You can think that it is easy to recognize excessive personal spending when you observe someone buying goods and services according to what appears to be an extensive appetite of wants. This observation maybe true, but is at risk of passing judgment, and perhaps not having enough information about the person being observed. A better approach is to evaluate personal spending within the context of fulfilling a desired goal and then decide if the spending pattern can support the resource need to accomplish the desired goal. The following is a basic plan that can quickly help you to determine excessive personal spending.

1. Establish a future reference by visualizing your desired position three to five years from today. It is best to establish the long-term position first before the short-term in order to remain focused and motivated

2. Write down this visualization in a statement titled”Vision Statement” and include a projected emotional response as you journey towards fulfillment

3. Write an achievement goal that is essential to realizing your vision within each of the following areas such as: Social – e.g. Marriage, or Children or a major vacation or a visit to at least three continents; Educational – To receive an advanced degree or certificate or Career change; Financial – Double household income or Start a business or Establish a fund for your children education; and Personal health -Actively engaged in the practice of “good” health habits

4. Project the dollar amount that will be needed to achieve your goals and realize your vision within three to five years

5. Determine your current spending pattern/month to see if you will have the resources or if you will need to make adjustments in order to realize your vision in three to five years

This step by step method allows a self-evaluation for determining your spending pattern and provides data for you to decide if you are spending excessively.

Budgets Don’t Work

I don’t believe budgets work for the long run. We have our unique and different ways of doing budgets. Some of us allocate certain amounts for each expense category. Some go by envelop ideas such as putting money in different envelops for different expense categories, and spend money from these envelops based on circumstances. The problem with budgeting is that we usually stick to it for a couple of months and then get bored and get rid of it. Although I don’t believe in budgeting, I do believe in tracking expenses. Why and how you should track your expenses? Let’s talk about it.

Track Your Expenses

Tracking expenses gives you a visualization of where your money is exactly going. You need to know this to cut unnecessary expenses and increase your savings. You can do all sorts of calculations and thinking in your mind to figure out where your money is going – but the real picture may not be the same as your mind tries to depict. Don’t be surprised if you see a very different picture than what you had in your mind. Spending just a few dollars here and there daily can add up to a large amount at month’s end and tracking expenses will show you how powerful it can be to cut once-daily visit to your coffee shop. Tracking expenses will gradually help you make better decisions.

How long should you track your expenses?

How long should you track your expenses? It all depends. You can do it for three months, one year or for good. If you are looking to take immediate action on cutting unnecessary expenses, three months of tracking will give you a fair idea. If you want an in-depth financial picture, I would recommend tracking for four to six months. If you want to keep track of your changing patterns of spending behaviour and make adjustments accordingly to meet your financial goals, I would recommend tracking your expenses on a continuous basis.

Personal Finance Software

Now, here comes the main question – What financial software you should use to track your expenses? Personal finance software programs like Quicken and Microsoft Money are able to keep track of your spending. However, I recommend a simple and easy to use web-based program called Expensr. Expensr keeps track of your income and expenses and tells you where your money goes. It is very simple to use and let me describe some basics you need to know.

Sign up for a free account. On the main page, on the top left, you will see five tabs. These tabs are Home, Accounts, Analysis, Budget and Community. Accounts and Analysis tabs are the ones you will be using most. Enter all your income and spending daily under Account tab. You can create multiple categories to categorize you entries. Entering an item is easy, and you should be able to do it in a snap. Analysis tab shows how much you are spending in each category. You can view this either in a pie chart or in a bar graph. Charts or graphs show spending trends. Trends can be used to see how your spending behaviour has changed over time, and you make adjustments accordingly.

Expensr has many other features. I mainly use it to keep track of my spending and income, and to plot graphs to visualize my trends. If you are looking for simple, easy-to-use but powerful personal finance software, expensr is your answer.

NB – Expensr is now Moneystrands. Read my Personal Finance Software Review to find out more about financial software.