Tracking Your Spending vs. Budgeting

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Yes.  There is a difference.  Tracking your spending and budgeting are not the same.  They’re similar, and both very helpful for your financial health, but alas, not the same.

Tracking your cash money

Tracking your spending is just that. Tracking it. You pay attention to how much money is coming in, and how much is going out. Possibly most importantly, you also take note of exactly where all that money is going when it leaves you for someone else. (It sounds kinda sad when you say it like that, right??)

If you’re just tracking, you don’t allocate how much you want to spend on certain categories of things ahead of time. You spend money willy-nilly (sans plan), but look at where it went after the fact.

I always recommend tracking your spending as step one, for everyone. It’s the place to start regardless of your financial starting point.

If you’re already a total money boss and therefore not “starting” (ie: you’re already financially independent and you’re reading strictly this for my quick wit and entertaining commentary), then you’re the exception.

You’re probably the rule, not the exception. Sorry not sorry.

I’ve said it before and will continue to say it: most people (yes, including you) are the rule, not the exception. The Lyons are the rule as well. We aspire to be the exception one day. That is the plan. We’re not there yet. Can you guess where we started? By tracking our spending! I know I know…but it is true.

Read on, my dear rules.

So you’re paying attention to where all your money is going. I don’t mean scrolling through your credit card statement (that you pay off on time and in full every month) and seeing that you spent $50 at that restaurant last week, and $37 at Target (you went in for toilet paper…), and $98 at Costco.

Side note – has anyone ever actually gotten out of Costco for under $100? If so I’d like to meet you and learn your Jedi ways…

If you use credit cards, it’s important to look through your statements and ensure all the charges are in fact yours. We don’t want a stolen card number to go unnoticed.

Can’t I just look at my credit card statement??

However, looking at each charge individually, and not aggregated into a group, takes away most of the shock value. Think of it like this: have you ever looked at your total bill and wondered how the heck it got that high bc all your charges are low? As you scroll through and do some rough math you realize “oh yeah, that is the right number. Sh*t.”

It’s a little depressing, but very true.

When you’re actively tracking your spending you have all your “like” expenditures aggregated into one category. Instead of seeing each dinner out individually on your statement ($54 here, $36 there, $78 that other time…) you see it all in one big number.

And get the full experience of the shock value.

Food, from all of its different sources, is just one example. It is very easy to spend several hundred dollars a month on take-out and restaurants. That’s on top of your grocery bill. If you don’t realize what you’re spending where it becomes very hard to determine whether or not you actually want to be spending your money in the manner it’s being spent.

If you decide you’d rather put that money to a different use, you have to know where you’re starting to be able to redirect it to a place that serves you, and your goals, better.

Budgeting your cash money

We’ve got tracking down, but it sounds an awful lot like budgeting. So what the heck is the difference?

When you’re actually budgeting, you set spending limits for each category you choose at the beginning of the month (or week, or pay period).

For example: food, clothing, utilities, gas, rent/mortgage, etc. If you’ve spent all the money allocated for food already, when you’re thinking about going out for dinner, or ordering pizza tonight instead of cooking in, your budget is supposed to tell you no. You’ve spent all the money you wanted to on food this month, so you need to shop from your pantry instead of a take-out menu.

What if you’ve spent all your food money but you budgeted $50 for clothes it turns out you don’t need? If you’re not going to spend the $50 on clothes during the entire budget period, then its personal preference whether or not you move the money to food.

Personal finance is personal

Guess what? It’s really all about your goals, and your personal preference.

You can move unspent money to a different category, assuming you’re very confident it won’t be needed between now and the end of the month… don’t forget about things you forgot to plan for…

To decide whether or not to move money from one category to another, or keep it right where it is, ask yourself this.

What is the ultimate goal here?

Trying to pay off debt as fast as possible? Saving a certain amount each month towards retirement or a vacation? Just trying to figure out where the heck all your money goes right now?

If you’re trying to get somewhere as fast as possible, like zero debt, then maybe don’t move the money mid-month. Once you’ve hit your food budget, do the (minimal) work to eat at home. At the end of the month, you can put that extra $50 you didn’t spend on clothes towards the debt you’re paying down.

If your goal is to save a certain amount for a specific goal by a set date, and you have that money set aside this month already, then decide if one more dinner out is worth it. Is this dinner something you’ll really get value out of? More so than reaching your goal ahead of schedule?

See, it’s all really quite personal.

Is your hair on fire?

If you have a pile, big or small, of debt that needs to be paid (excluding a mortgage), then I am in the “treat this like a full-blown emergency” camp. You should be running around like your hair is on fire, doing absolutely everything you can do put the fire out.

Try to get back to broke, aka, zero debt, as soon as you can.

Financially you’ll be more secure, paying less or no interest which will save you more money… the financial benefits of not having debt are many and obvious.

