Every year all of us make it a point to create new resolutions and make a commitment to stick to them throughout the year. Among all the resolutions that each of us make, one which compulsorily makes it to our list every year is our commitment to track our spending in an effort to save more for a better future.

However, as you might have realized by now, even the best of us fail in this effort from time to time mainly because of a lack of strategy and hindered access to proper tools rather than lack of motivation.

Thus, in today’s blog post, we will share with you a detailed breakdown of the various strategies you can employ to actually stick to your commitment of effectively tracking your spending this year. Without further ado, let’s get started.

Understanding the Importance

Before we start discussing the various strategies you can adopt to start tracking your expenses and effectively categorize between essential and non-essential spends, one of the first steps is to embody the essence of this activity.

At its core, tracking your expenditure empowers you to not only stay on top of your finances at all times by being in control of your cash flow, but it also gives you the power to differentiate between your wants and needs.

Along with this, since all of us share the common desire of saving more money, tracking our spends gives us the ability to recognize which spends need to be minimized if we want to save more money in the long run.

But how can you effectively categorize your spends?

Tracking Your Expenses

Now that you are aware of the core idea behind tracking your expenses, the obvious question which must be pondering your mind is how can you track your spending effectively.

Even 5 years back, if you had asked us this question, we would have been short of answers; however, today, due to the advent of fintech technology, it is easier than ever before to track and effectively categorize all your expenses.

All you need to do is visit either the Google PlayStore or Apple AppStore and search for either “finance tracker” or “money manager”, and you will come across multiple mobile applications which specialize in this offering.

At its essence, these personal loan app have modernized the earlier system of tracking your spends via an excel spreadsheet lying in your home computer.

These applications have not only extensively simplified the entire process of storing all your transactions within the app but also gone above and beyond standard spreadsheets to expertly categorize your spends and use visually appealing charts to help you better understand your spending behavior.

Additionally, these days there are multiple applications available in the marketplace which make use of advanced artificial intelligence and machine learning algorithms to automatically read your transaction SMS and store key information such as amount and merchant name in the system, such that you can easily go back and check exactly how your money is flowing from one source to another.

Difference Between Wants and Needs

While tracking your spends is an important first step in ensuring that you save more money in the future, the other significant half of this equation is to understand the difference between your wants and needs.

In instant personal loan terminology, all your expenses can be effectively categorized into two separate categories; the first is needs and the second is wants.

As the name suggests, needs are those expenditures which are essential to your survival and overall well being. For instance, your expenses towards paying your room rent, buying groceries for your household, timely paying your utility bills such as internet, electricity and water bills all fall within this category. Since these expenses are absolutely crucial to your survival, they are categorized as your needs.

On the other hand, your wants are those expenses which can be termed as luxuries that you can afford over and above your current lifestyle. For instance, visiting the movie theatre or amusement park during the weekends are luxuries as they are not needed for your survival, and thus they can be categorized as wants.

These days, most personal loans and money manager applications have in-built algorithms which have the ability to automatically categorize your expenses into wants and needs, thus saving you the trouble of embarking on this task manually. One of the most important advantages of realizing the difference between wants and needs is for you to understand which spends you need to minimize if you want to reach your goal of saving more money in the long run.

For example, if you have been keeping track of all your expenses for the past one month, and upon analyzing them you come to realize that you are spending a lot of money on eating out regularly rather than cooking your meals at home, you can take a step in reducing your expenses in this category.

Last but not least, one of the greatest advantages of regularly tracking your expenses is the fact that it enables you to always pay back your debts on time. Since you will always be aware of the entire cash flow, you can regularly set aside funds to repay your EMIs. This ideology will not only ensure that you are completely debt-free in the long run, but you also build a healthy credit profile, contributing to your ultimate goal of being financially independent in the long run.

In Conclusion

During the initial days of you embarking on this initiative, you will need to spend an additional amount of time at regular intervals to track your every expenditure. However, with patience and repetition, this will quickly become a disciplined habit and moving forward, this will not only enable you to save more money but also pay back your debts on time, making you financially independent in the long run.

So what are you waiting for? Go ahead and start tracking your expenses today.