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Despite my frugal bent and my focus on saving money in everything I do, I resisted the advice to track cash expenditures for a very long time. Now I understand how important it is to keep track of every penny. And, frankly, it is impossible to keep track of those pesky pennies unless you have a decent system set up to do so.
My first financial memory is from my early teen years when I got my own bank account. When that first statement arrived, I sat down with my check register and tried to reconcile my account as my mother had taught me to do (yes, this was back in the dark ages when both the statement and register were paper, and the only tool I had to help me was a calculator). At the end of the process, I was off by two pennies. Close enough, I thought. My mother thought otherwise. She made me go back over (and over) the numbers until I had those documents reconciled to the very last penny.
You can imagine that 14 year old me did not appreciate this exercise. However, today I am thankful that my mom instilled in me the importance of knowing where every last cent has gone. Ever since that day, I have been careful to reconcile my accounts at the end of every month. Of course, this process has gotten much easier over the years with the advent of electronic bank statements and tools like Quicken. Yet still I resisted tracking cash outlays. They’re so small, I thought. How much can they really matter?
I eventually become a convert. Today I believe that you MUST track your cash.
Why Do I Need to Track Cash Spending?
If You Don’t Track It, It Doesn’t Exist
This is an adaptation of Peter Drucker’s famous statement that “If you don’t measure it, you can’t manage it.” As we struggle to restrict our spending, we need to know where our money is going. That includes every time we spend $1.20 on a Kit Kat for one of the kids and even every time we buy a stamp at the post office (Yes!). Also, as we save for our big trip, we are trying to capture any “found money” into our travel savings. But the money isn’t “found” if it isn’t tracked. If a quarter I find in the couch cushions silently travels from the couch to my wallet to CVS for that Kit Kat, it’s like it never existed. And who’s to say that it did? I know that a quarter doesn’t sound like a lot, but as you all know…
That Cash Adds Up Quicker Than You Think
Although I keep my bank accounts and credit cards tightly reconciled, for years I didn’t track cash. It just didn’t seem important. I rarely used cash, so how much could it be, anyway? Then one day I read the book Your Money or Your Life by Vicki Robin and Joe Dominguez. And frankly, it changed my life. Their ideas about money and the way we trade our “life energy” for pay made so much sense, and really spoke to me. So when they emphasized the importance of tracking every penny that comes in and out of your life, I had to give it a try. Frankly, when I did, I was shocked to learn how much cash walked out of my life on a weekly basis. Those quarters didn’t only add up, they added up fast. In fact, the first year I started tracking my cash outlays, I discovered that over $1,000 had gone out the door in the form of cash. And that was just for me! (It took me a while to get my husband on board the whole cash tracking train, but you can be assured that I have!)
I can’t recommend this book enough for anyone who seriously wants to take a look at their financial life. Joe Dominguez has sadly passed away, but Vicki Robin has been updating the book regularly for decades now. Today’s version is just as powerful as the one I read back in the 1990s.
How Can You Manage Your Budget If You Don’t Know Where Your Money is Going?
This is related to, but slightly different from the first point. We have found maintaining a budget and keeping an eye on monthly expenditures to be crucial to our financial success. In previous posts we shared how we shaved more than a thousand dollars off our annual grocery bill and similarly cut hundreds off what we pay at the pump. We were able to accomplish these things because we know exactly how much we pay each month for gas and groceries. That knowledge allowed us to make a budget, try different money saving techniques, and track our outcomes.
Now imagine that ten percent of our grocery bill was spent at a local Farmer’s Market where the vendors only accepted cash. And further imagine that we just threw a big “cash” category into our budget, tracked what came out of the ATM as “cash” and left it at that. We wouldn’t know whether we were within budget on our groceries or not. Did we restrict ourselves to a $2 bag of arugula last weekend? Or did we blow $40 on jalapenos, tomatoes, and artisinal cheese?3 fabulous ways to track your cash spending and stay on top of your budget.Click To Tweet
How Do I Track Cash Spending?
Hopefully by now I have convinced you how important it is to track your cash outlays. I understand that tracking cash can be a pain. The whole reason why so few people manage to do it is because it just isn’t convenient. When you are dealing with cash, you may not have a record of the transaction. That money found in the couch for example. Or the money spent at the farmer’s market. Cash is often spent for smaller purchases and in less sophisticated monetary transactions. Try spending a $1.25 on a couple of apples at an outdoor market and asking for a receipt. The looks you get both from the vendor and the people behind you in line will make your hair curl. So you need a quick, easy way to keep track of that cash that won’t drive you crazy
There are a number of ways to easily track cash flow. Here are a few I have tried that may work for you:
The Little Notebook
My original system came from Your Money or Your Life. They recommend keeping a small notebook with you at all times. Every time you add (via ATM, penny on the street, or other) or subtract (spending or losing) money in your life, jot down the date, the amount and the purpose. Bonus points if you assign a budget category on the spot. The notebook worked for me. But then again, I carry a purse. It was much harder for my husband with only his pockets to rely on. He ended up folding up a piece of paper in his wallet and taking notes on it. I wish I could show you what that mangled piece of paper looked like at the end of the week. Let’s just say, it wasn’t pretty. And translating his notes to get the information into Quicken was a nightmare.
Notes on Your Phone
You can also use a notes app on your phone. Just open a new note in Notes or Evernote or your preferred note-taking app, and log the date, amount, and place of purchase (again, bonus points for getting the budget category written down). Couldn’t be easier. This method has the advantage of convenience. Our devices are always with us these days, and even my husband can’t crumple up his phone. The downside, is that it requires a lot of typing. If you aren’t adept with that tiny phone keyboard, it can be frustrating to try to get all of the numbers right. Nonetheless, this method has worked for us (and worked much better for my husband than the piece of paper method).
An App to Track Your Cash
It seems like whenever there is an emerging need, there’s an app that has you covered. There are all kinds of budgeting and spending apps out there for the iPhone. Frankly, I feel like most of these do a lot more than I am looking for in a cash tracking app. I prefer to do my budgeting and overall money management using the comfortable screen and keyboard of my laptop. The idea of reconciling my accounts using my tiny phone keyboard gives me hives.
Fortunately, the perfect app to simply track cash expenditures is out there. Even better, it is free! Expense allows you to easily enter the name or description of your purchase, type in the amount and select the budget category with one click. It even lets you create your own budget categories if the pre-sets do not fit your personal buckets. I love this app and have made it my go-to method for tracking cash. Depending upon your record-keeping habits, you can then review Expense to enter your expenses into your budget program (or spreadsheet) daily, or at the end of the month. You can also download your expenses to a .csv, or even make a backup file if you are nervous about losing data. The app is simple and very intuitive, but if you would like a complete tutorial, you can find one at LifeHacker.
A Final Note
Whatever method you use for tracking cash expenditures, the final step is to get them into your budgeting system. As long as they are only in a notebook or on your phone, they aren’t doing your budget any good. So it is important to sit down at the end of the week (or the month) and import your cash transactions into your spreadsheet or software.
Once you do, you may be amazed at what you find.
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