One excellent way to spend less than you earn is to track every penny you spend. But how detailed should you be? Jamie’s been struggling with this question. He writes:

I have begun to track all my spending. I want to break things into budget categories, but I’ve run into a couple hurdles. Can you offer some insight on how to deal with them?

  1. The proliferation of big box retailers (such as Target and Wal-Mart) where you can buy everything from clothes to groceries to household cleaners to furniture, all in the same trip, makes it nigh impossible to track things by budget category. I know some personal finance software allows you to split categories, but that leads to…
  2. In my state, we pay 8.25% sales tax. Some things are not taxable. If I try to split a transaction, I have no idea what to do with the tax. I could figure it myself for each category, but if I have to do that, I will honestly just give up on the whole thing. I also have this problem since my internet and cable come on the same bill. Technically, it’s all the internet bill since I wouldn’t have cable if I didn’t have to for the internet, but if I did want to separate my transaction into cable and internet, I have no clue how to deal with all those taxes and fees and such that are on cable bills.

Thanks in advance for any advice you can offer.

Jamie is to be congratulated for tracking the money he spends. He’s also done well to recognize a barrier and to seek ways to deal with it. Whenever you notice a barrier to your personal finances, you must remove it. If you leave the barrier in place, no matter how inconsequential it is, it will prevent you from meeting your goals.

In the case of his internet/cable bill, Jamie might opt not to track the fees and taxes precisely. If his cable bill is $50, for example, and his internet bill is $25, he could simply allocate two-thirds of the fees to cable and the rest to the internet. This is close enough. It will give him a rough idea of where the money’s going. I’m not even that precise with my internet/phone bill. I designate $40 for DSL; anything left on the bill is tracked as in the phone category. This works for me.

It’s more important to track your spending in a broad sense than it is to make sure you’ve tracked every penny precisely. I used to divide my trips to Safeway into various categories within Quicken:

  • Food: Groceries
  • Food: Junk
  • Periodicals: Newsstand
  • Sin: Alcohol
  • Household: Supplies

I still do break my receipt into these categories when I have time. But often I simply lump the entire trip as groceries — that’s what 95% of it is, anyhow. Worrying about niggly little things can be counter-productive to good personal finance. Often it’s more to make the right general choice, and to worry about optimizing things later.

Remember the Get Rich Slowly mantra: Do what works for you. If fussing with categories will prevent you from tracking your finances, then don’t fuss with categories. Use broad categories like Food, Utilities, and Car, if you have to, but track those expenses!

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