The mental and emotional benefits of not living with a pile of debt I think are quite underestimated. People often speak of the weight being lifted off their shoulders when a credit card, or car, or student loan is paid off.

If you’ve never experienced that feeling, you don’t know what you’re missing. It’s not something to be overlooked or downplayed.

Can I really do it?

Financial security is like anything else. You have to want to do it for yourself. You can’t be forced into changing your financial habits if you don’t want to.

Chris and I have a budget. We set category limits at the beginning of each month. At the end of each month, we have a little party together (party may be a strong word…) and look through what was spent where. We look at what areas we did particularly well in and where we could have improved a bit.

We’ve been doing this for over two and a half years now. After the first few months, once we got over the shock of the reality of where our money was actually going, we’re a bit on auto-pilot now.

Just calling attention to our spending (like I’ve said time and time again) brought about both conscious and unconscious changes in our spending. After that, things are pretty predictable each month. Even with the unpredictable things factored in.

Am I budgeting or tracking?

I was about to say, “at this point, we’re really just tracking our spending”. We don’t live paycheck to paycheck. I don’t say that to brag, but to help illustrate the difference between budgeting and tracking.

The more I think about it, though, we are budgeting. We just know that we have the latitude to move a little bit of money here or there between different categories. And that it would take an absolutely insane emergency situation for us to not only have to use, but to blow through our entire emergency fund and other assets in a short amount of time, forcing us into debt.

On that note…

Before I start getting a bunch of excuses… As I’m writing this article, we’re a single income family with a toddler and baby on the way, living just outside of Washington DC (a high cost of living area). Our average monthly savings rate last year was about 45%. Yes, Chris has a good job with a nice paycheck, but that’s only part of it. Another part of it is the decisions made along the way.

Not only do we not live a life of deprivation or want, we feel extremely fortunate to live the lives we do. I promise I’m not trying to toot the Lyon horn here.

I just want to show that it is possible. Yes, even if you have kids, or have one income instead of two, or live somewhere expensive.

It absolutely will be easier for some and harder for others. Unfortunately, that’s just life. Play the cards you’re dealt and don’t worry about what cards other people are holding.

You have to decide you want it, stop making excuses, and do the work to make it happen.

Trust me, we still have plenty of areas for improvement. It’s something we’re always working on. We’re also not in the extreme frugality, live on $10k a year camp (yes, there really are people who do that and are quite happy, that’s just not us).

Back to the point…

Our starting numbers for each category in our budget are close enough because we’ve been tracking in one form or another for a while and we know about what to expect.

We also overestimate a bit vice underestimate when setting the budget at the beginning of the month. This way we meet all our savings goals, pay all the bills, and estimate conservatively, giving us a little extra wiggle room if needed.

Don’t forget a “stuff I forgot about” category. That’s real, and the quickest way to derail an otherwise lovely plan. If you account for that stuff too, every month, then your budget will be just fine!

Our financial situation (and high savings rate) doesn’t require us to double check our budget before every purchase we make, ensuring we have the money to actually make said purchase.

We got to this place because we only spend money where we actually know we’ll get value in spending it. We have the ballpark numbers in our heads (and in the YNAB app on our phones) and know what our overarching goals are. That is enough to guide us in our daily decisions.

Zero-based budgeting

The Lyons still track every dollar. We have a zero-based budget every month, so we know where every dollar that comes in goes. Every dollar gets a job.

We have a set savings goal that is the monthly savings starting point. Anything extra that isn’t spent in a category is either moved to a category that got a bit overspent in, or is added onto the savings starting point.

Part of this is my own type-A-OCD-ness. Part of it is knowing where we want to be, when we want to be there, and what that’s going to take.

Really, it is mostly about our goals, and the OCD just helps with tracking the progress of the goals.

Bringing it home

I mentioned the money we set aside for each category ends up being pretty close to our actual spend each month. That is true because we’ve been doing this for a while, so now it’s fairly predictable.

Add in the “stuff I forgot” or “emergency” category and even the unpredictable becomes predictable.

If you have no idea where to start… to get to the point of mostly-predictable, start by tracking your spending for a few months.

Even just a month or two will give you an idea. You’ll also know if you had any out of left field expenses or circumstances. (Hint: there will always be an out of left field expense.)

How do I do this?

  1. Track your spending so you have an idea of how much you spend on what
  2. Use the idea you now have to set a monthly budget
  3. Find areas where you can re-direct money to places it will serve you better
  4. Follow the plan

Ladies and Gents, it’s really that simple. It may not necessarily be that easy, but it definitely is that simple.

Do you have a budget? How do you track your spending, an app, or an excel sheet? Or a notebook?! What challenges are you working to overcome? What are your goals??

Ready to stop running around with your hair on fire?  Check out my free resources or schedule a free consult call to see what future you is up to.

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Written by Kayla

Stop Running Around With Your Hair On Fire


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