A guide to figuring out what categories you spend the most money on

A budget is one of the most important things you can have in your financial toolbox if you want to get ahead. One of the first steps in making a budget is figuring out how much you spend each month and where that money goes.

Perhaps not so surprisingly, 59% of Americans don’t keep track of their spending, according to a survey from the Certified Financial Planner Board of Standards. If you just happen to be one of them, don’t panic. Figuring out how much you’re spending each month and which categories make up the biggest parts of your budget isn’t difficult.

Use these tips to help you get a grip on your expenses and put your finances on the right track.

Review your budget categories

If you already have a working budget in place, the first step is taking a look at the categories you are assigning money to each month. And if you don’t have a budget, here’s a quick how-to guide for setting one up:

  1. Add up all your fixed monthly expenses that recur monthly (rent or mortgage payments, utilities, insurance, etc.)
  2. Add up all your variable monthly expenses (food, gas and transportation, personal care, clothing, entertainment, hobbies, etc.)
  3. Add up your monthly income (money from a job, side business, financial support from parents, etc.)
  4. Subtract the total of your fixed and variable expenses from your total monthly income

That’s a rough guide, but it’s helpful for getting started if you’re part of the 33% of Americans that don’t keep a monthly budget. Once you have a working budget in place, start breaking out your expenses into categories. For example, your monthly budget categories might include:

  • Housing
  • Utilities
  • Food (groceries, as well as dining out)
  • Insurance
  • Personal care
  • Pet care
  • Hobbies
  • Entertainment and recreation
  • Debt repayment
  • Savings and investments

Create as many or as few categories as you like. The point is to have a good idea of what buckets you are funneling money into every month to gauge how much you are spending in each one.

Create a system for tracking expenses

Once you’ve chosen your budget categories, the next step is coming up with a system for tracking your expenses each month. There are a few ways to do this. Some examples include:

  • Writing down expenses by hand in a notebook
  • Recording expenses in a spreadsheet
  • Setting up a cash envelope system
  • Using a budgeting app to track your monthly expenses
  • Linking your bank account to a budgeting software program

Each of these methods has pros and cons. Writing expenses down manually or adding them to a spreadsheet, for example, might make you feel more connected mentally to how much money is being spent each month. On the other hand, it can be easy to forget to write down what you’ve spent, or to manually plug the numbers into a spreadsheet, when you’re busy.

The same can be said for a cash envelope system. With this type of budgeting system, you withdraw cash from your bank account each month and allocate it to different envelopes. Each envelope represents a different budget category for variable spending. Once you spend all the money in an envelope, you can’t spend any more money in that category for the month. You can easily record expenses by keeping receipts in the envelopes as you spend. The downside is you’re having to carry around envelopes full of cash when you go out. Losing one could end up being a major headache.

Using a budgeting app or software program eliminates that hassle, since you can easily link them to your debit card or credit card. Depending on which app or program you use, you may be able to assign expenses to different budget categories automatically. This makes tracking expenses when you spend with your debit or credit card simple. But you still have to set up your budget categories in the app or spreadsheet first.

You might also find that your credit card comes with some helpful expense tracking tools for budgeting. This feature is common with business credit cards, but you can also find them with some personal travel credit and reward card offers.

Chase, for example, offers a year-end spending summary with its credit cards. For example, if you have the Chase Sapphire Preferred credit card or the Chase Freedom credit card, which is one of the best cash back credit cards, you could pull up your summary to see exactly how much money you spent in different budget categories for the year.

You may need to try out a few different expense tracking methods at first to find the one that works best for you. But once you’ve gotten into a groove with expense tracking, you can move on to the next step: digging into the numbers.

Analyze spending category by category

If you’ve never really paid much attention to budget categories before, you might be surprised at what you’re spending the most on each month. In case you’re wondering, here’s how a typical American household’s budget breaks down, according to the U.S. Bureau of Labor Statistics:

  • Average total spending per household annually: $61,224
  • Food: $7,923 (13% of total spending)
  • Housing: $20,091 (33% of total spending)
  • Clothing: $1,866 (3% of total spending)
  • Transportation: $9,761 (16% of total spending)
  • Healthcare: $4,968 (8% of total spending)
  • Entertainment: $3,226 (5.5% of total spending)
  • Personal care: $768 (1% of total spending)
  • Education: $1,407 (2% of total spending)
  • Personal insurance and pensions: $7,296 (12% of total spending)
  • All other expenses, including cash contributions: $3,918 (6.5% of total spending)

As you begin sifting through your own budget categories, make note of the total dollar amount you’re spending in each one. Ideally, once you add up the individual dollar amounts across each category, the total amount spent should either be equal to your monthly income or less than what you’re bringing in.

