Diligent budgeting requires three distinct toolsets: allocating, tracking, and accounting. Although each toolset has its own challenges and difficulties, using all three in unison can prove a very powerful asset as you strive to reach your financial goals. By not employing all three, you’re likely to lose money somewhere in your budget.
Allocating is the proactive step in the budgeting process in which you take your income, and divide it among the categories for spending. Ideally, every dollar that you take in will be allocated somewhere in your budget to be saved or spent. Allocating happens before the month begins so that you’re ready to start spending on the first day of the month.
Tracking is how you measure what you allocated versus what you actually spent. This happens during the month. As you track your budget through the weeks, you may need to make adjustments. Some adjustments are required due to poor planning, and others are due to changing circumstances. Roll with the punches and stop bad purchase habits as soon as they’re detected.
Accounting tells you where your money went. Your accounting system, which may be as simple as a bank statement or a checkbook register, will show you how you spent your money. Accounting is where you balance your checkbook at least monthly to ensure that the numbers that you’re budgeting off of are solid. Although it’s the least glamorous, accounting is necessary because it ensures that your math is based in reality and not guesswork. All of this happens at the end of the month.
Diligent budgeting requires all three; allocating at the beginning of the month, tracking during the month, and then accounting at the end of the month. If you want to be successful at budgeting, first become an expert at allocating, then tracking, and finally accounting. When your budget follows these three methods over the course of the month, you’ll be surprised at how quickly you reach your financial goals.