Are Budgeting and Expense Tracking the Same Thing?
Whether you are a newbie to bookkeeping, or have savings goals and want to save money, it’s important to pay attention to the differences between budgeting and expense tracking. Knowing the difference will help you find the methods that suit you best at each stage of your money management journey.
Expense Tracking: The basics
Simply put, expense tracking means recording your spending so you know where your money goes.
You record each expense and categorize it to determine spending trends. Over time, you’ll be able to see where your money is really going. Many of us might think that small expenses aren’t worth worrying about, but over time, a few dollars here and there can really add up.
Keeping a Budget: The basics
Simply put, budgeting means making a plan for each of your dollars before you release them into the world. Developing a personal budget gives you a plan for how you will spend your money in the future, so you won’t risk running out at a crucial moment.
For example, besides fixed expenses like rent or a phone bill, you may put a certain amount of money aside each month for groceries or entertainment. One way to do this is to use an envelope system, where you fill an actual envelope with cash for each budget category at the beginning of the month. This method is particularly helpful for irregular spending that can get out of control, like eating out with friends or shopping for new books.
Expense Tracking vs. Budgeting: Which is better?
Of course it would be great if this article could give you the perfect answer, but the real answer is: It's up to you! When it comes to personal finance, there is no one-size-fits-all solution. Instead, you must decide which option better suits you based on your current life stage, sources of income, fixed expenses, and long-term financial goals.
If you are new to managing your own money and don't have a clear sense of your current monthly expenses, you can start tracking your expenses to get the full picture. Already pretty clear on where your money is going, but want to increase or decrease spending in a certain category? Create a budget by identifying expenses you’d like to cut down on and setting spending limits.
Already tracking your expenses? We have some suggestions for how to manage those expenses better!