Sandy knows she is growing her savings by having a surplus each month and putting it in high yielding online banks. When she was puzzled about budgeting, she wrote in and said:
I have $100,000 saved up in bank accounts by following good frugal practices that you and others outline. I however don’t budget and never keep track of my expenses. I know I’m saving money because my account grows every month. Why should I budget …
There are many reasons to making a budget and keeping track of all expenses apart from growing a surplus. I admit that it is actually very difficult to keep an expense tracking system up-to-date because not bothering to update it doesn’t have an immediate effect on us. However, maintaining a budget is like maintaining a bridge. There may not be problems even if you stop maintaining for a long time, but consequences may be disastrous when it does. Below are some more reasons why you want to maintain the bridge:
Builds Discipline and Organization
Having a budget really builds your discipline and organizes your finances, which is the first step of knowing your overall financial health. Without easy to read data, there is no way of knowing what is going on!
Forces You to Think About Money
This is a side benefit of having a budget but an important one. The more time you spend thinking about your money, the more focus you are in building your wealth. Once you start thinking about money often, you will find that you are able to find more ways to save and more ways to generate income!
Crisis Prevention
Looking at your finances in regular intervals will allow you to spot trends and see areas that can be improved way before it becomes a problem. By preventing crisis from starting, you are way ahead of everyone else who can only react!
Great Tool to Start Family Discussions
Money is always a hard subject to discuss. If the whole family is involved in budget making and expense tracking, it makes discussions much easier. It is always a good idea to just lay out the facts when talking about money matters and the expense tracker is the perfect tool to do this!
Quantifiable Way of Measuring Progress
In theory, we all want to reduce our spending and make more money but it is impossible to know how we are doing without actually keeping track of it. Budget tracking to measure progress is not just a benefit but a requirement!
Without a budget, how do we know that we are meeting our goals?
Knowledge is Power
By keeping track of your budgets, you will know exactly how much money you actually need on a monthly basis. Equipped with this knowledge, you are able to plan and allocate the required emergency funds, immediately know how unexpected issues like losing a job or having a child will do to your financial health.
Stress Reliever
Knowing your exact financial situation is such a stress reliever because you don’t have to worry about the unknown. Even if your financial situation is shaky, you will be spending time fixing the problem and not trying to find out what the issue is!
Let’s get back to thinking of the bridge. Keep maintaining it and you won’t be sorry. Become lazy and be ready to suffer the consequences.
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{ 23 comments… read them below or add one }
Thanks for the advice! I’m glad I email ya!
I love Knowledge is Power.
It’s harder to budget when you are in financial trouble, so the best time to start is in college or before college.
Budgeting can be very stressful to start when you are force to start because of a financial hardship. The good news is that anyone can learn to budget and budgeting can be customzied to fit each family – which is perhaps why it’s one of the best methods to manage your money.
Get a hold of you money – start a budget.
I don’t quite agree. I think this depends largely on the person.
A thrifty type of person would usually think twice before spending money on anything. Why bother keeping track of expenses if he’s sure that all these expenses are necessary?
At most, one needs only keep track of expenses over a 3 months periods to assess the trend.
It’s may be more important to review the savings every month or every quarter rather than looking over your shoulder for expenses every now and then.
However, for those people who spend heedlessly, then this may be great advice.
Agree with Curt, starting your budget earlier is better. This way, you’ll value money especially when you start working and the pressure of using your credit card to purchase unnecessary stuffs is unavoidable.
Sam
Fix My Personal Finance
http://fixmypersonalfinance.com
Sandy: Anytime!
Curt: Agreed. The earlier the better! In fact, it’s probably a good idea to start as soon as you need to manage money!
Avatar: Even the most frugal person would splurge once in a while as long as he/she has the money to spend.
Budget tracking is really helps you identify where to save more. Those who never budget track is often surprised how much they are really spending.
By comparing different month’s expenses, you can truly see which expenses are necessary since on impulse, many things might seem necessary.
Sam: Starting young and training how you value money is very important. I completely agree there.
Money Ning,
I somewhat agree with your points. Just that sometimes I wonder whether the benefit outweight the costs and time spent trying to keep track of all expenditures.
It’s time consuming to track all manner of expenditures. Any ideas on what’s the fastest and best way to do this.
Not sure if you’ve blogged about this, but if you have, do let direct me to it.
Avatar: Actually it sounds like a lot of work but does it really take that much? Everyday, how many receipts do you really have? For myself, I have 2, maybe 3 at the maximum so if I put them in every night, I don’t need to spend much time at all.
I agree that setting it up takes time but that’s a one time investment. Also, analyzing it takes time but considering that I can always find some savings, I don’t mind it at all.
I haven’t written much which software I use but I should one of these days! Thanks for the tip
I’ll wait for you to share your experience on this. I did track my expenses in the past but gave up since I couldn’t jot it down on a real time basis, especially with work and all.
Too lazy to do so at night, after work.
Maybe you could elaborate on how you managed to keep track of your expenses and the what type of software you use. Quick Books?
I for one am interested to see how this could be done effectively and efficiently.
Rgds
Avatar: I actually just use a simple excel file. I tried Microsoft Money but I found it too complicated.
I have the perfect remedy to fix the “real time basis” problem. I have to remember to post that article since I have that idea in my huge “to-do” list!
Stay tuned
thanks for the reasons. I think they are not new for almost all of us
whether frugal or a spender, loaded or in financial difficulty, I think budgeting is a GOOD thing. Even rich people go bankrupt!
