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The 12 secrets to effective expense tracking

Aug 3, 2018

We have been tracking expenses for more than 10 years. After a shocking discovery in 2007, we finally decided we wanted to understand how we were spending our money. So we came up with a super simple way of tracking our expenses which worked extremely well for us. It quickly became an habit, something we now almost do on autopilot.

Our secrets for effective expense tracking

Surprisingly, it’s not that easy to track expenses in a regular and effective way. Most of the times, the temptation is to overcomplicate things, making them difficult to stick to. We used the opposite approach, which we found very easy to stick to, and also very effective. So what made it work? The following are the secrets we have learned.

1. Simplicity is key

From the very beginning, we chose to track just 4 things: Date, item, amount paid and cumulative cost. Everything was paper based, and the cumulative amount was calculated manually. Keeping things simple was paramount to be able to form a habit around tracking expenses. Don’t be tempted to add more to this at the beginning (categories, moving averages, etc.). If it’s too complicated, you’ll find it difficult to stick to it.

2. Approximation helps

This goes hand in hand with the concept of simplicity. We use short descriptions, and round up (or down) all the costs, so everything becomes quicker. We don’t itemise bills unless it’s needed for a specific purpose. If we went to the shops and spent £51.65 (of which £32.77 in Groceries and £18.88 in toiletries), our entry would simply be: “12/7/2018, Shopping, £52”.

3. Forming a habit is paramount

Tracking expenses needs to become a routine, otherwise it’s pointless. How can you decide whether you need to make adjustments to your expenses if you only tracked half of it? Make sure by the time you go to bed, your expenses are all tracked. Set a reminder on your phone if needed.

4. Daily tracking is important

Writing down expenses daily helps a lot. Not just because they are easier to remember, but also because it forces you to check the cumulative amount as you go along. This makes it easier to adjust course, when needed.

5. Don’t break the habit

One of the barriers we found is that sometimes you can’t remember how much you have spent – especially if you’re tracking it a few days after the event. Try to resist the urge to skip tracking for the day. If you can’t remember the exact breakdown of expenses on a given day, just write down the total, eg. “12/7/2018, Various things, £20”. How do you know the total, if you don’t know the single items? Maybe you had £50 when you left home in the morning, and in the evening you only have £30.

6. Don’t break the habit, part #2

If you have a complete black-out, and you can’t even remember the total for the day, give it your best shot or use a standard amount. This usually happens when you haven’t been tracking your expenses for weeks, and now you are trying to backfill the ledger. What I typically do in these situations is to add a standard entry: £10 for days when I kind of remember having nothing more than lunch at the office, and £50 if I reckon I might have spent on something else.

7. Start manually!

If you have never tracked your expenses, you may be tempted to use your phone, or excel, or similar, to start tracking them. However, it is much better to start with just pen and paper. Don’t overcomplicate things. You don’t need charts, pivot tables, and so on – especially at the beginning. Your main goal is to form the habit, and this is best accomplished in a manual way. With time, and only once the habit if fully formed you can then switch to other methods.

8. Review your progress once a month

This is a great occasion to check how the month went, and reflect on what worked. Did you notice a pattern? Is there an expense you could have spared? How much of your salary have you saved, if any?

9. Do it with someone else

Having someone who can remind you to track expenses, share your successes, and discuss your findings is a very effective way of sticking to it. It works for diets, exercise and pretty much anything else that requires a regular habit. This definitely worked very well for us, as sometimes one would forget of something they had bought, and the other would remind them (typically: I would forget, and H. would remind me!)

10. Don’t forget recurring costs

One of the key reasons why companies always try to sell subscriptions, is that people forget about them. These expenses – and anything else that regularly leaves your bank account without you triggering it – should be monitored closely.

11. Always check your automated payments

One of the other key things companies try to do is to get direct access to your bank account, via direct debit or similar. My mobile phone for me was a prime example. I would remember to track my monthly cost as £18. However every month Vodafone would charge me for additional traffic (eg. international calls), sometimes bringing the bill up to £80! Make sure you keep an eye on those costs, and track them correctly.

12. Start now!

Tracking expenses only takes 1 minute, and the benefits are great for such a low amount of effort. As I said above, don’t waste time preparing for it. You just need a piece of paper and 4 columns. Do it now! Try to go back a few days, if you can remember, otherwise just write the expenses so far today, and you’ll see the benefits in just a few days.

Your expense tracking system will evolve naturally

We started tracking our expenses in 2007, and since the beginning our 4-point method has been extremely good at letting us form the habit we needed.

However, any system can evolve over time, especially once the habit is fully formed. We are always looking for new ideas to improve it. How do you track your expenses? What are your secrets?

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