How to figure out where your money goes each month

Have you ever wondered where your money disappears to each month? If so, you’re not alone.

Many of us find it challenging to keep track of spending. I think that has always been a thing, not something recent.

Understanding where your money goes is the first and most crucial step towards gaining control of your finances.

In this guide, I’ll walk you through practical methods to figure out exactly where your money is going each month.

By the end of this page, you will be able to identify your spending patterns, understand your financial habits, and ultimately make more informed decisions about your money.

Let’s get started on your journey to financial clarity!

Why it’s important to know where your money goes

Knowing where your money goes is like having a roadmap for your financial journey.

When you track your spending, you gain valuable insights that can help you in several ways:

• Identify unnecessary spending: You might discover that a significant portion of your money is going towards things you don’t really value or need.
• Make informed decisions: With a clear picture of your expenses, you can make conscious choices about where to cut back and where to allocate more funds.
• Budget effectively: Understanding your past spending is essential for creating a realistic and effective budget for the future.
• Achieve financial goals: Whether it’s saving for a house, a holiday, or retirement, knowing your cash flow helps you plan and reach those goals faster.

So, how do we actually figure this out?

Method 1: Reviewing your bank and credit card statements

One of the most straightforward ways to see where your money goes is by looking at your bank and credit card statements.

They provide a detailed record of all your transactions and are invaluable for this step.

What needs to be done:

Go through your statements for the past month (or a few months for a broader picture). For each transaction, note down what it was for.

Prep steps:

• Gather your bank statements (checking, savings) and credit card statements. Most banks allow you to download them as PDF or CSV files, which can make the process easier.
• Have a notebook or a spreadsheet ready to record your findings.

Helpful tips:

1. Categorise as you go: As you review each transaction, try to assign it to a category (e.g., groceries, transport, entertainment, bills). This will make it easier to see where the bulk of your money is spent.
2. Look for patterns: Are there any recurring expenses that you were not fully aware of? Identifying these can be eye-opening.
3. Don’t forget small transactions: Those daily coffee runs or small online purchases can add up significantly over a month. Make sure to include them.

When you look at your bank statements, you’ll see debits (money going out) and credits (money coming in).

Focus on the debits. Each debit transaction will usually have a description of where the money went.

For example, you might see “Tesco” for groceries, “National Rail” for train tickets, or “Netflix” for a subscription.

Go line by line and write down each expense and what it was for.

If you downloaded a CSV file, you could sort the transactions by the ‘Description’ column, which might help you group similar expenses.

Credit card statements show what you purchased using your credit card.

Remember that paying off your credit card is another transaction that will appear on your bank statement.

For the purpose of figuring out where your money initially went, focus on the individual purchases listed on your credit card statement.

Troubleshooting:

• Hard to identify a transaction: Sometimes, the description might not be clear (e.g., a generic “Payment”). If this happens, try to remember what you might have purchased around that date or time. If you still can’t recall, you might need to accept that some small amounts remain a mystery.
• Too many transactions: If you have a lot of transactions, this process might seem overwhelming. Take it in chunks. Do a few days or a week at a time.

Next steps:

Once you’ve gone through your statements and noted down your expenses, the next step is to categorise them properly.

We’ll talk about that next.

Method 2: Using a spreadsheet to track your spending

A spreadsheet can be a powerful tool for organizing and analysing your expenses. You can create your own or use a template.

What needs to be done:

Set up a spreadsheet with columns for the date, description, category, and amount of each expense. Then, regularly enter your spending.

Prep steps:

• Choose a spreadsheet program (like Microsoft Excel, Google Sheets, or LibreOffice Calc).
• Decide on your expense categories (e.g., housing, food, transport, entertainment, personal care, savings).

Best practices and helpful tips:

1. Be consistent: The more regularly you update your spreadsheet, the more accurate your picture will be.
2. Use formulas: Spreadsheet programs allow you to use formulas to automatically calculate totals for each category and your overall spending. This makes analysis much easier. For example, you can use the SUM function to add up all expenses in the “Food” category.
3. Visualize your data: Many spreadsheet programs have charting tools that can turn your expense data into pie charts or bar graphs, making it easier to see where the largest portions of your money are going.⁵

Start by creating column headers such as “Date”, “Description”, “Category”, and “Amount”.

Each time you spend money, you’ll enter the date, a brief description of what you bought, the category it falls into, and the amount.

For example, if on the 3rd of June you bought groceries at Sainsbury’s for £35.50, you would enter:

The real power of a spreadsheet comes when you start to analyse this data.

You can sort by category to see all your spending on food, or you can use formulas to find out how much you spent in total for each category over the month.

To calculate the total for a category in Google Sheets or Excel, you might use a formula like:

Excel

=SUMIF(C:C,”Groceries”,D:D)

This formula says: “Sum the values in column D (Amount) where the corresponding value in column C (Category) is ‘Groceries’.”

You can create similar formulas for all your categories to get a clear breakdown of your monthly spending.

Troubleshooting:

• Forgetting to enter expenses: It’s easy to forget to log every small purchase. Try to make it a habit, perhaps by setting a reminder on your phone. Keeping receipts can also help.
• Choosing the right categories: Don’t worry too much about getting the categories perfect at the start. You can always adjust them as you go. The goal is to have a system that makes sense to you.

Next steps:

Once you have a month’s worth of data in your spreadsheet, take some time to review the totals for each category.

Are there any surprises? Are you spending more than you thought in certain areas? This analysis will help you understand your spending habits better.

Using a spreadsheet offers a customizable and analytical way to track where your money goes.

It requires some manual effort but provides an invaluable insight into what’s happening with your finances.

Method 3: Using budgeting or expense-tracking apps

For a more automated approach, you can use budgeting or expense-tracking apps on your smartphone or computer.

