This 1 habit could transform your finances. Here are 3 ways to create real wealth

Whenever you want to make a major change in your life and create a plan of action, it starts by taking a full (and honest) accounting of where you stand right now. In the case of your finances, that means understanding your income and expenses.

For most people, income is easy. Expenses, on the other hand, are often underestimated. Once you start adding up how much you spent on takeout over the course of a year, the results may surprise you — and not in a good way.

The five-minute habit

When CNBC Make It asked Certified Financial Planners (CFPs) to name the top way to improve finances in only five minutes, many said you need to know where your money is going. And that means keeping track of how much you spend.

Tracking your expenses is helpful for many aspects of financial planning, and it takes only minutes a day. You can save yourself the trouble of logging expenses with an app that tracks activity directly from your accounts.

With Rocket Money, you can track your expenses to the last penny and keep an eye on where your money is going.

All you have to do is link your checking, savings and credit cards accounts. You can also get balance alerts if your checking account balance falls below a certain limit, or when you spend above a set limit on your credit card.

Rocket Money’s subscription management algorithm can help you identify your recurring subscriptions that may be draining your budget. With their concierge services, you can access their subscription cancellation assistant, and cancel any unwanted subscriptions with a couple of taps. This way, you can potentially save up to $740 per year.

Rocket Money’s concierge service can also help you lower your bills. Their negotiator works on your behalf to get the best rate on your cell phone and cable bills.

Why tracking your expenses pays off

Many people feel motivated to plan a budget, but never follow their spending to track how well they’re following it, or how they can improve it. Tracking your expenses ensures your budget is realistic, and that you’re getting the most out of your money. Here are three benefits of tracking your expenses:

1. You’ll be better at budgeting and saving

While there are several approaches to budgeting, they all benefit from having a detailed account of your expenses.

Proper budgeting can help you track how much money you have after meeting all monthly expenses, and begin saving accordingly.

As you start your saving and investing journey, you might consider using a DIY trading platform like Robinhood to invest in ETFs or index funds. You can also pick out individual stocks yourself if you feel confident in making market moves.

Robinhood has 24/7 support, and you won’t pay any commission fees on stocks, ETFs and options. Their platform also offers both a traditional IRA and a Roth IRA, so you can benefit from tax-efficient retirement investing.

New Robinhood customers can also get a free stock once you sign up and link your bank account to the app.

You can pick your stock reward from top American companies, with amounts ranging from $5 to $200.

2. Identify overspending

Tracking expenses can help you find areas where you could cut your spending and save for your goals. For example, in 2023, American households spent an average of $3,933 on dining out and $3,635 on entertainment, according to the U.S. Bureau of Labor Statistics (BLS).

If you’re looking for extra savings, these are areas where you could potentially cut your spending.

Another avenue where you might be overspending is insurance. Home insurance rates have skyrocketed in recent years. According to research published by the National Bureau of Economic Research (NBER), average home insurance premiums have jumped 33% between 2020 and 2023.

Shopping around for rates can be an excellent way to lower your insurance premiums. According to a ValuePenguin survey of over 2,000 consumers, 54% of homeowners who shopped around for their insurance reduced their bill, saving roughly $474 annually.

This is where something like OfficialHomeInsurance.com can come in.

In under two minutes, this free service can help you find the best rates for you in your area. How it works is simple: Just answer a few questions, like about your ZIP code and property type, and OfficialHomeInsurance.com will connect you with providers in your area.

Even better, this side-by-side comparison tool can save you an average of $482, depending on your situation.

If you own a car, chances are car insurance payments have also been leaving a dent in your bank account. The median cost of full coverage car insurance rose by 26% year-over-year in 2024.