According to the Commerce Department, Americans spend more than $1.2 trillion in items and services that they don’t even need. That’s 11.2 percent of all purchases in a year! Compared to a decade ago, nonessential spending has risen nearly 10 percent.
While not everyone has the same ideas of what is considered essential, one thing is for sure: Americans love to spend money. Unfortunately, overspending can come with its own set of consequences, including not having enough to do the things you want or pay for services that you really need. To combat overspending on goods and services you don’t need, you can try keeping a money diary to stay on top of everything you buy and where your money is going.
What is a money diary?
A money diary is a daily log of your purchases that can help you keep track of your spending. Carefully review what you buy to ensure that you don’t overspend or make poor financial decisions.
The concept of a money diary is that you write down everything you spend money on - wherever you go and whatever you buy. It provides you with a visual list of where your money is going. You might notice that when you have a load of cash in your wallet, it disappears very quickly, leaving you wondering, “Where did my money go?” With a money diary, you will never have to ask that question again and can make better decisions with the knowledge of how you are currently spending.
How to keep a money diary
The first thing you should do to get going with a money diary is to buy a journal. This can be a small notebook or pad of paper. You should try to get one that is small enough to fit inside your purse, bag or pocket so you can keep it with you wherever you go. You will also need a pen to write down everything you buy.
Once you have your supplies, start carrying your money diary with you, or at least form a system that will ensure you write down your daily purchases. This can mean that you either bring the notebook with you to the mall or keep your receipts and write them in the diary when you return home. You just need to be sure to be meticulous about writing down every purchase, or the running log of spending won’t be accurate. If you keep all your receipts in the same place and hold onto them, you will also be able to get the correct amount that you spent, rather than trying to remember the cost later.
The best way to keep your money diary organized is by creating small columns with the date, the thing that you bought, how much it cost and how you paid for it (cash or card). Organizing your spending record in this way will help you clearly see what you bought and avoid confusion later on.
What is it good for?
After you start writing down your purchases in your money diary, you might ask, “Now what?” There’s no point to a money diary unless you use it for something. In this case, it provides you with the knowledge to make better choices and figure out a budget that will work best for you.
In short, writing down your purchases can help you truly see how much you are spending and on what. This allows you to review what you buy and may help you think twice about overspending next time. If you ever find that you run out of money too quickly throughout the month, your money diary can tell you exactly where you went wrong. Even if you have no issues with overspending, keeping this account of spending is a great way to stay on top of your finances and help you reach future goals.
For example, once you know how much you are spending, you can create a budget for yourself. While some students might not think they need a budget, creating a spending plan for yourself now can help you out in a major way throughout your life.
Making the most of your mistakes
While no one wants to see their funds drained over frivolous shopping sprees, it can and does happen from time to time. Without careful consideration of what we buy, it’s easy to spend too much and run into trouble. A money diary can provide you with the knowledge to learn from your mistakes by not repeating the same spending practices again.
Where to start
If you’re new to the idea of a money diary, don’t be afraid to start small. Try it out for a week by writing down everything you buy. You will likely be surprised by all of the small daily purchases that can really add up.
The information contained in this article does not constitute financial, legal or tax advice and its authors make no claims about its accuracy or completeness. The authors of this article do not hold themselves out as providing any legal, tax, financial or other advice and do not make any recommendations or endorsements as to any investment, financial plan or any other product or services. The materials contained in this article do not constitute advice and you should not rely on any material in this article to make, or refrain from making, any decision. As laws and regulations change frequently, we cannot guarantee that the information contained in this article is current or applicable to your specific circumstances. Laws and regulations may vary from jurisdiction to jurisdiction. Legal, tax and financial advice must always be tailored to your specific circumstances and nothing in this article should be viewed as a substitute for the advice of competent legal, tax or financial advisors.