It can be stress relieving to know you are on a plan and even better to know you have a plan of getting out of dept. Maybe you need to check the budget everyday or once a month. Whatever your situation, you will always have a plan for the future, spending money now and the knowledge of knowing where you stand as to spending in this very materialistic world!
As someone who is already credit-card debt free, who saves (retirement, household, and emergency) a very substantial part of our income, and who pays extra on the few debts we have (mortgage and one car loan), I tend to agree with Avatar: I don’t see any need to track my spending in that level of detail when I already have painstakingly over the years learned to carefully evaluate each and every purchase. And when you say, “Even the most frugal person would splurge once in a while as long as he/she has the money to spend,” what’s the problem there?!? For example, as you can probably relate to, I’m getting married in a few weeks, just a small civil ceremony in California. We didn’t set some random budget figure, we just decided what we really needed and made good choices: My dress is only $130, my partner’s outfit comes to less than $100, we’re staying in a friends’ borrowed apartment, our few guests are paying for their own dinners since we did not want to pay for two receptions since we’re going to have a full religious ceremony next year, we chose a low-mid priced restaurant, and we’re not doing anything touristy that’s absurdly expensive. This is the reason why we put over $1000 a month into the account that’s used for house fixups and other things that aren’t part of the monthly budget (and this is on a combined salary that’s still just 5 figures).
That said, we use our debit card for pretty much all of our everyday purposes. I can then look at our statement and see how much we spend on groceries and household goods, how much we spend on gas, how much we spend on going out to eat, etc.
I know I’ve rambled too much, but I really do think that it’s not necessary for folks to track every purchase who are not in significant debt, if they are saving what they need to save, only spending spending money they HAVE after savings (not normally spending savings, or putting things on credit), and are evaluating every purchase. And if someone like that (like me) isn’t allowed to splurge every once in a while, then what’s the point?!? ::grin::
Hi Leslie,
Glad you tend to agree with me. Tracking expenses is useful but being too overly conscious about it, may be counter productive.
If there were a good system to track expenses however, it would be different.
From where I am, Malaysia, most expenditures do not come with receipts especially those at the grocery shops and hawkers. So it’s tough sometimes to track EXACTLY how much I’ve spent over the course of the day.
Rgds
I don’t think enough of a distinction is being made here between budgeting and tracking expenses. For example, we budget for household expenses and minor splurges (going out to eat, for example), for three types of savings (retirement, house project, and emergency), to reduce our debts faster than the normal payments would allow, and to give us each a wee bit of pockeet/play money. We keep money for each of those things in separate account: A joint checking account for house hold bills, savings which serves as joint checking overdraft for bigger household purchases (mostly remodeling but also gifts and now a wedding), emergency and retirement savings accounts, and separate personal checking accounts for our individual play money. We have a pretty simply budget oversite process: When we run low on money in an account, we stop spending, we never spend emergency money except for true emergencies, and we never touch retirement for anything. I’m not going to micro-track our expenses since things change up and down all the time anyway. For example, we might have a bunch of clothing expenses one month then nothing for a years; our food expenses have gone up substantially both with the rising costs of food and with our choices to eat mostly locally and organically, but that just means we can’t/don’t go out to eat as much. It works out without recording every single receipt, mostly because we don’[t spend money we don’t have (credit) and we think about every purchase we make. Tracking every expense is needed to figure out how to get and stay out of debt, and how to save more money; it’s really not necessary when you’re already doing pretty darn good in those areas.
Leslie,
You’ve hit the nail on its’ head and explained it better than I could.
I agree that we should start tracking our finances for us to save for the rainy days.
This post has been chosen as part of the 69th Carnival of Money Stories at Almost Frugal, going live July 22, 2008.
Sorry Money Ning, I have to disagree with your budgeting post. Read more at
http://nocommunism.blogspot.com/2008/07/pissing-off-some-fellow-bloggers.html
Tracking every dime is a lot of work, but I highly recommend doing it for at least three months now and then (or for a full year if you can stand it)…just because the information it provides is really useful.
1. It allows you to plan a realistic emergency plan, knowing ahead where you can cut and where you can’t, and how much you need to have set aside to weather the storm.
2. We found that it also gave us the opportunity to evaluate some expenses/purchases and decide if they were really worth what we were paying. (The total costs weren’t clear when the expenses just disappeared into regular spending.) We decided that we were spending way too much on cars (and chose to downsize and drive less) but that the gym membership was worth every dollar. You might decide differently. I felt more sure of my decisions after knowing how much we were really paying for things.
I just don’t like doing budgets every month MN. Once upon a time i did a budget for 6 months straight, but after getting busy I stopped doing it for one year.. And decided not to proceed.. I think that being frugal and thinking about purchases on the want vs need psychology is more important than simply tracking your expenses. But then knowing your expenses is an important part of knowing how much you need to generate from dividends/passive income/..
These are some great advantages for starting budget tracking on a regular basis. I think that everyone should culminate this habit in order to have a better understanding of your finances in general. I agree with you that it is a great topic to discuss with your family as it makes sure that everyone is on the same page. It also improves collaboration amongst family members should there be a situation where one member requires the help of another.
I read your reasons and they are exactly why persons need to have a budget tracker. Even though we see ourselves having a good balance in the saving department there is another which is not doing well. Sometimes we have the belief that our goals are being met but the budget shows us otherwise and so everyone need to do a budget. It takes discipline and commitment to stick to a budget but after couple months of practicing them it will become easier.
The excel file is a good idea, but yeah, budget tracking can be a little tedious. I normally just track credit purchases rather than all expenses made during the day as it helps me see the bigger picture.