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Mrs. Micah
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4 months ago
in Budgeting versus Expense Tracking on Where's Our Money
But my point is that if you haven't tracked your spending at all, then you don't know what you pay on average for heating/water or how much a month's groceries cost in your area. Going through the tracking helps people be mindful of their habits, but even if you wanted to create a budget without doing that you'd have to look at historical data.
I couldn't assume, for example, that living in DC and being married I'd spend the same amount on groceries as I did when I lived in Central PA and was single. You could pull numbers from thin air, but it wouldn't be very helpful for the first month.
And that leaves out the benefits of observing what specifically you've been spending on so you know where you make the cuts if you need to cut back. Again, you could do it after making a budget, but the experimentation would again essentially be just tracking your money and using a framework.
I couldn't assume, for example, that living in DC and being married I'd spend the same amount on groceries as I did when I lived in Central PA and was single. You could pull numbers from thin air, but it wouldn't be very helpful for the first month.
And that leaves out the benefits of observing what specifically you've been spending on so you know where you make the cuts if you need to cut back. Again, you could do it after making a budget, but the experimentation would again essentially be just tracking your money and using a framework.
1 reply
4 months ago
in Budgeting versus Expense Tracking on Where's Our Money
I would say that you can't separate tracking spending from budgeting, they form a chicken and egg circle. You could try making a budget and living up to it first, but if you don't have any idea what you're spending on things like groceries then your first few tries at a budget will just be essentially the same as tracking your spending...you'll overspend in some categories and have leftovers in others and learn what's realistic for your life.
You assume people know their obligations, but I'd argue that many "free spirits" don't. That's why I'm encouraging people to focus on their spending this month instead of their budget.
If you've been keeping up to date with a budget and molding it to fit your month-to-month needs, then you don't need to do that. But if you've fallen behind, made some major changes, or haven't budgeted in a while, then you may not be aware how much your cable costs or the realistic cost of a month's groceries. You don't have to keep spending what you normally spend, of course, but you can evaluate whether you think the figure is reasonable and decide what to do from there.
I think once that's done, then you've got the information that you can use to build the budget as you describe and go on to control your money. But until people are sure about their income and general obligations, they can't build a budget that'll reflect their lives. You probably knew your obligations and reasonable spending amounts for each category because you looked at the past data and because you'd tracked your spending before.
Otherwise you're stuck in constant revision until you find a budget that works for you, which is effectively no different than tracking your spending.
The online apps aren't very good at all for budgeting, I agree. The only thing they're really good for is letting you see accounts at multiple banks in the same place or taking a general look at what you've been spending.
Good luck with your software!
You assume people know their obligations, but I'd argue that many "free spirits" don't. That's why I'm encouraging people to focus on their spending this month instead of their budget.
If you've been keeping up to date with a budget and molding it to fit your month-to-month needs, then you don't need to do that. But if you've fallen behind, made some major changes, or haven't budgeted in a while, then you may not be aware how much your cable costs or the realistic cost of a month's groceries. You don't have to keep spending what you normally spend, of course, but you can evaluate whether you think the figure is reasonable and decide what to do from there.
I think once that's done, then you've got the information that you can use to build the budget as you describe and go on to control your money. But until people are sure about their income and general obligations, they can't build a budget that'll reflect their lives. You probably knew your obligations and reasonable spending amounts for each category because you looked at the past data and because you'd tracked your spending before.
Otherwise you're stuck in constant revision until you find a budget that works for you, which is effectively no different than tracking your spending.
The online apps aren't very good at all for budgeting, I agree. The only thing they're really good for is letting you see accounts at multiple banks in the same place or taking a general look at what you've been spending.
Good luck with your software!
1 reply
Bill
Thanks Mrs. Micah!
Let me try another approach. What, financially, are your obligations? Here are mine. See if they don't align with yours.
1. Food
2. Shelter
3. Transportation (Gas & Insurance - No car payment, Woo hoo!)
4. A small amount of spending money
5. Utilities (Phone, Electricity, Water, Waste Collection)
6. Debt Obligations
7. Everything else
Your list may vary to a certain degree but that is fine. It is after all "your" list. Here is my list of financial priorities. It is short.
