There are some principles that most people collectively agree are part of good financial management: try to pay off your debt quickly, save for your future, check your credit score at least once a year and spend less than you earn, just to name a few. You’ll also find tracking your spending on this list of financial must-do’s.
I agree with most of those financial rules — except for that last one. I don’t think everyone needs to track their spending, and, for some, I think it might even be detrimental. Here’s why I don’t do it, and what I do instead.
There Is a Time and Place for Spending Tracking
First, full disclosure: I have tracked my spending in two situations in the past. The first time was when I began getting my money under control. I was trying to figure out how to budget; without knowing how much I was spending, any budget I would have made would have been useless. And the second situation was when my lifestyle changed significantly: I moved to a city with a higher cost of living and bought a house. In both situations, I briefly tracked my spending for a few months.
But other than that, spending tracking is largely unnecessary, and in some cases, downright cumbersome. There are many ways to track your spending, from the quaintly archaic pen-and-paper method to the modern apps like Mint, which import your transactions and (attempt) to categorize them automatically.
I say these apps attempt to categorize your spending because they often get it wrong, which leads to the laborious task of manually entering your spending. I don’t know about you, but the idea of manually entering in yesterday’s coffee makes me want to give up this whole money management thing for good.
I could do it for a while — but forever? No thanks.
Budgeting and Funds
Instead of sorting my transactions into categories and agonizing over every last cent spent, I have a budget and use a fund system. Here’s how it works: Every month I budget a certain amount for various categories like gas, groceries, pets and personal spending. On payday, I automatically transfer amounts into those funds and update the totals in a budgeting spreadsheet. As long as money is available in those funds, I know what I can spend and what I can’t. If I don’t spend the allotted amount in a month, it rolls over to the next month.
It’s that simple: If I have money in the fund, I can spend it. If I don’t, I can’t.
I make most of my purchases with a credit card, which I pay off once per month, withdrawing amounts from the various funds as necessary. I don’t worry about tracking every purchase as they occur, and it takes about 15 minutes at the end of the month to reconcile what I spent with the money in the various funds.
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The biggest benefit to using budgeting and funds is that the funds accumulate. This accumulation is ideal for spending categories that aren’t consistent from month to month, like my pet fund. I only spend about $40 per month on my pets, but every July, my rescue dog Molly has her annual vet visit, which costs me several hundred dollars. The pet fund accumulates money throughout the year for this big purchase, and when I need the money, I know it’s there.
The second biggest benefit to the budgeting and funds method is that I only have to log into my online banking account three or four times per month. I tend to be a little obsessive, and when I track my spending, I scrutinize every purchase and feel guilty for spending money — even if I had budgeted for it. So, not tracking steers me clear of unhealthy micro-managing.
As long as I’m meeting and exceeding my financial goals, I don’t track my spending, and I’m not sorry for ignoring this boilerplate financial advice. If you’ve been managing your money successfully for a while, and you’re comfortable with your spending habits, consider taking a break from tracking your spending. You might find that it’s the best financial decision you’ve ever made.
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