Exactly why and how you should track your spending

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If you're like ugh, not another lecture about why you need to track your spending, bear with me: it's actually way easier than most other things you can do to be "good with money."

That's because the first step to getting where you want to go with your money is knowing yourself, which includes everything from knowing when you spend money, to understanding why you spend money, to knowing how much you actually spend.

I don't think anyone would really argue that those things are hella important if you want to make sure your money is helping you live the life you want (and if you do want to argue it, I'm @half_banked on Twitter, come at me).

But getting to know those things about yourself – what you spend, how much you spend and why you spend – isn't exactly something you can do in an hour or a day (sorry friends).

On the other hand, it's definitely not rocket science, and I know from personal experience it's not as hard as you think it's going to be.

And the real secret sauce to doing all of these awesome things for your money? You guessed it.

Tracking your spending.

I've been tracking my spending for just over 18 months now, and it's freaking magical. And if you're sitting there thinking that it's going to be this massive change with your money, and you're going to have to cut way back on everything? I see you, because I used to feel the exact same way – and I was dead wrong.

The best part of tracking your spending is that you can take it as far or as not-far as you want.

If you aren't ready to majorly overhaul your spending and your money? Tracking is the perfect first step, because all you have to do is record where your money is going.

It's like the money equivalent of counting calories, but still eating the Ben and Jerry's.

Come on, we all do that.

If you want to take it a step further, and make some changes to your money while you're tracking, have at it!

But it's entirely optional, and I'd say that's the bonus round of tracking. Save that for month two. (Or hey, week two. No one said you have to commit for a whole month!)

So how do I track my spending?

Here's exactly how I've tracked my spending over the past 18 months – and the tool I'd suggest if you're looking to start tracking yours.

Phase One: The Basics

When I first started tracking my spending, my spreadsheet was the basic bitch of spreadsheets. It literally had three columns: what I spent, what I saved, and what I earned. And you know what? That totally worked for me.

All I wanted to get out of that spreadsheet was a detailed look at where my money was going, and a total for my spending and my saving – so I could keep track of whether or not I was saving half of my income.

Phase Two: A Sort-Of Budget

Now, I never ever thought I'd keep tracking my spending after the first few months, but when January rolled around last year, I realized I had the secret sauce to making a Real Life Budget: I knew exactly how much I spent on different things every month.

Even though I never really stuck to a category-based budget before, I decided to set one up, but to base it on how much I actually spent on different things every month (like how much I spent on my dog every month).

I took a look back at my months of actual, real-life spending and savings, and used those numbers to build a rough plan for how I was going to spend my money going forward.

It was a good way for me to keep tabs on when I was spending drastically more on one type of thing, and know that I had to pull back on other areas.

Ugh, fine, OK, it was a budget, I hear it too. I'm in budget denial. But this isn't about budgets! (Not really, anyways.)

Phase Three: Getting (A Little Bit) Automated

That spreadsheet, which was a glorified version of my first tracking spreadsheet with a few "budgeting" numbers thrown in, lasted me for a full year, and I used it from January 2016 until December 2016.

And true confession, I'd still be using it if it weren't for a fateful email from an awesome internet friend.

She emailed to ask if I had a spreadsheet – or knew of one – that would automatically update totals of spending based on the category she spent money in. I didn't, but like... I want that.

I want to go to there.

Because seriously, I cannot even tell you how long it took me to painstakingly go through each of my old spreadsheets and pull out the money I had spent on things like my dog, my blog and my car this past year.

No, I actually can't tell you, because it makes me too sad. It was so many hours. Worth it, sure, but so many hours.

So I learned some Excel, and I made the thing!

Specifically, this thing: The spreadsheet

It's a spreadsheet that combines the flexibility I loved from my basic bitch spreadsheets, where I could literally just list my spending as it happened, with the automatic calculations that would make my life a billion times easier – including keeping track of how I'm doing on the whole not spending a gazillion more dollars than I budgeted on my freaking dog (13/10 love that expensive dogger, would recommend).

You can grab your copy for Excel and Google Sheets right here, but once you get it... how do you use it? Your budget categories are probably different than mine, so you'll want to customize it a teeny bit.

Here's How to Use The Spreadsheet

Well, the first step is to put in all of your most important spending categories – and yes, "other" can account for a big part of your spending in the first month until you start to see patterns. It happens to the best of us!

Here's where you can edit the categories in the track your spending spreadsheet.

Once you write in your categories, you'll find them poppin' up in the drop-down menus under "Category." Every time you add in a dollar amount and assign it to a category, wham bam, it gets added to your total for that category.

Here's where you'll find the categories in the track your spending spreadsheet.

Excel is freaking magical you guys I love it so much.

If you want to take it a step further, you can add in a budgeted amount for each category, but can I just say, that is so optional?

My best money learning came from just tracking my spending – not trying to change it, or fit it into categories that I thought I was "supposed" to spend a specific amount on each month.

So if you want to take a hard pass on budgeting, and just see where your money goes – no judgement?

I am on that team, fam.

PS. Want to watch me break down my full list of fave money tools? I do exactly that in my latest video, which you should totally watch.

The post Exactly Why (and How!) You Should Track Your Spending appeared first on Half Banked.

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1. Stress

One of the biggest spending triggers is stress, said Cullen Hardy, a clinical psychologist and owner of business consulting firm The Hardy Group. “Human beings hate feeling stressed and love quick relief,” he said. “Spending can give that feeling of quick relief.”

