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Why You Should Keep A Spending Diary

Many people have little idea about what they spend. This is surprising when you consider that many of these people are often short of money. If they checked every outgoing it would most likely shock them. Most feel as though their income should be enough but some months can be a real struggle. Some are a disaster.  The money just seems to trickle away.

Why keeping a spending diary will help

There are many reasons why this is true. Firstly, you find where the money leaks are. You may be shocked at how much you actually spend on lunches or snacks or how a few eBay “bargains” really add up over the month. Secondly , until you actually keep a record it’s too easy to think you are being frugal because you keep a look out for sales or meal deal offers. The truth may surprise you. Just writing down some of the things you buy will discourage you from spending money on them in the future.

What to record

If your smartphone is always with you, you will probably find using an app the simplest way to compile a spending diary. There are a lot out there – check your app store and find one perfect for you.

There are three other options:

  1. Get receipts for everything. Then at the end of the day (or week) stick everything into a spreadsheet. Ensure you do not lose any of the receipts. You may miss some small purchases, such as a newspaper from a street seller or dropping a pound in a collection at work. If you have got into the habit of tapping your contactless card and saying you don’t want a receipt, it isn’t going to work well. You will need to record these purchases as they happen before you forget.
  2. Acquire a notebook and write things down. This approach is simple, you just need to keep a small notebook and a pen with you at all times.
  3. You can go for a full-blown budgeting app. This may sound complicated but actually it means the app does a lot of the work for you so it can be simpler to use!

Whatever you use, you do need to be a bit fanatical about putting everything in. Leaving off that lottery ticket because you don’t often buy them or a Friday night takeaway because you were so tired is only cheating yourself.

The longer you can do it for, the better picture you will get about the unusual items. Two weeks should be a minimum but a month would be much better, or even two.

Adding up the items

If you are using an app, the items will already probably be in categories (“food”, “clothes”, “entertainment” etc) and be added up for you. Otherwise the easiest way is to enter them all into a spreadsheet at the end of each week. you may wish to do this each day if you feel very keen or have a tidy nature. Or perhaps you are forgetful and need to do things as they happen!

You should use categories that are most useful to you. For example, use different columns for adult’s and children’s clothes. Keeping lunches at work and snacks separate from eating out with friends and family. Work out how you are spending your money on food. A miscellaneous tab is good for rare/other stuff. Perhaps you you get your car cleaned once every two months, for example.

Do you know what your regular bills are?

Most people think they know what they are spending on their regular monthly or quarterly bills. But unless you check your bank statements each month, you could be very wrong! A 2016 survey discovered often underestimated their bills by up to £1500 per annum.

So to have a realistic budget you need to see what is going out from your account on these sort of bills. And also see if you can reduce any of them, by shopping around.

Does anything jump out at you?

The next step is to compile a thorough, sensible budget, using the results from your spending diary. You do not have to put down what you are spending if something obviously has to change. Think about cutting out treats, if they are not vital to you.
Keeping a spending diary may make you realise that you tend to have a takeaway or buy some clothes if you have had a bad day at work.  Keep a note of any patterns like this, because this will make it easier to break bad habits and establish better ones.

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