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Know Where Your Money Goes

Updated: Feb 24, 2023

One of the biggest problems I run into is that people spend more money than they make. And – they have no idea where that money goes. If I ask them to estimate where the money went, they usually underestimate, often by as much as 60%.

I have learned that knowing where your money is going is one of the easiest ways of getting spending under control and one of the most effective tools for getting your financial life under control.

Knowing where the money is going is a powerful process that just about everyone should be using. It is a great aid for helping people understand and control their cash flow.

Once people have started tracking their expenses, I hear them saying things like, “I can’t believe that we really spend $900 a month on groceries. The data must be wrong.”

It usually isn’t wrong.

Once you see where your money is really going, it is easier to change your spending habits.

I recommend that clients estimate (and track) expenses in 7-12 major categories. More categories than that becomes confusing.

Examples of the types of categories I suggest using are:

  • Taxes (income, FICA, etc.)

  • Wealth Building

  • Housing (including utilities, etc.)

  • Auto expenses (gas, insurance, maintenance)

  • Medical (insurance, co-pays, etc.)

  • Food

  • Entertainment / Vacations

  • Kids

  • Saving for college for kids

  • Personal (clothes, hobbies, gifts)

  • Philanthropy (sharing your blessings / charity)

  • Save for boat (or other big item)


  • Include your goals in your expense tracking. Make your goals visible. The tracking categories above address the goals of becoming financially independent, saving for college, and buying a boat.

  • Keep the number of categories manageable (7-12). This makes the tracking part easier also. It also makes it easier for us to analyze at the end of the year.

  • Include taxes and wealth building. This keeps them very visible to you. Taxes are usually huge, so it is good to make this visible. It makes the benefits of investing in an IRA or 401K more obvious.

  • Try to use a time period of a year – or longer (I find that a year works best.)

  • You should also have a budget of planned expenses for the same time period. You can compare what you actually did to what you planned. This helps you become more accurate in future planning.

  • Make savings important and visible.

  • Plan for large expenses (like a boat or vacation or vacation home).

  • Do not track every penny – just try to get close.

  • The first year will probably be a shock and your actuals will be way off from your budget. That’s OK. Use it to learn.

  • Everyone will have different categories because different things are important to them. Some people have huge pet expenses and some never dine out but have other expensive hobbies.

  • Get started NOW. Some type of expense tracking system is absolutely essential to having a successful financial life. There are many expense-tracking systems available, or you can create your own.

  • Applications available online to help you track your spending include:

    • Quicken (and Quicken online)

    • You Need a Budget - (

    • (free). seems to be getting rave reviews.

Most of these systems can automatically download data from your bank, credit cards, etc.

If you are not already tracking your expenses, I think that you’ll find it to be an enlightening and empowering experience.

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