Although stress can lead some to increase spending on necessities to gain a sense of control, it can lead others to increase spending on nonessential items rather than save money, according to a study published in the Journal of Marketing Research. Be careful if you’re spending to relieve stress. It could create lasting financial problems and make your stress even worse, Hardy said.

See: 10 Best and Worst Ways to Handle Financial Stress 

Photo credit: Getty

2. An Emotional Event

The end of a relationship or other emotional event can trigger people to spend money, said Bruce D. Sanders, a consumer psychologist and author of “Sell Well.” A little retail therapy isn’t necessarily a bad thing because it can make you feel better, he said.

But you need to be careful about how often you’re dealing with your emotions this way so it doesn’t result in overspending and racking up debt.

Photo credit: Getty

3. Social Pressure

You might think you left your days of succumbing to peer pressure behind in middle school. But the desire to keep up with others can spur spending in adulthood.

A recent study by Stanford professor Pedro Gardete published in the Journal of Marketing Research found that social influence can lead people to spend more. By studying purchases made during flights, he found that airline passengers were 30 percent more likely to buy something if the person sitting next to them did.

Spending to keep up with others can be even more pronounced in elite social groups when people are buying expensive items, Sanders said. Problems arise when people spend more than they earn and go into debt to maintain a certain lifestyle. So before you make a purchase, ask yourself whether it’s something you actually want or something you want to impress others.

Find Out: 10 Ways the Wealthy De-Stress 

Photo credit: Getty

4. Credit Cards

Americans have $712 billion in credit card debt, according to the latest figures from the Federal Reserve Bank of New York. That figure makes it hard to argue that there isn’t a link between credit card use and overspending.

But can using a credit card trigger you to spend more than you otherwise would? A study by two MIT professors found that customers are willing to pay more for the same item when using credit rather than cash. The reason this likely happens is because they don’t feel the pain of parting with cash.

So before you pull out your card to pay, ask yourself whether you’d be willing to pay the same price with cash. And only charge what you can afford to pay off each month.

Photo credit: Getty

5. Social Media

Your social media use might not just be gobbling up your spare time or distracting you from work. It could be leading you to overspend.

A study published in the Journal of Consumer Research found that people tend to display less self-control after browsing a social network. And the more often people used Facebook, the greater their credit card debt was. Be aware of urges to spend after using social media and consider purchases carefully.

See: 5 Signs You Have a Spending Problem

Photo credit: Getty

6. A Need to Please

Many people try to buy love, said relationship expert April Masini. So when they see something for sale that will make a person they’re trying to win over happy, they buy.

“The purchase is not really about the item at hand,” she said. “It’s about pleasing someone else and getting a positive, loving reaction in return.”

When people buy to please others, they tend to overspend because they’re not thinking about their finances, Masini said. They’re buying to get a feeling, and their finances suffer as a result.

Their relationship could also suffer. A GOBankingRates’ survey found that overspending was the biggest financial deal breaker in a relationship.

Photo credit: Getty

7. Retailer Tactics

Retailers use a variety of tactics to get consumers to spend. Being aware of these tricks before you go shopping might help limit their effect and help you avoid buying things you weren’t planning on purchasing.

For example, bright colors and animation can get the attention of shoppers and trigger greater activity in areas of the brain associated with impulsive thinking, Sanders said. Fragrance in a store — such as cinnamon during the Christmas season — can stimulate purchasing. And if a sales person demonstrates how an item works, it can create a feeling of friendship and an obligation to make a purchase, he said.

To discretely increase the number of items in your online shopping cart, stores will offer incentives such as free shipping if your purchase total hits a certain price point, said Mike Catania, founder of coupon and promotional code site PromotionCode.org. As a result, consumers buy more to get the freebie.

Retailers also use words such as “expires soon” to create a fear of missing out on a deal and spur buying. It exploits the resource-hoarding part of the brain and prompts consumers to ask,”If I miss this opportunity, will it present itself again?” Catania said.

In addition to being aware of these tactics, Catania also recommended giving yourself some cooling off time before buying things. “If you still want them just as bad the next day, then buy them,” he said. “But odds are you won’t.”

Photo credit: Getty

8. Special Events and Holidays

It’s common for people to spend more than they expected to for special occasions and holidays. For example, a GOBankingRates’ survey of bridesmaids and groomsmen said their spending for wedding-related duties exceeded their expectations by 32 percent and 28 percent, respectively.

Overspending on one event likely won’t lead to financial ruin. But if you’re exceeding your budget regularly on occasions and holidays, you could find yourself racking up debt or sacrificing savings to cover costs. A survey by SunTrust Banks found that 46 percent of Americans felt pressure to spend more than they could afford during the holidays in 2015.

To avoid overspending on holidays and hurting your finances, set a budget for each special event and start setting aside money each month in savings so you’ll have cash to cover costs. Don’t spend any more than the cash you’ve saved.

Photo credit: Getty

9. Shopping Addiction

At the extreme end of emotional and psychological triggers that lead to overspending is compulsive buying disorder. A small percentage of the population can’t bring themselves to stop making needless purchases and end up in deep financial trouble as a result, Sanders said.

Compulsive buying can be so serious that people can’t feed their families because they’re so far in debt, he said. This sort of problem requires mental health help.

Photo credit: Getty

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