Tracking Expenses

What app do you use for tracking expenses? I get asked this question a lot.

Excuse the gratuitous photo of my wife Katherine hard at work tracking expenses in her Beverly Hills Cop/Eddie Murphy jacket. The Detroit Lions had them made, with their husband’s number on it, for the players’ wives shortly after the release of the original movie in 1984. (I played there from 1979-1987.) Congratulations to the Detroit Lions players, coaches, owners, and management on a great season!

Back to the question…

Expense Tracking

Tracking expenses can be a mundane and soulless task, no matter how automated you’ve made the process. Dynamic reconciliation and real-time access to account balances and transactions are nice but not necessary. Your preferred method of expense gathering will do because tracking expenses isn’t that difficult, and it doesn’t have to be complicated.

Maybe you save receipts, keep track with paper and pencil, or use “the back of junk mail envelopes” like Michelle Singletary’s grandmother did. (Michelle Singletary is a Washington Post business columnist: From How to Make an Easy Budget: No App Required.)

Expense Tracking Apps

What does your expense-tracking app look like? It could be a phone app with cloud-based account aggregation, standalone accounting software, or a customized auto-update spreadsheet.

It doesn’t matter how you do it, just make sure you’re tracking every penny and accounting for all the ways you spend money. That includes debit transactions, credit card charges, cash outlays, checks if you still write them, and anything else.

Technology can help some. Still, if you’re doing it correctly there will always be a bit of grunt work, so it’s important to find an expense tracking device with which you’re comfortable and is easy for you to use.

I don’t like making recommendations for expense-tracking apps because it’s such a personal thing. In our era of big data, it’s easy to do your own research and find one that suits you. There is an astounding array of choices out there. The following is just a sampling and is not an endorsement:

HoneydueZoho ExpenseRydooQuickBooks Online
Expense Tracking Apps

Living on a Budget

Tracking your expenses is the easy part. Your dark, deep-rooted psychological hangups about money are more likely to bust your budget. Stop keeping secrets from yourself. Address the elephant in the room. As far as expense tracking goes, it doesn’t matter how you do it, just be sure to keep track of all of them and stick to your budget.

Back to my oft-asked question: I don’t use an expense tracking app anymore. I’ve used an Excel® add-on and Quicken® previously but I eventually found them unnecessary.

It’s easy for me to keep track because I’ve standardized my expense categories. Standardizing your expense categories makes budgeting much easier and can even save you money.

After you’ve got things standardized, you’ll find its way easier to stay on budget and track expenses, and you can put things on autopilot for the rest of the year. That’s the way it is with many essential financial tasks: A little time spent planning translates exponentially into time saved later.

Standardized Expense Categories

I recommend using expense categories to keep track but keep your total number under a dozen. That helps make your expense tracking easier.

So will “standardizing” those expenses. If you don’t standardize your expense categories, you’re just pretending to live on a budget. All periodic expenses and maybe some variable ones need to be standardized.

Periodic Expenses

If only all your bills were monthly, right? Things would be so much easier. Some of your bills are due yearly, quarterly, bi-yearly, or whatever. I’m proposing you convert all your periodic expenses to monthly expenses. Do it for all your periodic bills, whether it’s a creditor (mortgage company, auto loan, student loan, credit card company) or vendor (electric company, other utilities, phone, media subscriptions).

Some vendors and creditors will offer to do a version of this for you, but most of the ones I’ve seen charge you for the service. For example, an auto insurance provider offers monthly payments instead of yearly ones, or a mortgage company offers (or requires) your property tax payments to be standardized and paid along with your mortgage payment.

I recommend you use standardized expense categories for all your periodic expenses and do the standardizing yourself. It’s not hard. For example, take that auto insurance provider who bills you once a year: Divide that bill by twelve months. That’s the fixed monthly allotment that’s a part of every month’s budget. In the 11 months the insurance bill isn’t due, set that standardized monthly amount aside for safekeeping until the due date.

