The importance of understanding your monthly spending

Understanding your monthly spending is one of the most fundamental aspects of financial planning. Without knowing how much you spend, it’s almost impossible to determine how much you’re able to save for your goals (while making sure you’re covering your monthly bills, of course).

Understanding your monthly spending is one of the most fundamental aspects of financial planning. Without knowing how much you spend, it’s almost impossible to determine how much you’re able to save for your goals (while making sure you’re covering your monthly bills, of course).
Create awareness of your spending

The first step is to start building awareness of your spending. You can do this by actually looking at your bank transactions. It’s important to review transactions from all accounts that you spend from (checking accounts, credit cards, etc.) to make sure you’re getting the full view of your spending.

It’s up to you on how far back you want to go to review your transactions, but we recommend going back at least 3 months. Everyone’s spending will vary month to month, so having 3 months to review gives a more accurate representation of your average spending. The farther back you go, the more accurate your average spending will be.

Simplify your expense tracking

Once you have all of your transactions, the next step is to group them by month and category. This will allow you to see how much you spend in each category on a monthly basis. This can be an eye-opening experience as most people tend to underestimate how much they spend each month, especially on shopping and eating out.

There are plenty of tools available to make it easier for you to categorize your spending. The benefit of these tools is that they can connect to your financial institution and pull in your transactions automatically. Most tools are also able to automatically categorize your transactions, which can save you a ton of time. We’d still recommend reviewing your transactions, though, as these automatic categorizations aren’t always 100% accurate.

Review your expenses regularly

Reviewing your transactions and categorizing your spending is helpful, but you won’t get much out of it if you aren’t doing it consistently. As mentioned previously, your spending is constantly changing. This means you need to continue reviewing your spending regularly so you can understand your averages and trends over time.

Our recommendation would be to review your spending at least once a month, but preferably once a week. We find it easier for most people to do it weekly as it’s less overwhelming since you’re reviewing fewer transactions at a time. 

As you gain a better understanding of your monthly spending, we recommend setting up a budget to help keep your expenses in check and increase your savings. We’ll cover how to set up a budget in a lot more detail a future blog post.

Understanding your monthly spending is a crucial part of the financial planning process. The better you understand your spending, the better control you’ll have over your financial health and your likelihood of reaching your financial goals.