Some people who have really honed their habits don't need to because they have trained themselves to habitually avoid overspending. But if you are trying to change your financial life you probably don't have those habits yet, and it can only help to write things down. Plus, if you like gathering and manipulating data, writing down data about years of transactions can provide lots of possibilities.
Here are the things that are absolutely necessary to write down:
- Transaction date. You need this to know how much is coming in and out in a given time-period.
- Vendor name. If you don't have one, then just make one up that's memorable. "Toilet" and "Kiosk" and "Apotheke" are common European stand-ins for fairly generic vendors.
- Category. I personally think it's better to start simple and add complexity in response to necessity than start with dozens of sub categories. The categories that are necessary for you to track will reveal themselves over time. If you want to keep it really simple, just use categories for housing, transportation, utilities, food, and everything else (we use David Ramsey's "Blow" to cover a wide variety of things). If you have debts, add those in.
- Amount. Obvious, right? I personally list expenses with a minus sign in front, since that makes it easier to add to spreadsheet formulas.
Those are the biggies. Here are some others that might be useful:
- Budget Month. I use "budget month" because it lets me stick things that happen in one month in a different month. For example, if you get paid at the end of the month, you want that money for the next month and not the one that just happened.
- Account. This might be useful or it might not be. If you're doing things with credit cards, it may be useful to know if some spending happened on a credit card rather than coming out of a cash account.
- Notes. Maybe there's something unusual about the transaction that you want to easily recall.
- Tax-Related. If you want to deduct something, it may be good to write it down at the time of purchase. I don't do this
- Project. This is a new idea for me. Basically it lets you categorize certain spending as part of a larger effort. So, for example, if you go on a vacation, there may be costs that are categorized as "Travel", "Food", "Lodging", "Blow", and on and on, but a project tag (in this case something like "2018_SummerVacation" or "2018_SavingsGoal") lets you track the entire extended spending for the effort. You could really go off the deep end on this if you start viewing your life as a series of larger and smaller projects.
I personally write everything down in a spreadsheet. You could also use paper if you want, but spreadsheets have the advantage of being easily modifiable, and the data can be easily analyzed as you get better at using the spreadsheet.
I use Mint additionally, but I don't rely on it for budgeting or contemplating my cash flow. It's great for seeing transactions pop up from all my various American accounts, but their budgeting tools are too stiff for my purposes. It's better than nothing, but I think the time devoted to developing one's own system is superior.
Once you've been doing this for awhile, it becomes second nature. I won't lie: it can take some time to build the habit. Some ways to make it easier:
- If you carry a smartphone, write down every petty cash transaction in some kind of notes app. This is for when you don't get a receipt. I've used some automation apps on iOS to add these notes to the spreadsheet once I've written them down.
- Keep every receipt and then add them to the list later. Insist on receipts if it looks like the vendor will supply them.
- Spend less and have fewer transactions so you have to do this less often.
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