Benefits of a Spending Diary

Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

Did you know that keeping a spending diary can not only help you spend less but can also help you get out of debt and reach your financial goals? Read this lesson to learn what other benefits come from keeping a spending diary.

A Spending Diary

This lesson is about the benefits that come from keeping a spending diary. A spending diary is a diary or journal where you record all your money transactions on a daily basis. So, when you go and buy a cup of coffee or tea from your local coffee shop for $2.59 on a Monday, you record this transaction in your spending diary for that Monday. Every time money leaves your hand, you record it in your spending diary. It doesn't have to be a cash transaction. If you used your credit card to pay for your dinner on Friday night for $41.69, then you also note this transaction of $41.69 in your spending diary for Friday. In addition to the amount you paid, you also note what you used the money for. So, the $2.59 is for coffee. The $41.69 is for eating out. Keep your spending diary for at least a month to gain the most benefit from it.

Let's meet Sarah. She is currently keeping a spending diary.

Benefits

Sarah, like most of us, has wants and needs. Unfortunately, Sarah, like most of us, has not won the lottery and therefore has limited resources. By keeping this spending diary, Sarah believes she will be able to get a better understanding of her spending habits and use this information to better control her finances.

Spend Less

One of the first benefits that you will see is that you end up spending less. This happens almost naturally after about a week or so of keeping a spending diary. Once you start tracking your spending, you start to realize just how much you spend and you automatically start to spend less. Once you spend less, you can begin to save more so you can pay off any debts you may have such as credit card debt or even a house mortgage or car loan.

It's been three weeks since Sarah began and she found this to be true. She found that now instead of just making random purchases, she really stops and think about whether or not she really needs a particular item. If she feels that the item is not absolutely necessary, she won't buy it. This third week in, she finds herself spending way less than the previous two weeks.

See Where Your Money Goes

After you have tracked your spending for a month, you will be able to add up your expenses to see how you spent your money. You might be surprised to find that your daily coffee purchase adds up to a lot after a month. Say you purchased a coffee 25 days out of the month. That $2.59 coffee for 25 days amounts to $64.75!

Once you see how you spend your money, you might feel the urge to reduce some of these costs. You might look at that $64.75 you spent on coffee this past month and you might want to reduce that. You think about it and you decide that you can wake up a little bit earlier each day to make your own coffee. You can buy a bag of coffee that will last you more than a month for $14.00. Your cream and sugar might cost you an additional $10 per month. That means you end up spending just $24 for your month's worth of coffee instead of the $64.75. That means you save around $40 each month on coffee. Looking at your other expenses, you might see other ways to reduce those costs as well.

Also, adding up your expenses after a month allows you to see whether you are living within your means. If you find that you spent $2652 the past month, but you only earned $2400 that month, then you can see that you need to cut down your expenses somewhere. You need to spend less than you earn.

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