Implementation is the key to winning with your budget. It is the difference between having a budget that succeeds and one that fails. When your budget succeeds, you succeed financially. When the budget fails, your financial progress takes the hit. In Blog Post #3, we laid out the format of implementation using the weekly spending model.
Now we want to discuss how to track spending. We are not talking about bills here. We are talking about YOUR spending. Categories like eating out, shopping, entertainment, etc. This is the spending related to you using your debit card, credit card, payment apps, etc. While payment methods have increased purchasing convenience thanks to the internet and phone apps, they have created a ‘herding the cats’ environment when it comes to understanding spending and staying within the parameters of a budget. Electronic payments make invisible what used to be quite tangible and obvious when cash and checks were the primary means of paying for the things we buy. The onslaught of credit card offers that hit U.S. households in the 1980’s started to make purchasing less visible (and less tied to whether you actually have the funds right now to pay for what you want, thereby putting you into debt). Now, there are countless means for payment. While these are certainly “convenient”, they add so much complexity that consumers give up trying to track spending from so many sources. Spending becomes blind, budgets fail, and you end up living paycheck to paycheck. Make no mistake — the convenience of payment methods was not designed for you. It was designed for the merchants. The easier it is for you to part with your money, the better it is for the one you are giving it to! We could do an entire blog post on how to simplify the payment method maze but, for now, let’s keep things as they are in terms of the methods you use, and instead help you succeed with your spending in spite of the merchants!
Keeping track of your spending is the single most important factor in successfully managing your finances. There are many ways to do this. For example, you can write down all of your spending, and when you get to your budgeted limit, you stop. You could also use one of dozens of budgeting apps, or maybe even your bank since many now have tracking tools. But nearly all of these options require more work than we think is needed. They fail because at the end of the day, who has time to track spending?
Here are the three best methods to manage your spending without needing to actually track it:
1. Cash Envelope System: This one is tried and true. You withdraw your budgeted spending money in cash, put in an envelope, and spend from the envelope. When the cash is gone, it’s gone. No additional spending can happen until the envelope is replenished next week (for weekly spending) or next month (for monthly spending). This is a simple, guaranteed success in containing spending, and no tracking is required. The ‘tracking’ is automatic as you see the dollars disappear. And you should. The whole idea is to prevent you from spending more than you have budgeted.
2. Electronic Envelope System: This is our favorite method to help you succeed with your spending. The electronic envelope system is a concept we have coined at Richer Than You Think that works the same as the cash envelope, except it also accommodates online and debit card purchases. With this system, your ‘envelope’ is actually a separate checking account with its own debit card. Like the cash envelope concept, you transfer (from your main checking) your budgeted spending into the electronic envelope, and spend from there. If you reach a zero balance before it is scheduled to replenish next week or next month, no additional spending can happen until the scheduled replenishment. This is another simple, guaranteed success in containing spending, and no tracking is required. The ‘tracking’ is automatic as you see the balance in the electronic envelope disappear. And you should. The whole idea is to spend what you have budgeted, just not more than that.
3. Mint Spending Budgets: Mint is a free online tool that is great for tracking spending. It automatically downloads your bank and credit card transactions, and it is both smart with its automatic category assignments and trainable with those unique to you. It is as close as we’ve seen (and FREE) to the electronic envelope described above. Mint allows you to set a budget for, say food/grocery/eating out. As you spend, and the transactions are automatically categorized to that label, Mint tracks the spending against the budget you assigned and tells you what’s remaining. So while the envelope systems don’t require any tracking, Mint tracks it for you. Your job is to make sure your transactions are categorized correctly, but this takes just a few minutes a day and is worth it! Mint has a phone app that shows you what is left in each of your spending budgets (aka envelopes). It’s a great alternative if you don’t want to have a separate spending account with a separate debit card.
The most important success factor in your budget is making your spending fit your budget. After all, you put that budget together for a reason. You told your money what to do for a reason. Maybe it’s because you want to stop living paycheck to paycheck. Or you want your hard-earned-money to work harder. Or you want to reach Financial Stability. Maybe you want to feel you are moving forward financially. Or you simply want to stop running out of money. Help that budget succeed for you by keeping your spending within your budgeted “fenced yard.” Use one of our favorite methods above, and enjoy the win.