Expense Tracking and Budgeting. What's the difference?

Are you struggling to stay on budget? Do you have a budget and just feel like you are failing? Well... Join the crowd. A large percentage of people who feel this way have the same problem. You could be misunderstanding this important part of money management.  

So, really, what IS the difference between a budget and expense tracking? If you are stumped, then read on.

The answer is that budgeting is an imprecise prediction of the money you are ABOUT to spend and expense tracking is not. When you write a budget, you gather all of your financial information together, organize it into what looks right to you, then you try to determine your spending patterns. After all of this organizing, a budget should show what you might spend next week, next month, or even next year. This can be immensely useful to you when you live in such an unpredictable world. After all, the point is to take the mystery out of your money habits and make them more predictable.

But, what the heck does that have to do with EXPENSE TRACKING? How is it even connected? The answer can be obvious for some but is not usually as simple as you might think.

First, let's talk about what expense tracking really is. When you track expenses, you are just keeping account of what you spend in REAL TIME. There is no prediction or forethought, you just keep track. And that is the real difference between budgeting and expense tracking. One is predictive and uses guess work, the other is just simple math and a little bit of categorization. The two do not seem to really mesh very well. Unfortunately, using one OR the other... is often a recipe for disaster.

To explain further, budgeting and expense tracking can be compared to going on a road trip. Your budget is like a road map. Expense tracking is like a compass and your odometer all rolled into one. The roadmap is there so that you can see the entire trip at a glance. The map can be very exciting when you see that your next stop is your most favorite restaurant just off exit 8 that you visited when you were 12 years old. But, without some way to measure the direction and distance, you may never even make there.

Essentially, when it comes to financial health, budgeting and expense tracking are two important ingredients. You cannot just use one or the other.  

Please join me for my next blog post when I will discuss the HOW of expense tracking.