Introduction
Building a budget is critical as I talk about in Budgeting 101. Tracking your actual expenses versus that budget is also critical. While these steps are crucial, they don’t serve much of a purpose unless you modify your behavior based on what you find. Tracking your money vs controlling your money is a critical distinction.
A lot of people believe they are doing well financially because they track their money. They check their accounts. They review their transactions and even categorize them against their budget.
If nothing changes based on that review, the process breaks down. So what was the point? Awareness without any action does not move you forward towards financial stability.
Tracking your money is not the same as controlling your money. Tracking is the starting point — and it is a great starting point. It just cannot stop there.
What Tracking Your Money Actually Means
Tracking your money is about bringing your spending habits into focus especially versus your income.
- Creating a budget
- Looking at all your spending on a regular basis (banking and credit card activity)
- Understanding where your money is going
- Identifying patterns in your spending, especially where you tend to exceed your budget
It is important to review ALL your transactions. Those small but frequent purchases add up over time. Tracking them allows you to budget them and keep everything in focus.
This alone doesn’t change anything.
Why Tracking Alone Isn’t Enough
This is where a lot of people tend to get stuck. While tracking is important it is the reactive part of the process. You are evaluating what already happened.
You can know you overspent at Starbucks last month and do it again next month.
After you find issues, you have to take control of what you do next.
What Controlling Your Money Looks Like
- The money in your account has a purpose. It is allocated to budgeted items.
- Your major expenses are planned and paid automatically.
- Your savings and investments are intentional and part of your budget — and, like your major bill payments, are set up to fund automatically.
- Your spending has boundaries.
You are not reacting to your money. You are directing it based on your budget and history. This is what a money system looks like.
In my last post, I talked about learning in detail but living in simplicity — and why building a money system matters. It is this money system which creates the control over your finances.
A Simple Example
I have mentioned I track my account balance in a 30+ category Microsoft Excel check register that also acts as my budget. It allocates my checking account balance across all my budgeted items. I always know where I stand and how much I have to spend in a category for the remainder of the month.
If I had a Starbucks category with a $50 monthly budget and found I actually spent $200 in a month, that column would show a negative $150. I would alter my spending until the balance returned to a positive number. I would cut back on other categories. I would make changes. That control comes from the system I built.
It goes back my Mom’s envelope system. While elementary, it certainly worked. She would cash her paycheck and put it in various envelopes: gas, groceries, Starbucks (there were none at the time). If she went to the Starbucks envelope and it had no money in it, she simply knew a trip to the coffee shop was off limits until the next paycheck.
Why Tracking vs Controlling Money Matters
Tracking shows the problem. Control fixes it.
If you are only tracking you are always playing catch up. If you control your money, you start to get ahead and make sure you set money aside for savings and investing — or paying off debt if you are still catching up.
Conclusion
Tracking your money is a great place to start, but it is not the goal.
The goal is to build a system that gives your money direction before you spend it.
Track your money regularly. Control it consistently.
Cheers!
