Keeping a Budget vs. Tracking Your Spending

Keeping a budget vs. tracking your spending

Photo courtesy of Tax Credits

One of the things I love about personal finance is that there are no “right” answers. There are certain aspects where one option has a longer list of strengths than another option, but even then there will be some people for whom it’s better to go the other way. It comes down to the old cliche that “personal finance is personal”. We can solicit all the advice in the world, but in the end we have to choose our own path.

Budgeting is one of those things that, despite the almost ubiquitous advice that you need to keep one, continues to mean different things to different people. Today I’d like to compare two different methods: keeping a budget vs. tracking your spending.

What does it mean to keep a budget?

To me, in its purest sense keeping a budget means that you set hard limits on your spending. As an example, if your monthly grocery budget is $500, then you don’t allow yourself to spend more than $500 on groceries in any given month. This can be a pretty effective way of making sure that you’re truly living according the financial goals you’ve set for yourself.

One way to do this is to use an envelope system, where you literally have an envelope for each budget category and put the budgeted cash in each envelope at the beginning of the month. Once the envelope is empty, your spending for that category is done until next month’s refill.

You could of course do something similar while tracking everything electronically or in a spreadsheet. The main point is that however you do it, you truly limit your spending to the budgeted amount in each category.

What does it mean to track your spending?

Tracking your spending is a much looser way of keeping your spending in line. You will still likely fill out a budget that defines your desired spending levels across the various categories. But your month-t0-month spending is not strictly limited by those budgeted amounts. Even if your budgeted grocery amount is $500, you might let yourself spend $600 one month. There is no hard cap.

Instead, you keep track of your spending and make sure that your long-term averages are fitting within your budget. Sure you spent $600 on groceries this month, but maybe you only spent $400 last month. Over time, your average spending is falling in line even though the month-to-month numbers may not.

This takes a little bit more discipline, and it also takes a little more effort to track. I use a combination of and a spreadsheet that I update once per month with our spending from the prior month. The spreadsheet shows me our average spending in each budgeted category over the last 3, 6 and 12 months. This allows us to evaluate our long-term behavior against our goals and make sure we’re staying on track.

Here’s a step-by-step explanation of my entire process that you can follow for yourself: How I Track My Spending.

Which one should you use?

And now, ladies and gentlemen, the moment you’ve all been waiting for. Which one of these methods should you use to build a life full of happiness and prosperity? Drumroll please…

And the winner is?

It’s up to you.

What, you were expecting something different? Didn’t you read the opening paragraph all about there often not being a “right” answer to personal finance questions? Silly you.

Ok, let me say this. If you’ve never kept a budget before you should probably start by simply tracking your spending. Don’t even try to write out a budget beforehand. Simply record every purchase you make, put it into a category, and see how things look after a month. Do the same thing the next month, and only then should you start really trying to implement one of these systems. It’s impossible to know how to move forward if you don’t first know where you are.

But once you’re past that point, it’s really up to you. The most important thing is that you budget from a place of passion, first identifying the things that are truly important to you and making those a priority in your spending plan. Let the rest fall in place however it makes the most sense to you.

People love to talk the technical side of money, myself included. We like to talk about whether you should pay off the debt with the highest interest rate first or the one with the biggest balance. Whether you should invest in active or passive mutual funds. Whether you should keep a strict budget or not. The list goes on and on.

The reality that while those things matter, the part that’s truly important is finding whatever it is that helps you reach your goals. If your way of doing something is “wrong” in someone else’s eyes, so what? If it’s doing the job for you, keep it up!

Getting control over your spending is an important step along your financial journey. How you do it is not. Seek out advice from people who’ve done it and then find your own way. That’s the way to make it stick.

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41 Comments... Read them below or add one of your own
  • Catherine November 14, 2013

    We sort of have a hybrid system and its works for us. Certain things are budgeted while other portions are not really, we track. I also love personal finance bc it’s so personal.

    • Matt @ momanddadmoney November 14, 2013

      What makes you decide to have one thing strictly budgeted and another not? Is it more the irregular expenses like travel that you let be more fluid?

  • DC @ Young Adult Money November 14, 2013

    I personally keep track of my expenses and do not have a formal budget. I’ve been tracking my expenses in Excel since July of 2012 and I love the fact that I can look at long-term trends and see if my spending is “in-line” withe previous months. It also helps me recognize jumps in spending and whether I need to adjust or be more mindful of a certain spending category. I think people should start with tracking their expenses and see whether having a strict budget is worth their time.

    • Matt @ momanddadmoney November 14, 2013

      Your approach sounds pretty similar to mine, although we do have a written budget that basically serves as our goal for long-term spending.

  • Laurie @thefrugalfarmer November 14, 2013

    Matt, whether you choose budgeting or spend tracking, IMHO, this is one of the most important steps in a journey to financial independence. If you don’t, by some account, know where your money is going, you can’t know where it’ll be. 🙂

    • Matt @ momanddadmoney November 14, 2013

      I’m with you. It’s not really clear to me how you can make informed decisions without being informed. But I think the level of formality can definitely differ from person to person.

