I first started by putting all receipts (especially for cash transactions) in a small basket on a counter near the door to our garage. Every time either DH or I came into the house, receipts came out of my purse or his pants pocket (or scrounged out of the car) into the basket. At the end of that first month, I took the AMEX statement (we only use the one credit card), the checkbook, bank statement, and all the receipts and entered every single transaction into a spreadsheet. (Yes, the first time it was horribly tedious as, back then, the electronic record was not as readily obtainable/downloadable as it is now.) I organized those first-month expenditures into loose categories and built from there adding new buckets and sub-categories each month. Over time, I had a bucket/sub-category to capture every single penny we spent monthly. Over the years, some buckets disappeared and other were added as life dictated, but the important thing was that the spreadsheet could clearly account for every transaction, including things like taxes and fees. If we paid cash, wrote a check, or put it on a card, it was included in that spreadsheet, and we started to get a very clear view of our spending habits.
Initially, the biggest area I had to get a handle on was ATM withdrawals. Cash is a devil to track. Having a bucket called ATM Withdrawals didn’t tell me where that money was going, so I put out the basket and started to require receipts for all purchases (not just cash). Eventually, we just stopped using the ATM and put everything, even a single pack of gum, on the AMEX, so the ATM bucket went away, and I had a nice electronic record of most expenditures. But even the AMEX record proved troublesome for receipts from places like Home Depot or Walmart where it is possible to have one total for items that clearly belong in separate buckets, like grocery items (food) and prescriptions (drugs/healthcare) from Walmart and garden plants (landscaping) and roof tiles (home repair) from Home Depot. I hate to say this, but 19 years later, I still require certain receipts and do the breakdown as buckets called “Walmart,” “Home Depot,” (and now “Amazon”) don’t give me the visibility I require. Not everyone is this crazy.
Today, I have an 8.5x11 20-pocket brown accordion folder near the garage door for receipts, labeled:
Auto
Clothing
Club Expenditures
Deposits/Withdrawals
Dining Out
Entertainment/Gifts
Grocery/Alcohol
Health
Home Depot/Hardware Stores
Household - General
Household - Mnt/Repair
Household - Office/Electronics
Misc (to sort later)
Personal
Tuition/School-Related
Vacation/Trips/Travel
Walmart
Xmas
Taxes (all tax documents, donation receipts, etc. go here to simplify tax prep)
I don’t have to look at all these physical receipts, just the ones most likely to span categories, and I can use the online record for Amazon purchases, but you get the idea. Where this took hours to set up and stabilize, it doesn’t take more than 30 minutes/month now and, when it came to retirement planning, we had a very clear picture to work with.
Anyway, I know that this method and level of detail won’t appeal to most people and certainly won’t work for people with businesses and complicated financial lives but, for regular people wondering where to start, some version of this approach might be helpful.