How to track monthly expenses

If you're ready to get your finances in order, you've probably heard you need to create a budget. A budget is a great first step and can help you create a solid financial foundation for your future. A key part of knowing if your budget is working is tracking monthly expenses. Without tracking where your money is going, your budget isn't of much use. In this guide learn how to track spending habits and why it's important. 

The importance of expense tracking 

There's a difference between planning and doing. Planning can make us feel productive, but it's the doing that puts everything together. 

Think of your budget as the planning and tracking monthly expenses as the doing. After all, if you set a budget with amounts in each category, how else will you know if you're actually sticking to a budget? Monthly budget tracking serves as a reference point and can let you know if you're within your budget or going overboard and need adjustments. 

Expense tracking is the process of going through all of your expenses and reviewing how much you spent. If you're just starting to create a budget, you can divide your expenses into three main categories: 

1. Needs 
2. Wants 
3. Savings 

Tracking your expenses using these categories can help you create an accurate and realistic budget. It can also give you a birds-eye view of where your money is going. For example, you might see that more money is going toward the “wants” category and less toward “needs” and “savings.” 

Seeing that, you can make adjustments to your budget so you can start an emergency fund or pad your savings and reduce your discretionary spending. This can free up funds to help you achieve your long-term financial goals. 

Wants vs. needs 

Creating a budget means fine-tuning your finances so you can manage your money and achieve your goals. Knowing your wants versus needs is a key part of that. 

Your wants are the things you want but don't need. Your needs are an absolute necessity to cover the basics. It's important to know the difference because you may not have as much wiggle room to cut down on your needs. Plus, wants vs. needs comes in handy with the 50/30/20 budget. 

On the other hand, reducing expenses from your wants categories tends to be easier (even if it's not as fun in the moment!). 

Below is a list of common expenses divided by wants vs. needs. A way to decipher whether an expense is a need or a want is to decide if that purchase impacts your basic living requirements or not.  

Wants 

• Dining out 
• New Clothing 
• Jewelry 
• Vacations 
• Self-care items (spa packages or pedicures) 
• Home decor 
• Gym memberships 
• Concerts 
• Streaming services 

Needs 

• Rent / Mortgage Payment 
• Groceries 
• Utilities 
• Transportation costs 
• Health insurance 
• Childcare 
• Student loans 
• Car loans 
• Child support 

Tips for tracking your expenses 

Tracking monthly expenses can be tedious but once you find a system that works for you, it'll be easier to stay consistent.  

Here are some tips for monthly budget tracking: 

• Use exact numbers. Record the dollars and cents of your expenses and use exact numbers. Everything adds up and this method offers clarity so you can see what you're actually spending. 
• Record transactions after purchasing. Write down your transaction after you make a purchase, with the vendor, item purchased, and amount spent. If you do this for one month, you'll be more connected to your spending and can avoid mindless spending. 
• Find a method you can stick with. Whether it's pen and paper, a budgeting app, or simply your banking app, find a method that helps you track your spending. Make it a habit and check daily. 
• Have a plan for cash. It can be easy to review expenses from your debit or credit card. If you use cash, it can be harder to track. Consider saving your receipts or writing down how much you spend and on what when making cash transactions. 
• Stay on course. Budgeting is a process of trial and error. You're human and things happen. So, if you're thinking “What should I do if I overspend in a certain category?” — make adjustments for the future and try again. Avoid beating yourself up about it and recommit to budgeting and tracking monthly expenses. If you consistently go over, you may not have an accurate budget and need to make changes to the amounts in certain categories. 

Tools for tracking monthly expenses 

If you're looking for a monthly spending tracker, here's some good news. There are a variety of tools you can use to help streamline the process. You might try a couple of tools until you land on what works for you. Consistency is the goal. Here are some of the top tools for tracking monthly expenses. 

Pen and paper. You can go low-tech and track your monthly expenses in a notebook. Using pen and paper can be powerful as you hand write out your expenses each time you spend. The physical act of writing can make you more mindful about your purchases. 

Spreadsheets. You can also manually put your expenses into a spreadsheet. For example, using Excel or Google Sheets, you can customize your tracking system. Include the date, vendor, item purchased and amount spent. 

Mobile expense tracker apps. Using your mobile phone, you can use a mobile app that can help you track expenses easily. BMO’s Total Look makes tracking a breeze and helps you keep track of certain categories. 

Paid budgeting templates. Another option is using paid budgeting templates, such as Tiller or YNAB. 

Analyze your spending on a monthly basis 

Once you have a budget in place, you can start to track your expenses to see how you're doing. Your budget isn't something that's static and unchanging. Instead, it should be a flexible tool that can be adjusted as needed. 

So why is tracking your expenses throughout the month important? It helps you see where you're at now and how you can improve the next month. You can make changes to your budget as needed. Maybe you overspend in one category and underspend in another and can adjust the numbers. 

Tracking monthly expenses helps you see if you're on target and gives you a clear understanding of where your money is going. You've probably had times in your life where you've wondered where all your money has gone. This method provides you with the answers, so there is no guessing. 

If you'd like, you can also use multiple expense tracking methods at the same time. This may help you catch some errors as well. For example, you might track via pen and paper and with a mobile app. If you forgot to write an expense down in your notebook, your mobile app will have it. 

Sticking to a budget requires a monthly check-in, but you can consider doing a check-in weekly as well. Doing a check-in weekly can help you course correct faster and may help you achieve your financial goals faster. So, you overspent on take-out this week? Next week you'll commit to staying away from dining out. 

How BMO helps you to track your expenses 

If you want to streamline the process of tracking monthly expenses, you can use BMO's Total Look to see a breakdown of your expenses by category and set a monthly budget. The app can also highlight if certain bills have increased, so there are no surprises. Plus, you can compare the money coming in and out of your income by month so you can easily see if you spent much more than last month. BMO Total Look also breaks down your expenses by category which allows you to see how much of your budget is going toward a particular area. 

The bottom line 

Your finances require constant attention, but you don't need to put in constant effort once you get the right system set up. Using the right tools, tracking monthly expenses can be easy and streamlined. You can mix and match tools and find what works for your budgeting style. Though there may be a learning curve, you can adjust over time and practice until it's second nature. 

To stay motivated, remember that monthly budget tracking can help you make the changes you need to reach your financial goals. That way your money works for you and what you want out of life.