What needs to be done:

Download an app, connect your bank accounts and credit cards (if you choose to), and let the app track and categorize your spending.

Prep steps:

• Research and choose a budgeting or expense-tracking app that suits your needs. Some popular options include Money Dashboard, Emma, and Snoop.
• Download the app on your device.

Best practices and helpful tips:

1. Explore the features: Most apps offer features like automatic categorisation, spending reports, and goal setting. Take the time to understand and use these features.
2. Review categorizations: While many apps automatically categorise transactions, they might not always be accurate. Regularly review and re-categorize transactions if needed to get a true picture.
3. Set spending limits: Some apps allow you to set budgets for different categories and will alert you if you’re approaching your limit. This can be very helpful for managing your spending.

Budgeting and expense-tracking apps work by linking to your financial accounts.

Once connected, they automatically pull in your transactions and categorise them (e.g., groceries, dining, utilities). This saves you the manual effort of entering each expense.

Most apps provide a dashboard where you can see a summary of your spending by category.

They also often include charts and graphs to help you visualize where your money is going.

For example, you might see a pie chart showing that 30% of your spending was on housing, 15% on food, and so on.

Some apps also allow you to set a budget by category. You can then track your progress against these budgets throughout the month.

They might even send notifications if you’re overspending in a particular area.

Troubleshooting:

• Privacy concerns: Some people are hesitant to link their bank accounts to third-party apps due to privacy concerns. If this is you, look for apps that allow manual entry of expenses, although this will be less automated.
• Incorrect categorisations: Automatic categorisation isn’t always perfect. Be prepared to spend some time initially to train the app by correcting any miscategorised transactions. Over time, the app should become better at categorising your spending.

Next steps:

Once you’ve been using an app for a month, review the spending reports it generates.

What insights do you gain about where your money is going? Are there any categories where you’re surprised by the amount spent?

Use this information to start making adjustments to your financial habits if needed.

Troubleshooting common issues

Sometimes, figuring out where your money goes can come with its challenges.

Here are a few common issues and how to tackle them:

• Forgetting what a transaction was for: If a transaction description is vague, try to cross-reference the date and amount with your calendar or other records. If it’s a small amount and you can’t recall, don’t get too hung up on it. Focus on the larger, more frequent expenses.
• Difficulty in choosing categories: There’s no one-size-fits-all approach to categories. Start with broad categories (like housing, food, transport, entertainment) and then refine them if needed. The goal is to have categories that are meaningful to you.
• Feeling overwhelmed by the amount of data: If you’re looking back at several months of spending, it can feel like a lot. Break it down month by month or even week by week. Focus on identifying the biggest spending areas first.
• Inconsistency in tracking: The key to accurately knowing where your money goes is consistency. Whether you choose a manual or automated method, try to keep up with it regularly. Even a few minutes a day can make a big difference.

Next steps: Using this information to budget

Once you have a good understanding of where your money is going, the next logical step is to use this information to create a budget.

To create a budget, you can:

1. List your income: Know how much money you have coming in each month.
2. List your expenses: Use the data you’ve gathered to see where your money is currently going.
3. Set financial goals: Decide what you want to achieve (e.g., save more, pay off debt).
4. Allocate your income: Plan how you will spend, save, and invest your money each month, keeping your goals in mind.

There are various budgeting methods you can explore, such as the 50/30/20 rule or zero-based budgeting.

The method you choose will depend on your preferences and financial situation.

Conclusion

Figuring out where your money goes each month is a fundamental step towards financial awareness and control.

Whether you choose to review your statements, use a spreadsheet, or leverage a budgeting app, the key is to be consistent and to categorize your spending in a way that makes sense to you.

By understanding your spending patterns, you can identify areas where you might be overspending, make more informed financial decisions, and ultimately work towards achieving your financial goals.

Now it’s your turn.

Take the first step to track your spending. You might be surprised by what you discover, and you’ll definitely be on a clearer path to managing your money effectively!

Frequently Asked Questions

Why should I bother tracking my spending?

Tracking your spending provides a clear picture of your financial habits. It helps you identify where your money is going, which can reveal areas where you can save or cut back.

This awareness is crucial for budgeting effectively, achieving financial goals, and gaining overall control of your finances. Without tracking, it’s easy to wonder where your money disappears to each month.

What are some common spending categories I should use?

Common spending categories include: Housing (rent/mortgage), Food (groceries, eating out), Transportation (fuel, public transport, car payments), Utilities (electricity, gas, water, internet), Personal Care (toiletries, haircuts), Entertainment (movies, subscriptions), Debt Payments (loans, credit cards), and Savings.

You can customise these categories to better fit your lifestyle.

Is it safe to link my bank accounts to budgeting apps?

Most reputable budgeting apps use secure connections and encryption to protect your financial data. However, it’s always wise to do your research before choosing an app.

Look for apps with strong security measures and positive user reviews regarding privacy. If you’re uncomfortable linking your accounts, some apps offer the option for manual entry.

How long should I track my spending to get a good understanding?

Tracking your spending for at least one month will give you a basic understanding of your regular expenses. However, tracking for two to three months can provide a more comprehensive picture, as it will include any less frequent expenses and help you identify trends over time.

What if my income or expenses vary each month?

If your income or expenses vary, try to track them over a longer period (e.g., 3-6 months) to see the average amounts. For income, you might take an average of your earnings. For variable expenses, tracking will help you see the range and typical amounts spent.

When budgeting, it’s often helpful to plan based on your average or lower income and to account for fluctuations in expenses.

I hope this guide has been helpful in showing you how to figure out where your money goes each month. Remember, this is the first step on a journey to better financial management.

Feel free to reach out if you have any questions!