If you've been following along, you’ve already pulled together your income. But before you can set up an accurate budget, you need to know how much you’re spending right now. By reviewing receipts or bank statements, your spending habits will reveal the personal budget categories that are important to you—and not so important—giving you the opportunity to make appropriate changes as you see fit.
Collect Expense Data
When preparing to review the past three- to six-months of spending, it’s important to collect bank statements if you tend to pay with a credit or debit card on most purchases. If you mostly pay with cash or checks, you’ll need to gather receipts and bills.
It can be hard to piece together historic spending data, but if you commit to tracking expenses now, you’ll soon have a lot of accurate, timely info. Set up an expense tracker in an app on your mobile phone to discover what you’re spending money on every week. Or make tracking a habit every time you make a payment; write it down in a notebook, a smartphone notes app, or a budgeting app as you spend.
Don’t forget to collect periodic bills and expenses that are paid annually, quarterly, or bimonthly, such as tuition, taxes, or insurance.
Classify Your Expenses
After you’ve gathered your expenses, you can group them any number of ways. No matter how you do it, the grouping should make sense to you and be very simple to maintain.
Use broad categories to more easily track expenses and provide insight into your spending habits and patterns. For example, a category like “home” could include rent, utilities, insurance, and your phone bill. You also want to make sure each category matches your lifestyle. For example, if you tend to eat out often, restaurant expenses and groceries could be lumped together in a “food” category. But if dining out is more of a treat for you, you may consider placing those expenses in the “entertainment” group.
Common categories might include:
- Home expenses
- Credit card or loan payments
- Eating out
- Health care
- Kids and/or pets
- Gifts or donations
- Streaming services and subscriptions
Expenses can be classified as fixed or variable expenses. For example, your rent or mortgage payment doesn’t change each month, so it’s fixed. A variable expense, like buying groceries or going to the movies, is more likely to change from week to week or month to month. When looking over your spending, be sure to compare one month to another, rather than just analyze one month’s expenses, as your variable expenses will often differ more frequently.
If you’re not sure where to start, the Consumer Finance Protection Bureau has a great spending tracker to use as a reference. Once you’ve collected all of your expenses, you’ll enter it into The Balance’s Simple 50/30/20 Budget spreadsheet. But for now, treat yourself to a cup of tea or a piece of chocolate—that categorizing was hard work.
Next Steps and More Resources
The categories you’ve created and amounts you’ve totaled will help inform your next step: creating a spending plan. This will help narrow your focus and reframe your spending to meet your goals.
Learn more about tools for tracking spending and budgeting from The Balance:
- Most budgeting apps help you track your spending, including our entries for the Best Budgeting Apps.
- The Best Personal Finance Software also helps you track spending easily, right from the comfort of your PC.
- You’ll find expense tracking solutions in our collection of The Best Free Budgeting Spreadsheets, too.