Friday Financial Tidbit-Why budgeting is better than tracking expenses

One of the main things I recommend to people when getting their finances in order is to have a monthly spending plan or budget.  When I ask people if they do one each month, they usually say they do, but when explaining how they budget they usually describe how they track their expenses. Tracking your expenses is a good place to start, but is not the same as budgeting.

Tracking your expenses each month enables you to see what you did in the past month. This can be quite beneficial and eye opening as you find out where your money went the previous month. It allows you to see where you may have weaknesses in your spending. However it only tells you what you did last month and does not allow you to see what you are going to do this month.

Budgeting, on the other hand, lets you look ahead and project what is going to happen in the upcoming month(s). What you spend on certain things changes from month to month. But by budgeting you will not be surprised at the changes because you get to control where your money goes before the month begins, instead of tracking your expenses and finding out where it went after the month.

Tracking expenses is nice and better than doing nothing at all, but budgeting is a better tool for your financial future as it allows you to look both forwards and backwards in your spending. Then not only will you be able to see how you have spent your money in the past, but you will also be able to look into the future and project and plan for your future expenses. If you need help with setting up a budget please visit our free financial resources page and check out some of our free budget templates.

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2 Responses to Friday Financial Tidbit-Why budgeting is better than tracking expenses

  1. Lots of people think they have a working budget when in reality they are only tracking expenses. There’s a big difference and once they go from just tracking expenses to using that information to create a budget, their finances start taking off. Good post.

    • Jon White says:

      Thanks for stopping by Matt. I agree, I used to “budget” by tracking my expenses. But when I was introduced to spending my money on paper BEFORE the month began, it took my finances to a whole new level! I spent a lot less money that way and I was not shocked by “surprise” expenses because I was projecting the month ahead of time instead of trying to react to what was happening in the moment.

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