Debt consolidation has a higher chance of success if you only learn how to track spending efficiently. In fact, your overall financial situation will definitely improve if you learn how to properly monitor all the expenses that you make each month.
It is safe to say that keeping an eye out on where your money goes is a great habit to develop. Smart spending can really be useful during debt consolidation. If you really want the debt relief process to go smoothly, you need to prioritize mastering this habit. At least, this is a must if you want to have a more secure financial future after you have paid off all your debts.
The truth is, the way you use your money has a huge influence on your financial success. People think that being successful is all about how much you earn. That is not true. You may be earning a lot of money but if you do not track spending, you can still end up with a lot of debts. In fact, reports reveal that household incomes have risen by 9.1% during the past decade but the borrowing is still increasing and saving decreasing. It is not hard to guess why consumer credit is still increasing.
If you are not making an effort to track your expenses, it will be very hard for you to make good financial decisions. You might end up spending your money on unnecessary things. It will not just lead you into debt. It will also end compromise the funds that you should have been saving for priority expenses – like your debt payments.
Why you need to track spending while consolidating debt
There are two important reasons why you need to track spending while you are in the midst of a debt consolidation program.
Protects your debt payments
First of all, it will protect your debt payments. When you have a habit of monitoring your spending, you will be more cautious about where your money goes. If you have it in your head to prioritize debt payments, you will make sure that it will always be funded. You will not spend the funds on other things by mistake.
Helps you increase your debt payments
Another benefit that you will get when you track spending while consolidating debt is the possibility of increasing your monthly payments. Since you are more cautious about your spending, it will be easier for you to lower your monthly expenses. When you monitor your expenses, you will be aware of your current budget. It will give you the information that you need to decide on daily expenses. If you can successfully lower your expenses, you can add that to your debt payments. The bigger you can pay, the faster you can complete your debt consolidation program.
How to track spending effectively
Now that you understand why you need to track spending, the next concern will be how can you do this effectively?
According to reports, the average American spends $164.55 every day. This means a household spends more than $60,000 a year to live comfortably. The same report revealed that the majority of this amount covers housing, groceries, health insurance, and utilities.
While these are still basic necessities, that does not mean you cannot do something to lower the expenses. To do that, you need to start putting more effort to track spending.
Here are the steps that you can follow to do that.
Take a look at your accounts
This will help you identify where your money is going. Of course, this will only show you what you spend if you use credit/debit cards or digital payments. If you use cash for some purchases, you need to make a list of what you spend on each day. This will give you an accurate representation of how much you are spending and what these are.
List and categorize expenses
After looking at your accounts, make a list of everything that you spend on a monthly basis. You need to divide them into categories. This will encourage you to go through all your expenses so you can organize them. The categories can include shelter, transportation, utilities, food and groceries, insurance, and of course, debt payments. This list will be based on your lifestyle and whatever is important to you. Once your expenses are categorized, it will be more organized. This will make it easier for you to track spending and take control of how your money will be spent.
Set spending limits
After categorizing your expenses, it is time to set spending limits. You should never go beyond this limit to avoid compromising the other categories that you have. It is very important that you set a realistic limit so you can stick to it. Some people set really low limits because they want to lower their expenses significantly. While this is admirable, you need to be realistic. If there are 5 of you in the family, you cannot set a $100 grocery budget. Analyze your current spending so you get an idea of how to make the limits realistic.
Choose a tool
Thanks to the digital age, there are many tools and apps that you can use to help you track spending efficiently and effectively. If you mostly use electronic payments, you can connect it to the app so it will automatically be recorded. Some apps will allow you to set limits. That way, you can receive notifications that will tell you if you are about to reach your limit. This can be very effective in keeping you from overspending.
If you like to do it the traditional pen and paper way, that is okay. As long as you have a strategy to help you track spending, it does not matter what you use. You can also use a simple spreadsheet to help you monitor your finances. There are many free tools that you can use to make tracking easier to do.Once you have the tool, it is now just a simple task of making sure that your money goes to wherever you planned it to go. Remember, when you make a habit to track spending, this will really help you improve your personal finances even after debt consolidation.