  • Holly Johnson November 14, 2013

    We use a zero-sum budget and track our spending. To make up for overages, we have a $200 miscellaneous category each month. It usually gets used by additional grocery spending or entertainment.

    • Matt @ momanddadmoney November 14, 2013

      So if you’ve already used up your $200 miscellaneous for the month, do you stop all your spending?

      Our “budget” is zero sum as well, in that every dollar is allocated somewhere. But we just don’t follow it to a tee from month to month. We’re okay with things being more fluid as long as we stay on track over the long term.

  • Done by Forty November 14, 2013

    It’s up to me? What a tease!

    Good on you for launching the financial coaching services, too!

    • Matt @ momanddadmoney November 14, 2013

      Thanks! We should talk the coaching soon. I’ll try to shoot you an email in the next day or so.

  • Monasez (@Monasez) November 14, 2013

    I think I more so just track my spending. Every month I always end up going over budget in something.Its never more than like 20 bucks over but its still over. One of my new year resolutions will be to stick to my budget.

    • Matt @ momanddadmoney November 14, 2013

      Are you over budget just in one category or are you actually spending more than you’re making? If it’s just one category then there might not be much reason to need to improve as long as you’re staying within budget overall.

  • Mrs PoP @ PlantingOurPennies November 14, 2013

    We don’t view budgeting as something punitive, more of a reminder. So you might call what we do tracking, where I call it budgeting and tracking.

    • Matt @ momanddadmoney November 14, 2013

      That’s pretty much exactly how we view it. We track our spending to help make sure we’re on pace for our goals. And we also have a “budget” that defines those goals. I don’t think the words end up being too important as long as you have a system that works.

  • E.M. November 14, 2013

    I only track our spending in a spreadsheet. I don’t set hard limits because I know I am pretty disciplined when it comes to spending. For the most part, I try to only spend on necessities, but I still like to see where spending has increased and decreased over the year. It’s useful to know.

  • Shannon Ryan November 14, 2013

    I agree wholeheartedly – if you’re new to budgeting start with tracking your expenses before you start putting caps on what you want to spend per mont/per year. It will be an eye-opening experience for most people. Even people who think they spend mindfully will be surprised at all their little unplanned purchases. It doesn’t mean they are wrong but so many people have no idea where their money goes. Congrats on launching financial coaching – you’ll do great!

    • Matt @ momanddadmoney November 14, 2013

      Thanks Shannon! And I agree. Tracking my spending for the first time all those years ago was pretty mindblowing. You just have no idea until you actually do it.

  • Ree Klein November 14, 2013

    This is one of my favorite subjects, Mat! And, I completely agree with you that which method you adopt is not as important as adopting one and putting it into practice. I say “practice” because the definition is perfect for this: “repeated exercise in or performance of an activity or skill so as to acquire or maintain proficiency in it.” This isn’t a one-time event, it is a practice!

    On another note, congratulations on coaching program. I think you are a perfect person to do this. I’ve followed you for months and feel that you post amazing content, have a solid grasp on what it takes to build wealth and you have the credentials to back it up!

    Can’t wait to hear the amazing success stories!

    • Matt @ momanddadmoney November 14, 2013

      Great point Ree! It really is an ongoing process that you have to continually practice. There is no “end” where you have it all mastered. Thanks for adding such a thoughtful point.

      And thank you for the kind words. I’m very excited about this program as well and I hope there are many success stories to share down the road. Honestly I’ll feel lucky if I get to work with just one person. The one-on-one interaction is really a lot of fun.

  • Grayson @ Debt Roundup November 14, 2013

    You had me on a cliff hanger there Matt and then bam!, it is up to me….. I just track my spending and then do the averaging.

  • Alexa Mason November 14, 2013

    I always make a budget but I don’t follow it to the letter. I know how much money I bring in each month and if all my bills are paid and I have put a certain amount in savings then I know I am on track. It makes my finances much easier. It doesn’t matter if I spent more in one budget area and less in another as long as everything balances out.

  • Fit is the New Poor November 14, 2013

    I am “track your spending” kind of person. Having a budget feels a bit too constrained for me and I often find things come up that I cannot control (like a baby or bridal shower invite, a random car repair, a vet bill, etc.). Whenever I have a budget, I feel more guilty than inspired.

    • Matt @ momanddadmoney November 14, 2013

      One thing we do for irregular expenses like the ones you mentioned is have dedicated savings accounts for things like gifts, car maintenance, etc. That lets us save a set amount each month, thus keeping our “budget” pretty regular, but when we actually spend we just take it out of that savings account. It helps keep things a little smoother.

  • Tonya November 14, 2013

    oooh congrats on launching the coaching business! I don’t track my spending, but I do use a budget. Someday I plan on trying to track all my items of groceries to see if I can do better with that budget category.

    • Matt @ momanddadmoney November 14, 2013

      Thanks Tonya! I’ve never gotten as detailed as tracking our grocery spending, though that would probably be a helpful exercise. I’m sure there are parts of our food budget where we’re spending more than we think.

  • cashRebel November 14, 2013

    I definitely just track my spending like you. If I need to spend more than my desired budget, I just do it and run the numbers later. A true budget is probably best for people just starting out, but I value the flexibility of just tracking.

