Budgeting Basics (Part 2): Tracking Your Income and Expenses

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Welcome back to the budgeting basics series! Last week, we talked about creating a priorities list to use as a filter for where your money should go. I ended the post by suggesting that you should write down your income and expenses to see where you money is going and to compare that with your priorities. I realize that this is no small task, especially for someone who has not ever put together a budget or been honest with themselves, or their spouse with exactly where every dollar goes during the month. I want to break down the process a little bit to make it an easier pill to swallow and to help guide those who would like to try this for the first time.

Start With Your Income

I have realized over the past few years that if I sit down with my wife and talk about budgeting, when I start with all of the problem areas in our budget, or start suggesting how we can better handle our money, I immediately put her on the defensive. In our household, I manage the day to day budget (because I wouldn’t let her pry it out of my cold….well, you get the idea, I’m a little obsessed), but my wife does most of the shopping. If I bring up our budget and start talking about areas where we can improve, she feels the need to defend her purchases again, even though we’ve already mutually agreed on most every purchase ahead of time. I have found that when I focus on the positives it is easier to talk about our budget than if I just dive in head first to fix any leaks.

I suggest that you start with talking about all your sources of income and write each of them down on paper (unless you BOTH agree that recording it on the computer is better for you). Start with your NET INCOME from your job(s)then talk about monthly interest and dividends and any other side jobs or income you have. Add up the total income and put that at the top of a new sheet of paper. You now have the starting number for your budget!

Tracking Expenses

This part may take a little time. I suggest printing out your last two months of bank and credit card statements (FOR ALL ACCOUNTS!). Go through each transaction, give it a name and put it in a category. I have put together a list of common categories that you can use to start, but feel free to add/delete from this list if needed:


Church Tithe




Electric (PUD)

Natural Gas (PSE)



Cell Phone



Student Loan 1

Student Loan 2

Credit Card 1

Credit Card 2

Car Payments

Car Insurance





Child Care


Spending Cash






Home Repair

Car Repair



Once you have put EVERTYTHING YOU SPENT in categories for the last two months, you will start to get a picture of where your money has been going. You may be a little surprised, possibly embarrassed, about where large portions of your spending happens, but don’t be too hard on yourself. You are now taking the steps to get your spending on the right track and align it with your priorities.

Are you spending according to your priorities?

At this point, I want you to take a look at the totals in each category and compare those totals with your priorities that you listed out earlier. Do you find that you are spending your money according to what you stated is most important, or are you wasting money in areas that are not very important to you? When my wife and I did this for the first time, we realized that we (mostly me) were spending too much money on eating out and not enough money going on dates or hanging out with friends/family. To be honest, we didn’t have a list of priorities at that point, but I knew that I didn’t care enough about mall food to give them 30% of my net income each month! Tracking our expenses and seeing how much we spent in each category allowed us to re-align our spending with what we knew was important, and cut out the frivolous spending on stuff that was not important to us!

I hope you had fun doing this!

I have found that seeing my spending for what it is sometimes hurts. I look at some categories (especially the Miscellaneous category) and say “ouch” once the month has ended. But I always feel better afterwards knowing where my money goes and not wondering where it went (as Dave Ramsey always quotes). Though it may be disheartening at first, you will enjoy knowing where your money went so you can re-direct it towards your goals. I would take a day or two to think over your findings and discuss how you can adjust your spending in certain categories to fit your priorities list and then start thinking of some financial goals you would like to hit. We’ll get into goal setting and reverse engineering so you can accomplish those goals in the next Budgeting Basics post.

In Part 3, we’ll get down to the nuts and bolts of Setting Up Your Budget and Reverse Engineering Your Goals.


Mrs. iHB’s Thoughts:

A little side note from a woman’s perspective: As we have done this, and helped some people do this, it can be a VERY emotional process.  It may not seem like it going in, but it can get pretty rough.  Because finances are super tied to where our priorities are at, when you realize that you’re not spending on things that are important, or you realize that you’re wasting a ton of money it can be REALLY hard.  This is especially hard for couples who have kept their finances separate and are now coming together.  For lack of a better analogy it’s like losing your financial virginity, suddenly everything that was yours, that you could keep private you are sharing with another person. So, if you’re a couple doing this for the first time, give each other grace.  Don’t get mad, don’t yell, just look at it for what it is and work together to realign your spending towards those priorities you listed out.  This can not only be a great growing experience financially but emotionally and practically as a couple as well. Good luck everyone!


