still show $49.05. You’ll be able to see from the statement that the cheque hasn’t been cashed yet. Always know why there’s a difference between your reference point and what you are tracking.
I was surprised to see my personal finances improve by implementing this simple step of tracking my income and expenses. Not only was I able to stop my debt from increasing, but I was able to decrease it a little as well.
The benefits of tracking my income blew me away. It was one of those things I always knew I should be doing, but fear of facing my debt stopped me. As a former accountant, I know the impact tracking income and expenses can have on a business, but now I see what a huge impact it can have on personal finances too.