    • Matt @ momanddadmoney November 17, 2013

      I like the flexibility as well. I think a true budget is probably most helpful when you really don’t have room for error, which as you say is most likely when you’re just starting out.

  • John S @ Frugal Rules November 15, 2013

    Good post Matt! We sort of use a hybrid approach, mainly we’ve been doing it for so long that we’ve found what works for us. Thankfully it really doesn’t take much time as I have a pretty good gauge on what we spend from month to month and revisit it regularly enough to make sure things aren’t out of whack.

  • jefferson @seedebtrun November 16, 2013

    More than anything.. It just depends on how tight your budget is. If your income and expenses are fairly close, then you really have no choice but to budget more strictly, as merely tracking your income could lead to trouble!

    • Matt @ momanddadmoney November 17, 2013

      Agreed. It definitely becomes more important to stay within budget month-to-month when there isn’t much cushion.

  • Kim@Eyesonthedollar November 16, 2013

    We were pretty strict when paying off credit cards, but it’s more of just tracking now. Money toward retirement, savings, and extra mortgage payments gets taken out first, automatically. The rest is there to spend. Our expenses are pretty fixed except for things that might come up with school or kid activities or if we decided to go out to eat or something like that. If there is money left over, it gets shifted to one of those other goals. I think as long as you don’t have some high interest debt and aren’t spending before you take care of your long term goals, it’s fine not to have a category for every dollar.

    • Matt @ momanddadmoney November 17, 2013

      There are definitely some situations where it makes much more sense to be very strict with where you money goes. Having a lot of high-interest debt is certainly one of them.

  • Color Me Frugal November 17, 2013

    I totally agree, it just depends on where you are at with your finances, what works for you, etc. We follow a system more like Kim (Eyes on the Dollar) where our retirement allocation, savings, and extra mortgage payments get taken out first every time we get paid. The rest is spendable. We find ourselves saving and investing quite a bit more since we adopted this strategy. Even though it doesn’t fall into most peoples’ idea of a budget, it works for us!

  • You and Your Money December 5, 2013

    Good post we have recently started using an excel spreadsheet to track our expenses, the hard part was trying to get my wife to buy into it. Think she felt I was monitoring her spending which I’m not but am trying to get her to understand where our money goes. She got a shock when she realised how much we actually spend per month on groceries when you add in the bits you buy during the week when you run out..

  • Andrew December 27, 2013

    We will use a budget we stick to for the rest of our lives. It brings freedom to give every dollar a name. I can give myself plenty of excess if I want or restrict it heavily depending upon where I’m at with financial goals. Bottom line: telling your money where to go will keep you more accountable to your financial goals. Budget=more efficient over the long-term. Our money doesn’t tell us where to go we tell it where to go.

    • Matt @ momanddadmoney December 27, 2013

      I’m glad you’ve found a system that works for you! For us, the hybrid approach seems to work well. We write out a budget that’s used to set up our automated savings and used as a benchmark when we look back at our recent spending. If anything’s out of line we figure out the adjustments we need to make. We just don’t stick to a strict budget on a month-to-month basis. But everyone will have a slightly different method that works for them, and the real goal is simply to allow yourself to put your money to work helping you build the life you want.

  • Rick Portillo August 13, 2014

    Matt, I agree there’s no right way to do it. I looked for a way that made sense for me and when there wasn’t one, I built my own and called it FitFin ( FitFin is a free website/web app that combines three things into one tool: A budget, an expense tracker, and a shopping list. The reason I did this is because like a lot of people who posted, I was tracking my expenses in Excel. My problem is that I didn’t have the discipline to track it as faithfully as I should have. With FitFin, I track expenses using a tool that I already have open while at the store (my shopping list).

    Here’s the basics of how it works: I set up a budget (i.e. grocery) in about 20 seconds. I can also set up multiple budgets for things like entertainment, dining out, vacations, etc. Then I track my expenses as they happen (I literally do this in the parking lot at the store). I can also take a picture of my receipt and attach to my expense if I want to, so that it’s ALL taken care of by the time I leave to go home. That way I don’t have to worry about messing with a speadsheet later. FitFin takes that expense amount and tracks it against my budget. FitFin has a Budgets Overview page with green, yellow or red spending bars (the color is determined by how much one has spent vs. their budget). This gives users a clear picture of how they’re doing in seconds. Users can view each budget individually or as a high-level month-to-date total. They can also see each budget’s month-to-month history in a chart.

    There are two main reasons why I combined them with a shopping list. First, it forces me to look at my budget/expenses often and in real time (whenever I’m using my list or adding items to it). I didn’t look at my budget/expenses much at all before I built FitFin. Second, FitFin allows users to build shopping lists for all their stores that includes quantities and prices. When users activate items on their list, it tallies up an estimated spend total and gives the user the option to check their budget right from the list, before they go to the store. It’s a proactive approach to budgeting, not an after-the-fact one.

    The coolest part is that one can use all three features or any combination of the three–it’s very flexible in its design. Check it out and sign up for free at

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