The Importance of Keeping Track of Expenses
Living within a budget is a critical part of maximizing the happiness profits earned by you and your family. But the only way you can "live within" a budget is by having a realistic budget to begin with.
In my experience the biggest reason most people fail at budgeting is because their budgets are based on overly optimistic spending forecasts instead of on historical facts. And after several failed attempts to live within these unrealistic budgets, most people just simply give up trying.
So if you truly want to maximize the emotional returns on the money you earn, the first step is to build a detailed and accurate record of your past spending. Once you have historical facts from which to base your budget on, the odds of successfully living within your means increases dramatically.
Keeping Track of Expenses the Hard Way
Most personal finance "experts" will tell you that the key to tracking your spending is to carry a notebook around with you and write down every penny you spend.
Well, that advice might have worked 20-30 years ago, but in today's hectic, fast-paced world, thinking you will stop to write down every expense as they occur is just not a realistic solution for keeping track of expenses.
After all, not only do you have multiple sources from which to spend money (cash, checking, savings, debit card, credit cards, money market account, etc.), but you can also spend money in multiple environments (online, offline, etc.). Plus, where we used to live our lives in 6-hour blocks of time, we now live our lives in 2-hour blocks of time.
Add all of these time pressures and financial complexities together and it's no wonder why so many people give up trying to keep track of their spending.
An Easy System for Personal Expense Tracking
Did you ever stop to consider that someone is already keeping track of your spending?
Nearly every time you spend money the person or business receiving the money keeps a record of what you purchased and when you purchased it. And you, as the consumer, have the right to insist they provide you with a copy of that record ... otherwise known as a receipt (sales slip).
In other words, instead of always stopping to write down what you are spending, all you need to do is always insist on getting receipt, and then accumulate all of your receipts until you have time to enter them into your spending journal.
Of course, if you misplace or throw away those receipts, insisting on getting a receipt for your purchases won't do you any good.
How to Track Expenses Using Purchase Receipts
I have been using the receipt system to successfully track my own spending for years. In fact, the Purchase Receipts Calculator on this page is actually a tool I built for my own use several years ago. If you've given up on keeping track of your spending, I strongly encourage to give this system a try. Here are the basic steps to using the receipt system.
- Never, ever leave a spending event without a detailed receipt. In most cases the receipts you get will have the date, a breakdown of what you purchased, and the last four digits of your spending source if purchased with plastic. If the receipt you are handed fails to include these important bits of information, you will need to manually add them at that very moment.
- Don't allow a clerk to put your receipts in a bag. One of the things I learned early on in my use of the receipt system, is that shopping bags are like the Bermuda Triangle for receipts. I would see the receipt get put into the bag with my own eyes, yet later discover that the receipt had gone missing.
- Designate a spot in your purse or wallet to place all receipts. Take my word for it, if you put your receipts in different locations on different occasions (pocket, purse, glove compartment, etc.) you will end up losing track of valuable records of your spending.
- Designate a high-visibility spot on your desk for accumulating receipts. Periodically transfer the receipts from your wallet or purse to a designated, highly visible spot in the area you do your bill paying and money management.
- Designate a block of time each week for recording receipts. Think of a time each week that you almost always have a block of discretionary time, and designate that time to transfer the important information on your receipts to your preferred personal finance software. Early Sunday mornings have always worked the best for me.
Why Use the Purchase Receipts Calculator?
By now you are probably wondering why you would want to enter your receipts into the Purchase Receipts Calculator, only to have to then enter the same information into your personal finance software. Here are a few reasons I use the Purchase Receipts Calculator before entering the information into my own personal finance software.
- To Stay Fully Aware of the Opportunity Costs of My Spending. On the printed spending report, every itemized expenditure lists the calculated time and financial opportunity costs they created. Just seeing how much you are giving up in return for what you are getting can help to make a significant increase in the emotional returns you are getting from the money you earn.
- Allocate Sales Tax to Responsible Spending Categories. One of the most time consuming tasks in the receipt system is the process of separating taxable purchases from non-taxable purchases. In other words, if I have a receipt that includes items from more than one spending sub-category, and I want to allocate sales tax to the responsible expenditures, I need to first separate the taxable from non-taxable, and then multiply each categorized taxable amount by the sales tax percentage. The Purchase Receipts Calculator does all of the calculating for me. So even if you choose not to enter all of your receipts into the Purchase Receipts Calculator, you might still find it useful for those receipts that cover multiple taxable and non-taxable expense sub-categories.
- Detailed Hard Copy of Spending Record. If something happens that causes me to lose the data stored in both my personal finance software and my back-up copy, I will still have a written record to rebuild my data from. Plus, one thing I don't like about personal finance software is that it stores your information in the background of your life (out of site out of mind). My printed spending and opportunity cost reports sit prominently on my desk (foreground) where I can't help but notice them.
If you notice a spending sub-category that you think should be added to the Purchase Receipts Calculator, please let me know using the feedback form located beneath the calculator.