1. Review Your Past Spending
Start by listing all your spending over the past three months (or more) to get a sense of your typical monthly expenses. For less frequent costs, like holidays, gifts, or tax payments, look back over the past year. If some of these irregular expenses are quite large, consider setting aside a small amount each month so you’re prepared when they come up again.
You might also notice sudden events you had to pay for, like a health issue, unemployment, or broken furniture/electronics. These are good reminders of why it’s important to have an Emergency Fund. As the name suggests, an emergency fund is savings set aside specifically for emergencies. A common guideline is to aim for 3 to 6 months’ worth of regular living costs, but if you have to support family members or work in a field where finding a new job might take time, it’s a good idea to aim a little higher. Having this will give you peace of mind as you know there’s a safety net for when bad things happen.
Pro Tip
To get the most accurate picture of your past spending, review your bank and credit card statements, as well as your PayMe and Octopus transaction histories. Any receipts you’ve kept can help too. The more thorough you are, the more reliable your expense overview will be.
2. Needs vs Wants, Fixed vs Variable
Needs (Essentials) vs Wants (Fun)
Once you’ve listed out your spending, separate your expenses into Needs and Wants.
- Needs, or your essential expenses, are the must-haves: things you rely on to live and work, such as rent, groceries, transportation, utilities, and insurance.
- Wants, or your expenses for fun, are the extras that aren’t strictly necessary but add enjoyment to your life, like dining out, new clothes, entertainment, or holidays.
There’s nothing wrong with spending on wants! But understanding the difference makes it easier to adjust your spending, especially if you’re working toward goals like saving more or paying off debt.
Fixed vs Variable
The next step is to look at whether each item is Fixed or Variable.
- Fixed expenses are recurring costs that stay the same each month, things like rent, phone bill, internet, and subscriptions.
- Variable expenses are amounts that change from month to month. These include groceries, transportation, utilities, dining out, and other day-to-day spending.
Understanding which expenses are fixed and which are variable helps you decide where to focus. Reducing variable expenses often means monitoring your habits more closely, while adjusting a fixed expense, like moving to a cheaper apartment or signing up for a cheaper phone/internet plan, can create longer term savings with less effort.
The diagram below shows examples of how different expenses can be categorised by Needs vs. Wants and Fixed vs. Variable.
3. Look for Patterns
Expense tracking isn’t just about recording numbers, it’s about using that information to understand your spending habits and behaviour.
Are there patterns in your daily or weekly routine? For example, regular coffees, lunches out, or weekend treats? Maybe there are certain spending triggers, like impulse shopping after scrolling through social media or a stressful day. You might also notice some surprises, like how much you’re actually spending on takeout or how quickly small subscriptions add up.
Once you’ve spotted these patterns, ask yourself, “do I regret any of these purchases? Is this spending aligned with my financial goals?”
You might then decide to adjust your spending, which doesn’t mean cutting out everything you enjoy, just making small, intentional changes. Maybe you eat out a bit less, cancel a subscription you rarely use, or look into a more affordable phone plan, internet provider, or even housing option. The goal isn’t to deprive yourself, but to align your spending with what really matters to you. Small shifts can make a big difference over time.
4. Going Forward
To help stay on track going forward, here are a few common ways to monitor your spending:
- Manual Tracking – Use a notebook or spreadsheet to log your expenses. You can start with this spreadsheet if you’re not sure what to do. While manual tracking isn’t as convenient on the go, it gives you full control and flexibility to customise categories and track in a way that suits you.
- Budgeting Apps – There are plenty of apps designed to help you track your spending automatically. Some even let you connect your bank accounts or upload statements to make it easier. Just make sure you’re comfortable with the privacy and security aspects, since these apps will have access to sensitive financial information.
- Bank Tools – Many banking apps now offer built-in spending summaries and automatic categorisation. These can be a helpful starting point, but keep in mind they only track the accounts you hold with that particular bank, so they won’t give you a complete picture if you use multiple banks.
Choose the method that best fits your lifestyle and comfort level. The key is consistency, so pick a system that helps you stay mindful of your spending long term.
Once you get the hang of it, the next step is to set a budget. If you’re not sure where to start, check out our budgeting guide for strategies and tips.
Pro Tip
If you make cash purchases, remember to ask for receipts, since these won’t appear on your digital statements. Taking a quick photo of the receipt can also be a helpful backup, so you don’t lose it later.
Final Tip
Avoid high-interest debt and pay back credit cards when due, as late payments can quickly
become overwhelming and lead to serious financial problems. For more on good and bad debt, check out our debt guide.