We often find many of our family members noting down their daily expenses in a diary to keep track of the money they spend every day. These expenses can be major like a lump sum spent to get the house refurbished or minor like a part of our earnings being spent on buying vegetables, paying servants’ salaries, etc. This is a common habit that we will find in many Indian households who rely on pen and paper to write down their expenses in a bid to control them. The procedure has changed much in the past few years with apps replacing paper and families now tracking their expenses on apps that can be downloaded freely on mobile phones and tablets.
Tracking money outflows
Keeping a tab on money outflows helps track their frequencies apart while helping trace their origin too. While this may not a fruitful exercise per se, it helps people who tend to run out of money by the end of the month. Tracking your expenses over the period lends you a basic idea of where your money is going. Besides, it helps distinguish between expenses between compulsory, discretionary and some very outright ones.
Being aware of the nature of your spending habits is the first step to controlling them. A compulsive tendency to buy translates to spending money on an impulse. This understanding of money scores victory for many intent on cutting down their wayward expenses to make way for some surplus savings at the end of the month.
Do tracing and tracking expenses help?
Taking into purview your financial goals, it may not be enough to remain aware of where your money goes. Rather, your focus must be on how much you earn, save and invest regularly. Your investments must be in sync with your financial goals, which is why you must track your investments more than your expenditures.
There is also an upside to tracking your investments. With markets constantly changing form and direction, it is important to check if our investments are performing as desired. For example, when the market continues to be bearish for a long period owing to external factors like the current Russia-Ukraine skirmish wiped off a major part of retail investors’ wealth in a brief period.
However, many people realize that they do not have enough surplus money to invest. This brings back one to the question of whether investors can curtail their expenses to have the extra money in their hands for investments. A few months of diligent expense tracking can help you figure out how to reduce the expenses. While it may sound easier on paper than in practice, regular expense tracking, if followed stringently, can help in the long run.
Opt for goal-based investing
You must not invest just for the heck of it. Rather you must have a financial goal in mind pursuant to which you may decide the kinds of investments you would like to make. Your investment goals can include retirement planning or keeping your child’s higher education in mind or earnings that can keep you afloat while you are on your maternity leave. This will also help you decide your risk appetite, which means that you will allocate a part of your earnings to equity funds while the rest may be parked in hybrid instruments and debt funds that include fixed money-making instruments like bank/post office deposits and debt mutual funds.
Also, mindful spending can help you get rid of the urge to spend the money earned during a windfall and reroute the same to some of the top investment options that earn returns while securing your capital.
While one may argue that expense tracking does not result in further savings, it surely helps you save more from your limited earnings. However, tracking investments makes you realize the need to earn and invest more for a financially secure future.