Do you need to keep the receipt every time you make a purchase? Do you need a paper trail that shows how you spend your money?
There’s a lot of confusion out there when it comes to money management. One of the misconceptions that we encounter over and over again in counseling individuals and couples is the idea that good money management requires detailed tracking of your spending. Often, when we bring up the idea of budgeting, people get an exhausted look on their face, fearing that living by a budget means keeping track of every penny that they spend throughout the month.
This is an unfortunate misunderstanding, though it’s easy enough to correct. There’s a difference between budgeting your money and tracking your spending. And the better you are at budgeting, the less you need to worry about tracking.
Tracking vs. Budgeting
Financial experts all agree that living according to a budget is the top key to winning with money in life. There are many methods that you can use for your budget, from simple pencil-and-paper calculations to intricate spreadsheets and sophisticated apps. But budgeting and tracking are not the same thing.
Here’s the simplest way to understand it: Tracking your spending tells you what you’ve done with your money in the past. Budgeting your money tells you what you’re going to do with your money in the future. And the better you are at living according to your budget, the less you need to worry about keeping track of what you have spent.
A good budget is basically a script for how you’re going to spend your money every month. Just like a movie director doesn’t start filming before a script for the project is in place, you shouldn’t being spending your money for the month until you have made a strategic plan for spend it. The movie director knows exactly what he needs to shoot based on the movie’s script and storyboard; a good budget will tell you exactly how to spend your money every month in such a way that you take care of everything that your money needs to accomplish.
Budgeting can be hard work at first, but the better you get at it, the more it helps you. A good, thorough budget is a game plan for every area of your life. And if you’re successful in sticking to the plan — spending only the money that you’ve budget for any one item — you don’t really need to do a lot of tracking. You already know how much money you’ve spent in a certain category, because you decided in your budget before you ever spent a dime.
To Track or not to Track?
Sticking to a budget that you’ve determined ahead of time can greatly reduce the need to track your spending. But there are some times when it’s useful to track your purchases.
Tracking can be helpful when you are just starting to set up a budget. If you don’t know how much money you’re spending on certain things, then keep track of every penny you spend during the course of one month. This will be a good basis for starting your budget, and it will give you a realistic picture of the areas where you should increase or decrease your spending. Tracking for a month or two is also a good way to give yourself a reality check on your existing budget: If you have a budget in place but aren’t very diligent about sticking to it, tracking your spending will help you see where you tend to fall off the wagon.
Tracking is also useful in monitoring your spending within certain budget categories, especially areas that aren’t fixed costs. Things like your mortgage or rent, utilities, phone payment, etc., aren’t likely to change from month to month, so you don’t need to track them very closely. But tracking is useful in keeping you on target in other discretionary areas.
I’ll give you some examples of areas that Laura and I track: I keep a running tally of what we spend every time we go out to eat. We have a weekly amount allotted for restaurant spending, so tracking keeps us from going over budget there. It also allows us to roll over money from one week to the next if we have extra. We do the same thing with our grocery spending, which is also a weekly line item in our budget.
Additionally, we track spending in categories where purchases happen irregularly. We have a set amount allotted for clothing each year, but we don’t buy clothes every month. So we keep track of our clothing purchases throughout they year; when one of us reaches our budget cap for the year, we know that we can’t buy any new clothes until the next year. We do similar tracking for things like vacation spending, car repairs and other categories where we might spend a large chunk of money once or twice a year.
If you’ve been avoiding the work of building a budget because you’re afraid that it will require you to keep detailed accounts of your spending, let me encourage you that it doesn’t need to be that complicated. The more faithful you are to your budget, the less you need to track your spending, and the more you’ll empower yourself to succeed financially.
Sounds like a win-win situation to me.
Photo by Ben Osteen. Used under Creative Commons License.