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Personal finance: keeping track of spending

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Kimberly writes in:

A few months ago (yep, one of those New Years Resolutions!) I pledged to get a better grip on my finances. I found some personal finance blogs to read and decided to start off by simply tracking where our money went.

But it’s impossible!! Every time I sit down with our bank and credit card statements, a big chunk of the money is going away to places I can’t figure out. There are vague entries on the bills and so on.

What can I do?

I’m going to assume Kimberly is single. If she’s not single, the first thing she needs to do is sit down with her partner along with a copy of all of their bills and the suggestions in this post and come up with a game plan they can approach together.

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First of all, it’s absolutely the right move to sit down at the end of the month and review your spending. Simply knowing where your money goes can help you figure out some very simple things to do to improve your personal finance situation.

That being said, I think Kimberly’s problem could be a very common one. It’s due to the fact that the statement at the end of the month can only provide so much data.

Take ATM use, for example. If you stop by an ATM and withdraw some cash, you’re suddenly finding yourself with money that can be spent without any real paper trail. If you want to keep track of what you spent that money on at the end of the month, you have to keep the record. Your bank statement won’t be able to help you a bit. Counter withdrawals from a bank have the same problem, as does “extra” cash taken off of your debit card when you make a purchase with it.

To put it simply, whenever you spend cash, there is no paper trail unless you create that trail yourself. Your bank and credit card statements can’t keep track of your cash for you – and if you use cash quite often, you’ll find such statement use pretty much impossible.

You have two choices here.

On one hand, you can change your habits and stop using cash. If you rely on your bank card for most of your purchases, your statement becomes your paper trail for you. It will identify, at the very least, where all of your purchases took place, which, for me, is usually good enough.

On the other hand, you can start keeping a money diary. Just pick up a small notebook and keep it on hand. Whenever you spend money for any reason, jot down the date, the amount, and what it was in your pocket notebook. This might not catch everything (you might just forget about it sometimes), but if you have most of your spending in there as an entry, it can often create the picture you need if used hand-in-hand with your statements.

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Which solution is better? It really depends on your comfort level. Try the one that seems the most appealing to you and see if it works. If it doesn’t, try the other one.

Another problem that might be causing this is poorly-worded entries on the bank statement and/or the credit card statement. If Kimberly can’t decipher what some of the entries mean, the data is useless.

If you find yourself with a lot of entries that should have meaning, but do not, you may want to seek assistance with reading your statement. If you still have trouble, you should consider seeking another financial institution. Such entries will always cause you trouble – and they certainly don’t need to be vague or unclear.

Good luck! You’re on the right path to taking control of your finances. Don’t let this little road bump deter you!

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