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What is a Budget, Actually? And How to Make it Work for You

By Garrett

Nov 10, 2021

Everyone says you should have a budget. But what does that mean and how do you find a way of budgeting that works for you? First, you must know, budgeting has two separate components, not just one single thing. Budgeting consists of planning and tracking; you can’t have one without the other.


Let’s talk about what it looks like to plan and the different ways that you can track. Planning is setting the intention for what you want to happen with your finances. When budgeting, we usually start by looking at your money habits every month. So when someone asks, “do you budget?” they’re referring to tracking your monthly income and expenses. Now, you can plan on a longer-term basis–planning annually can be helpful to make sure that you don’t miss any unexpected expenses throughout the year–but it’s best to focus on monthly at first.

When it comes to what tools to use for planning, I’ve found that spreadsheets work the best. There are online tools like Mint, You Need a Budget or EveryDollar Budget that allow you to plan and track in one place. However, I find Excel spreadsheets or Google Sheets the most helpful because of their usability and functionality. They allow you to visually see the information better than the previously mentioned online tools.

What is Tracking?

Tracking is when you look at where you spent your money. A plan states your intentions for your money, but tracking shows you the reality of your spending compared to your plan. This is where budgeting breaks down for most people. When working with clients, what I’ve seen is tracking is the hardest part for them to stick with consistently. That’s because they will be very excited to get started, but choose a way of tracking that doesn’t work for them, makes them feel overwhelmed or takes too much of their time and isn’t sustainable. Resultantly, clients get frustrated at being unable to follow through and decide that budgeting isn’t for them.

Possible Systems to Choose from 

Because tracking is such a challenge for people, let’s look at the four different systems that you can choose from when it comes to the tracking portion of budgeting.

Envelope System

First, let’s go old school with the envelope system. You may have heard your parents talk about this way of budgeting. You physically take money out of the bank, convert it to cash, and put that cash into various envelopes labeled for the different categories you spend throughout the month. So you’d have money in the groceries, fun or bills category. And once you spend the money in that particular envelope, you’re done. That’s all the money that you have for that category for the month. You could choose to pull money from a separate envelope and put it into a different envelope if you overspend, but that forces you to move money from one envelope to another physically. That tactile process can help you be aware of where you are overspending. To be honest, none of my clients use this method. The idea of only using cash is terrifying to them. But some people might find this system helpful, at least on a small scale, such as taking out money to spend for just a couple of specific categories like groceries, dining out, booze, etc.

Online Budgeting Tool`

Secondly, you can track every dollar with an online budgeting tool. So these are tools like Mint, You Need a Budget or EveryDollar Budget. These services connect to your bank accounts and automatically pull in transactions from those accounts, whether checking, savings, credit card or debit card and then allow you to track where every single dollar has gone. With this method, you can see exactly what spending has happened, except for cash. Of course, the con is that if you get a little bit behind in categorizing the transactions, you may feel overwhelmed. For example, it can feel overwhelming if you don’t track your expenses for a few days and you have 50 transactions to categorize. Instead of persevering with your tracking, you may want to quit.

Bank Account Budgeting

The third strategy is the bank account budgeting system. This system is a hybrid of the first two. This strategy is where you have separate bank accounts for distinct purposes. So you could have one checking account for bills and recurring monthly expenses, a second account just for discretionary costs and then one or multiple savings accounts for your savings goals. The benefit of having multiple bank accounts is that if you deposit money directly from your paychecks into those different accounts, you know exactly how much money you have to spend in each of those buckets based on the dollar amount in the account. Similar to the envelope system, when you’re out of money, you’re out of money. However, the benefit of this is that you have the envelopes system’s functionality but don’t have to track every transaction like you should with the online budgeting system. Another benefit is if you run out of money in a particular bank account, you can check online and see what happened, which you can’t track easily with the envelope system.

Last, and definitely least

Lastly, we have the ostrich method: putting your head in the sand and ignoring everything, which I definitely would not recommend.

Don’t forget that with whatever system you choose, make sure to set up your money movement system. That’s how the money moves between your different bank accounts—so checking your savings or credit card– because even a good budgeting process can fail if you don’t have your banking set up correctly. Check out this post on how to set up intentional banking structures.

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