By Vicki Robin and Jacqueline Blix

You can reduce your spending by 20% just by writing down your purchases. This stands to reason; since financial intelligence requires that we see our money behavior in sharp focus. The simple act of writing down all expenses and income ensures that you consciously acknowledge each monetary exchange – which can help you map out your first steps toward financial well-being. Other benefits of recording your expenses include: getting free of debt, creating savings, and, best of all, having more choices in life.

You will need a portable method to keep track of your spending. A small notebook, a 3x5 card, or an appointment book can serve as your “frugal tape recorder;” enter the date, amount, and the reason for the exchange. If you can’t record your purchases immediately, saving itemized receipts for cash or credit card purchases can be helpful. For expense paid by check, record the information you need in your check register. If a check covers more than one item or service, be sure to note what is included in the total. At the end of the month (or more often, if you like,) add up the totals from your cash record, checkbook, saved receipts, and credit card statement on a master list or monthly tabulation. (For the math impaired, software programs like Quicken™ can make this task easier.) Separate your expenses into categories that reflect your unique situation so your tracking effort reveals the most accurate picture of your money flow. For example, some categories such as “food” might serve you better if they are broken down unto “meals at home,” “junk food,” snacks on the run,” restaurant meals,” etc.

The “big picture” comes into play at the end of the month when you total your expenditures in each category. The totals can be shocking. Most people know how much their house payment is but have no idea what they spend on incidentals such as snacks or magazines. Knowing how much it costs to maintain your daily energy bar or coffee habit may prompt you to rethink your snack choices. You can also look at each category in the light of how many hours of your precious, limited life energy it took to earn that money – and decide for yourself whether it was worth it.

Only when you can observe what’s really going on in your financial life can change happen. Tracking expenses and income is a giant step toward financial intelligence.

Originally Published Winter 2000 in Real Money Newsletter
Reprinted Here with Permission of Co-op America