1. Get out of debt.
2. Do not return to debt.
3. Save for retirement.
Looking at my lists of obligations and priorities, it is trivial to create a budget. Here's how I do it.
1. Compute the minimum amount I can spend on obligations 1-5 each month so I can maximize payments to obligation 6.
2. Think (but don't obsess) about how cool it will be one day to get to obligation 7.
3. Follow the plan.
I can easily determine the cost of all of my obligations and if I want to be really nerdy about it I can look at past spending (expense tracking) to see if I am being reasonable but that seems like a lot of wasted effort (to a free spirit) when I can say, "I can buy 2 meals for the entire family every day at Happy Burger for $20 times 15 days equals $300 for food," or "I drive 15 miles round trip each day for work times 15 days at 20MPG and gas is $2/gal. equals $22.50 for gas."
When gas prices go back up, I'll be paying off less debt. It's as simple as that and I did it without tracking a single expense but that doesn't mean there is no room for tracking expenses. How else would I know that I was following my plan? However, the budget came first. It served as a declaration of my financial priorities and leads to financial freedom.
In the end, we may have to agree to disagree but to my way of thinking budgeting is a proactive plan and expense tracking is simply a progress report. For decades, all I had was a dismal progress report. Only after I created my first plan (budget) did I begin to see results.
All my best to you and all your readers with your financial goals however you find best to achieve them!
Let me try another approach. What, financially, are your obligations? Here are mine. See if they don't align with yours.
1. Food
2. Shelter
3. Transportation (Gas & Insurance - No car payment, Woo hoo!)
4. A small amount of spending money
5. Utilities (Phone, Electricity, Water, Waste Collection)
6. Debt Obligations
7. Everything else
Your list may vary to a certain degree but that is fine. It is after all "your" list. Here is my list of financial priorities. It is short.
1. Get out of debt.
2. Do not return to debt.
3. Save for retirement.
Looking at my lists of obligations and priorities, it is trivial to create a budget. Here's how I do it.
1. Compute the minimum amount I can spend on obligations 1-5 each month so I can maximize payments to obligation 6.
2. Think (but don't obsess) about how cool it will be one day to get to obligation 7.
3. Follow the plan.
I can easily determine the cost of all of my obligations and if I want to be really nerdy about it I can look at past spending (expense tracking) to see if I am being reasonable but that seems like a lot of wasted effort (to a free spirit) when I can say, "I can buy 2 meals for the entire family every day at Happy Burger for $20 times 15 days equals $300 for food," or "I drive 15 miles round trip each day for work times 15 days at 20MPG and gas is $2/gal. equals $22.50 for gas."
When gas prices go back up, I'll be paying off less debt. It's as simple as that and I did it without tracking a single expense but that doesn't mean there is no room for tracking expenses. How else would I know that I was following my plan? However, the budget came first. It served as a declaration of my financial priorities and leads to financial freedom.
In the end, we may have to agree to disagree but to my way of thinking budgeting is a proactive plan and expense tracking is simply a progress report. For decades, all I had was a dismal progress report. Only after I created my first plan (budget) did I begin to see results.
All my best to you and all your readers with your financial goals however you find best to achieve them!
If we were to manage, let's say our food budget, each month simply by tracking what we spent in previous months, we will get a very good idea of what we spent and how that impacted our cash flows. If I find I am spending on average $1000 a month on groceries, how do I know if this is acceptable? If I set an intentional budget goal of $700 per month, and force myself to adhere to this goal, I just may find out a few things. I may realize that $700 a month is just not enough to feed my family, or I may find that I am wasting $300 buying foods we don't need, or I send too much on name brand products and can save by buying generic products. Budgeting forces me to evaluate how I am spending. In the latter case, I can take this a step further and allocate the $300 I found in my food budget to paying off debt. Would I have really found that $300 a month if I was just tracking what I spent each month?
I completely agree with you that expense tracking is necessary, but it only works effectively as a validation tool for a good budget plan. Using both together is the key!
Thank you so much for your comments. This is all about helping ourselves and our communities find ways to better our financial situations, which I believe greatly strengthens our families.
Thanks again!!