If you have more total expenses than income, that means you’re overspending. If this is you, you’re not alone. Overspending is something 64% of Americans find it easy to do when spending with a credit card or a mobile payment app that’s linked to their credit card or bank account.

Once you have determined your total monthly expenses for each category, the next steps are simple:

  1. Rank each category based on how much you’re spending, from highest to lowest
  2. Determine what percentage of your budget each category represents

Now you should have a clear picture of what categories you spend the most money on each month.

Start trimming the fat

Once you know exactly where your money is going each month, it’s easier to take control of your budget and to begin improving your financial situation.

Start by reviewing your highest spending categories and cutting out expenses that aren’t truly necessary.

Some more obvious examples might be buying new luxury items, like clothes and gadgets, or eating out at restaurants. According to the U.S. Bureau of Labor Statistics, the typical American household spends $3,459 on food away from home each year. If that lines up with your own spending, then consider what you might be able to do if you cut that amount in half. That’s $1,729.50 each year you could put back into your budget.

Next, move on to the less obvious expense categories in your budget that might be huge money-wasters. This might include bank fees or subscription services for things like television, music, Wi-Fi, wellness apps, and more. Even paying one overdraft fee per month can get pricey if a $30 fee adds up to $300 or $400 per year. And when it comes to subscription services, you might think you’re saving money by cutting cable, but the reality could be very different.

According to a study by West Monroe Partners, the typical American thinks they’re spending an average of $79.74 per month on subscription services. What they’re actually spending is $237.33 per month on average, a difference of $157.59. That’s $1,891.08 per year that you might be spending without realizing it.

You don’t necessarily have to go down to a bare-bones budget, but the more you can cut, the more financial breathing room you can create for yourself.

Match reward card offers to spending categories

As already mentioned, your credit card can be handy for keeping track of expenses if your card offers monthly or year-end spending summaries. But there’s another reason to consider using credit cards to spend: earning rewards.

For example, if you’ve noticed your biggest spending categories each month are groceries, gas and shopping then getting a cash back credit card like the American Express Blue Cash Preferred® Card or Blue Cash Everyday® Card could make sense. Both cards pay a percentage of gas and groceries back to you as reward dollars that can be applied as statement credit. That’s effectively like getting a discount on your monthly spending.

If you spend more heavily on travel, on the other hand, then you’d want to check out a travel credit card that offers miles or points on hotels, flights, rental cars and other travel expenses. The Chase Sapphire Preferred credit card, for example, offers two points per dollar on travel and dining, while the Venture Rewards credit card from Capital One lets you earn unlimited two miles per dollar on every purchase. With any type of credit card you’re using to manage and track expenses, remember to keep the fees and the annual percentage rate in mind.

Fees can increase the total cost of having the credit card, as can a high APR if you’re carrying a balance month to month. When comparing credit card options to match your target spending categories, look for low-interest credit cards if you think you may not always pay in full. And remember that with credit cards for bad credit, the APR may be on the higher end, so it may be wise to limit your spending to what you can afford to pay in full each month.

Have a plan for the money you’re saving

If you’re able to cut down your budget after learning which categories you spend the most money on, then make sure you have a plan for your savings. For example, if you want to build an emergency fund to cover unexpected expenses — something 40% of Americans struggle with — you could commit the money you’re not spending to a high-yield savings account. Or if you have student loans, you could earmark part of the cash you don’t spend each month toward additional payments. The more prepared you are, the less likely you are to let the extra money you’ve created in your budget slip through the cracks.

Rebecca Lake

Personal finance writer and small business expert

Rebecca lives on the North Carolina coast with her two children an assorted collection of pets. In addition to freelance writing, she also authors a blog focused on making and saving money.