Keep a spending diary to transform your finances

Do you ever feel that you just don’t know where all your money goes? It comes in, we (hopefully) pay off the essential bills, but after that it can often seem that there is just more month than money. 

It may be that you need to increase your earnings in some way, in which case you might like to read about some of the side hustles I have explored. But for many of us, a bit more organisation could make a huge difference. Keeping a spending diary can transform your finances, and here are some reasons why.

Why you should keep a spending diary

It helps you learn how to budget

Before you begin budgeting for the first time, it always helps to understand what you regularly spend your money on so that you can set a realistic plan for your money each month. You can see where your spends are essential and where they can easily be cut.

It helps keep you stick to your budget

Once you have a budget in place, you will want to stick to the plan. When you keep a spending diary you soon see when you are going off piste!  If you have overspent on a particular category, you can start to pare back.

It holds you accountable

Examining your spending habits in detail on a regular basis will hold you accountable. It can help you to identify, and hopefully change, bad habits. You gain greater awareness of your financial situation at any given time, instead of sticking your head in the sand and hoping for the best.

It relieves money anxiety

When you keep a spending diary and manage to stick to your budget, you will feel in control. If you have been getting through by the skin of your pants or, worse still, accumulating debt, this control will help relive some of your financial stress and prevent further debt developing.

It will help you reach your financial goals

Keeping your spending on track can allow you to identify and reach your financial goals. Whether your goals include paying down debt, saving for a mortgage deposit, creating an emergency fund, investing or working fewer hours, a few minutes a day to keep a spending diary will be worth the time spent.

How to keep a spending diary

When I first began tracking my spending years ago, I found a small notepad was the most practical spending diary for me. However, there are now many more high tech options. The trick is to find one that suits you and your lifestyle.

There are various apps, many of which connect to your bank account to help categorise your spending (I can’t recommend any as I am old school!). You could use a spreadsheet, of course, or just write your spending down. Many budgeting books have places to record your spending, as well.

However, you decide to keep a spending diary, it is important to record every single purchase that you make during the course of your day, from that chocolate bar, cup of coffee, takeout lunch, drinks in the pub, petrol for your vehicle or public transport costs, sweets or toys for the kids, etc. It all adds up.

Make a daily total. Record some notes too that might help explain your spending, such as ‘kids on school holidays’, ‘worked late’, ‘had friends over’, ‘felt depressed’. After a few weeks of keeping your diary you will start to understand your habits and motivations for spending money.

If you find you forget, asking for paper receipts and tallying them up at the end of the day can help, or you can just check your bank balance regularly. Be careful to include those sneaky spends via ApplePay and the like.

Scrutinise your spending

Now start to scrutinise your spending. What was essential, what could have been avoided, what could have been purchased more cheaply? This is an important part of the exercise as it is likely to make you stop and question your purchases going forward. 

Looking so closely at what you spend can help you to develop better habits. For example, if you buy a coffee every morning on your way to work, could you invest in an insulated travel mug and take one with you going forward? If your children are always starving on the way home from school and nag you for sweets or a drink, could you carry a few snacks purchased cheaply as part of your supermarket shop?

If you would like to reduce your grocery bill, this post on meal planning will help. Check out my posts 5o Ways to Save Money as and 50 More Ways to Save Money, as these will help get you into a frugal mindset.

You don’t have to keep a spending diary forever. I suggest at least a month, and maybe up to three months to really get a hold of your finances.

How do you keep your spending under control? Have you tried tracking your spending and did you find it helpful?