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Track Your Spending is part 2 of my Budget 101 series. You can read the first post here: Budget 101: How to Start A Budget
In my first post about budgeting, we ran through how to start your budget. This will be the basis of your monthly budget. Usually, this is where people stop in the budgeting process, but it really is just the beginning! After you have created your basic monthly budget, you need to know where your money is going! This is where tracking your spending and following that budget comes in. This is the hardest part. I’m going to discuss 3 basic ways you can track your spending and then tell you what we use.
Pen & Paper
Think back to old school check registers. Back in the day before debit cards (oh man, I’m dating myself here) people used checks or cash. Anytime you wrote a check. you wrote it in your register and kept track of your bank balance. Since there were only 2 ways for your bank balance to go down – check or cash withdrawal – this was easy and effective. Now in the day of online bill pay and debit cards, you may have transactions scheduled or pending. Your bank balance doesn’t always reflect a true picture. But if you are very diligent about record keeping, this method can still work for you.
Cash Only Method
If you know about Dave Ramsey’s budgeting method, you know he strongly advocates using all cash all the time. He also is strongly against credit cards and debt. For this method, you make out your monthly budget, then make envelopes for things like groceries, gas, electric, etc. Then you go to the bank and get the cash in the exact amounts for your envelopes. This method works for a lot of people because when the cash is gone, they can’t overspend. There are some drawbacks to this method though. If you carry envelopes full of cash, you run the risk of losing them or having them stolen. It can be inconvenient too. For example, if your partner has the gas envelope but you find yourself in need of getting gas in your car. Or if you have an electric bill envelope, you would need to redeposit that money at some point to actually pay your electric bill if you mail in a check or pay the bill online. This method is very good if you need to break overspending habits, and need to be very strict.
Software & Apps
You can also decide to use software or an app to help you track your spending! Programs like Mint, Quicken or even a simple spreadsheet can work. Some of these will link with your bank account to track your electronic purchases or cash withdrawals. They do not help you keep track of what budget category you spent from though. If you make a cash withdrawal for groceries, it will just say withdrawal. So if you later try to figure out what your true expenses are, you may not remember. You still have to keep track of any transactions pending or bills that will be electronically paid to make sure you don’t overspend. Also, there is usually a cost associated with these programs.
What We Use: A Hybrid System
While we have taken Dave Ramsey’s Financial Peace University and recommend it to anyone, his cash envelope method doesn’t work for us. We found cash was very inconvenient (which to be fair, is kind of the point) and complicated. But, we DID want to budget using categories and making sure we didn’t overspend based on our monthly budget. That is when I found YNAB or You Need A Budget. It completely changed our lives and got us out of the paycheck-to-paycheck cycle.
You Need A Budget is a software program that allows you to essentially create a virtual cash envelope system. You enter your budget categories and fund them with only the money you currently have, and then track your spending from those categories all within the program! YNAB is a web based program that can be accessed from anywhere AND they have an app for your phone so you can enter transactions as you make them. You can connect it to your bank account for auto importing transactions or manually enter all transactions (like the old school check register).
If you overspend in a category, you immediately know and the program prompts you to move money from another category to cover the overspending. For example, if we go over our grocery budget by $5 I will get an alert message and need to move money from something like our household category to cover it. Using YNAB is one of the biggest tools we have used to make me being a stay at home mom work.
You Can Try YNAB for FREE!
The cost of YNAB is something that gives people pause, with good reason. You probably aren’t reading posts about how to budget if you had a ton of money just sitting around.(I know we don’t!) But you can try it before you buy it completely FREE for a month! Seriously. No strings attached, no credit card needed. They also provide several free online classes so you can get the most out of their software. I highly suggest watching a few of their getting started classes before starting your free trial.
You can track your spending and get your FREE month using my referral link: HERE (we will BOTH get a free month if you use it!).