Variable Expenses

If the variance isn’t great, variable expenses can be left alone and not standardized. Those that vary greatly during the year, like heating and/or cooling costs, should be standardized. Add up last year’s bills. Just to be on the safe side, add 5% or a more appropriate percentage to the total and then divide it by twelve. Save that amount every month.

Once again, you may have been offered to have the standardization done for you, but they likely consider it a service and charge you extra. For example, your electric company might offer you a fixed monthly payment throughout the year based on last year’s usage, with a “true up” at the end of the year. Better to do it yourself for free.

Stashing the Surplus

When saving for a periodic or variable expense category and it’s a month when the bill isn’t due or there is an overage, make sure you don’t accidentally spend that money on something else other than the expense it’s meant for. Decide where to stash that extra cash. Transfer it to an interest-bearing account or a free checking account for safekeeping.

Whether you virtually isolate it in your expense tracking app or make a note to yourself on the back of a junk mail envelope is immaterial. Just make sure you don’t spend that extra cash by accident.

Most importantly, now, maybe for the first time, when you have money left over at the end of the month you really are under budget. Go out and treat yourself knowing there are no periodic or variable expenses lurking around the corner.

Once you’re done and have standardized expense categories for all your expenses, every month’s budget looks the same. As a bonus, you’ll find keeping track of your expenses is suddenly much easier.

Standardizing Your Mortgage Payment

If you’re a homeowner and getting rid of your mortgage is one of your financial goals, standardize it! Don’t wait until the end of the year to make a lump sum principal reduction: Divide the amount you want to save by 12 and add that amount to each of your 12 monthly payments.

As an example, adding $100 to your 12 monthly mortgage payments this year will save you more in interest than making a $1,200 principal reduction at year’s end. Looking at your January standardized payment, that extra $100 reduces your loan balance as does each subsequent payment. Even though both principal reduction amounts end up the same ($1,200), the monthly payments save you more money because you reduced the loan balance sooner, thus saving on mortgage interest charges.

Not that a $1,200 principal reduction at year’s end is ineffective. Of course, it is, but standardizing saves you more money which means you pay your loan off even faster!

Fraud Alert

This all can be quite confusing, which is what a group of loan servicers who sell bi-weekly mortgages are counting on. If you purchased a home or refinanced it recently, you may have been solicited by one or more of them.

Bi-Weekly Mortgages

These loan servicers will offer to do an inferior version of what I just described above and charge you a bunch of money to do it. It’s not really fraud—as advertised they do save you money—but not as much as if you did it yourself.

This bi-weekly mortgage link explains in more detail how to standardize your mortgage payment yourself.

Jump-Starting Standardized Expenses

Depending on when your periodic and variable bills are due, and which season you start your standardization, you could be short a buck or two and not have the money to pay a periodic or variable bill. You may need to “jump-start” some categories depending on the circumstances.

For example, say you start your budget in January, and you have a yearly property tax bill of $5,000, with $2,500 payments due April 1st and December 1st. After standardizing your property tax payment initially into monthly amounts of $416.67, you’d be short $1,250 come April 1st. You’d need to jump-start your standardized property tax category with an extra $1,250.

Take this into consideration when setting up your initial budget. After the first year, if not sooner, everything evens out, and no future jump-starting is necessary. Just be sure to transfer those held but not yet spent standardized amounts from one year to the next in your expense-gathering device.

In the above example, 8 months of monthly savings would be accrued by the second due date of December 1st, which is more than needed to pay the bill. Pay the $1,250 December 1st property tax bill and save the overage of $833 and change in your account. Be sure and note this carry forward, which will be used to help pay next April 1st’s property tax bill.

Make Expense Tracking Easy

Hopefully, you see the light and understand it doesn’t matter how you do it, just make sure you’re tracking all the ways you spend your money. Standardizing periodic and maybe some variable expenses too will help keep you on budget and ensure you have enough money to pay those bigger bills.