Comments: Have you ever tracked your income and expenses before? What did you find most shocking about where your money was going? How has knowing where your money is going helped you make decisions about your finances? Also, should I keep the beard or shave it off? It’s getting kind of scratchy…


“To shave, or not to shave, that is the question…”
Jacob Wade

Jacob Wade

Jacob Wade has been a nationally-recognized personal finance expert for the past decade. He has written professionally for The Balance, The Spruce, LendingTree, Investing Answers, and other widely-followed sites. 
He’s also been a featured expert on CBS News, MSN Money, Forbes, Nasdaq, Yahoo! Finance, Go Banking Rates, and AOL Finance.

In 2018, Jacob quit his job and his family decided to sell everything (including their home) to take off on an adventure. They traveled the country in an RV for nearly 3 years, visiting over 38 states, 20+ national parks and eventually settling in the sunshine state!

26 thoughts on “Budgeting Basics (Part 2): Tracking Your Income and Expenses”

  1. On a serious note… Thanks Jake, I used the spread sheet you created for me years ago, but I just plug in numbers to organize bills for the month. We are ready to crack down and budget for real because… We want a baby and Ryan wants a truck :p

  2. Alright, 1 vote for SHAVE IT OFF!

    I’m glad you guys still use the template we created a few years back. You should check out the first post in the Budgeting Basics series which discusses priorities. It sounds like you have already listed two of them (baby and truck), and as you put together your new budget, you can make sure you are not spending money in places that are not important so you can re-direct your money towards your REAL priorities. Here’s the link: http://wp.me/p2p0FF-1.

    Also, stay tuned for Part 3! We’ll be discussing how to set goals when creating your budget and how to make sure you ALWAYS achieve them 🙂

  3. When I started looking at my spending again, I realized I was spending a ton of money on buying lunch just because I was too lazy to do something like pack Easy Mac or grub around for some leftovers. I also realized that my wedding is closing in and I hadn’t “officially” put a dime away. I completely agree with you that you need to not only know your income, but you really have to itemize your expenses to get a full grasp on where your money is. 🙂

    • I hear you on the lunch thing. I was tracking my spending for a few months before getting on a REAL budget, and realized my biggest expense was food. One month, I spent over $600 on eating out, most of it at the mall I was working at. EWWW! It was a bit shocking looking at the categories and seeing how I wasted my money, but I am so glad I did, because I could then fix the leak instead of letting it drain all my income. Cool blog, btw 🙂

  4. As someone who has worn a beard since 1990, I say keep it! 😉 I remember the first time my wife and I started to track our expenses…it was such an eye opener for us. We found a few money leaks – places where more money was going than we realized.

    • I still have the beard so far! Haha. Yes, putting everything on paper is a real eye opener if you have never tracked your spending before. Once the shock wears off, though, you feel so much better being in control of your finances and now you can make decisions that have very good long-term consequences!

  5. It was really hard for me to take a look at what I was spending on when I first created my budget. It also took 2 months of tracking my spending to feel comfortable enough to analyze my spending habits, and figure out where to cut down.

    I’d say the hardest part is just pushing yourself towards creating one and planning it. My friend always says that they will create a budget but she and her husband never make time to do it.

    • That’s the key to all of this. I have a bad habit of absorbing all the information in the world on a subject, but having a tough time pulling the trigger. Sometimes you just need a swift kick in the rear to get up and take some action to improve things for the better. I know that my swift kick came in the form of Dave Ramsey saying I was stupid for how I handled my money. That, and looking at my “restaurants” spending category once I tracked my expenses. UGH! I hope your friend has an “Ah Ha!” moment soon because they are probably bleeding money left and right but don’t even know that they need first aid! Thanks for checking out the site 🙂

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  8. Shave or not shave, it’s easy to flip back and forth. You can be a changeling, so not to worry about that.

    I spent a long time not tracking my spending. As soon as I started tracking it, it was a very shocking and revealing experience. It led to a financial revolution on my part. When I started tracking my money, it was like giving myself a giant pay raise. But then again, I have the best financial tracking system in the known universe, a sort of customized Excel setup that I use on the data that I bring in from the Credit Union. I’ve been improving and improving and improving it. I guess I’m a bit obsessed with it.

    • It really is eye opening, isn’t it? When I realized I was blowing $600/month on mall food, I was in SHOCK. But once I had the information, I could make real choices to save real money from then on out.


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