Everyone thinks of changing the world, but no one thinks of changing himself.?~ Leo Tolstoy ~
As Financial Coaches, we meet with many people who think that they are on a budget, because they know how much they spend each month. They can tell you how much was spent on groceries or the dentist. They just check the credit card bill or the bank statement. Then there are people?who use tools like mint.com This is a free service to track your spending and look at current balances on all your financial accounts. They will send you bill reminders and suggest where you can save or cut expenses. This is a great tracking tool, bit it is not a budget. Tracking your expenses and savings after the month is over will give you valuable information about where your money went. Keeping receipts for cash expenses and itemizing bills and bank statements will give you a better idea. But is this not budgeting.
What is a budget?
A budget is a tool to?help you determine where your money will be spent, before?you spend it. A large portion of our monthly expenses are either fixed or stay roughly the same each month. There are always miscellaneous spending items that will come up such as soccer pictures, gifts or a flat tire. A budget gives you a way to plan for theses expenses without overspending. A budget is built each month before the month begins. You put your income at the top and categorize your spending until you have spent all of your income for the month either on expenses or savings.
Advantages to cash
Building a budget and assigning cash categories can make a big difference in how you spend. We use cash for groceries, restaurants, household products, miscellaneous expenses and personal spending (AKA blow money). It registers in your brain a lot more when hand the wait-staff at a restaurant $100.00 bill than it does to just put it on a credit or debit card. If makes you think first before ordering appetizers or before even?setting foot into a restaurant at all! Cash is visual. You can see how much you have left in your spending category as the month progresses. It helps keep you from going over your budget. If you run low in a category, you need to revisit your budget and adjust numbers to take money away from on category and add to another. Make sure that you write down your changes so that you can apply them if they apply again the next month.
In the world of personal finance there is room for both tracking and budgeting. In fact, everyone, no matter what your income level, should be?doing both. It can be?as simple as a yellow pad or computer based. In order to be?pointed in the right direction for long term gains, you need to put these systems in place.
We welcome your comments. Here are some things to think about:
- What type of tracking system works for you?
- Do you make a new budget each month using a computer spread sheet or a yellow pad?
Tim and Kathryn Gerken are Financial Coaches in Newcastle, WA. They do a monthly budget and track spending on an excel spread sheet. If you would like a copy of the form, please contact us and we will email it to you!
Source: http://www.gerkenfinancialcoaching.com/2013/01/budgeting-or-tracking-whats-the-difference/
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