Documentation
Budgeting 101 - Basic Budgeting Principles
Tracking
Keeping track of your money is probably one of the most important things if you want to achieve financial stability.
If not tracked, money will disappear without a trace. Lured away by unknown expenses, never to be seen again.
Every dollar has to be accounted for, if you want to be in control of it. This is why it is important to keep track of every expense, no matter how small or unimportant it may seem. Even Benjamin Franklin took note of this concept a long time ago when he stated: “Beware of little expenses; a small leak will sink a great ship.”
Something interesting happens, from a phsycological perspective, when you start writing down each and every expense. You become much more aware of where your money is going. Just a simple act of writing it down makes a big difference.
But why do it when your bank already does it for you, you may ask? Almost every bank has an app that will show you where your money is going! Who needs to track anything?
While all banks do track your transactions and most of them offer some way for you to see how the money is being spent, there are a couple of problems with this.
First, you are not the one entering those transactions. All you do is swipe the card. Then a number appears in the bank's ledger showing where you swiped it. It happens in the background and you are not consciously aware of it.
Second, the bank has no idea which category that money should come out of. If you bought groceries and shoes at Walmart, did this money come out of the food or clothing category, or neither? All it sees is that you spent money at Walmart. The best it can do is guess which category. And this takes us to the next principle - categorizing.
Categorizing
Think of categories as “buckets” where you put your money. Each bucket has a purpose. You take all of your money and divide it into different buckets, each one having a specific purpose.
When you spend money, it does not just come out of your bank account. It comes out of the specific bucket related to this expense.
Categories are how you organize all of your money. Every dollar has to be assigned to a specific category.
To demonstrate this concept, let's imagine that we have 3 categories: Food, Gas (for our car), and Rent.
Next, let's assume we have $1000 that we need to divide into these 3 categories.
We can take $200 and put it into the Food category.
Another $200 will go into the Gas category.
The remainder of $600 will go into the Rent category.
Now we don't just have $1000 sitting in the bank. It has been purposefully allocated into different categories and we know exactly how much we can spend out of each category.
When we spend $100 on food, it will come out of the Food category. When we spend $50 on gas, it will come out of the Gas category. When we pay rent, it will come out of the Rent category.
Doing it this way let's us know not only how much we are spending out of each category, but also how much we have left!
If we have an urge to feast on steak and lobster (and margaritas!) because there is still $850 in our account, we may quickly realize that there is only $100 remaining in our Food category. While there is $850 sitting in the bank, we can only afford to spend $100 on food because the rest of the money is allocated for other purposes.
Another benefit of categorizing is that it helps us create and maintain a monthly budget more effectively. Once we know how much we are spending every month out of each category, it will be a lot easier to see where adjustments need to be made and how much we need to set aside every month for necessary expenses.
With Track My Dough, doing all of this is easy (and FREE!) because all of the math is done for us! We don't have to add and subtract manually like we would have done in the past.
However, the important steps will still have to be done by you. You will have to enter each expense and decide which category it is coming out of. This will make you aware of each expense and put YOU in control.
The good news is that in practice it only takes a few minutes a day to keep track of your money. Enter all transactions as soon as possible. Don't fall behind where you have to enter a week worth of transactions all at once!
Tracking
Keeping track of your money is probably one of the most important things if you want to achieve financial stability.
If not tracked, money will disappear without a trace. Lured away by unknown expenses, never to be seen again.
Every dollar has to be accounted for, if you want to be in control of it. This is why it is important to keep track of every expense, no matter how small or unimportant it may seem. Even Benjamin Franklin took note of this concept a long time ago when he stated: “Beware of little expenses; a small leak will sink a great ship.”
Something interesting happens, from a phsycological perspective, when you start writing down each and every expense. You become much more aware of where your money is going. Just a simple act of writing it down makes a big difference.
But why do it when your bank already does it for you, you may ask? Almost every bank has an app that will show you where your money is going! Who needs to track anything?
While all banks do track your transactions and most of them offer some way for you to see how the money is being spent, there are a couple of problems with this.
First, you are not the one entering those transactions. All you do is swipe the card. Then a number appears in the bank's ledger showing where you swiped it. It happens in the background and you are not consciously aware of it.
Second, the bank has no idea which category that money should come out of. If you bought groceries and shoes at Walmart, did this money come out of the food or clothing category, or neither? All it sees is that you spent money at Walmart. The best it can do is guess which category. And this takes us to the next principle - categorizing.
Categorizing
Think of categories as “buckets” where you put your money. Each bucket has a purpose. You take all of your money and divide it into different buckets, each one having a specific purpose.
When you spend money, it does not just come out of your bank account. It comes out of the specific bucket related to this expense.
Categories are how you organize all of your money. Every dollar has to be assigned to a specific category.
To demonstrate this concept, let's imagine that we have 3 categories: Food, Gas (for our car), and Rent.
Next, let's assume we have $1000 that we need to divide into these 3 categories.
We can take $200 and put it into the Food category.
Another $200 will go into the Gas category.
The remainder of $600 will go into the Rent category.
Now we don't just have $1000 sitting in the bank. It has been purposefully allocated into different categories and we know exactly how much we can spend out of each category.
When we spend $100 on food, it will come out of the Food category. When we spend $50 on gas, it will come out of the Gas category. When we pay rent, it will come out of the Rent category.
Doing it this way let's us know not only how much we are spending out of each category, but also how much we have left!
If we have an urge to feast on steak and lobster (and margaritas!) because there is still $850 in our account, we may quickly realize that there is only $100 remaining in our Food category. While there is $850 sitting in the bank, we can only afford to spend $100 on food because the rest of the money is allocated for other purposes.
Another benefit of categorizing is that it helps us create and maintain a monthly budget more effectively. Once we know how much we are spending every month out of each category, it will be a lot easier to see where adjustments need to be made and how much we need to set aside every month for necessary expenses.
With Track My Dough, doing all of this is easy (and FREE!) because all of the math is done for us! We don't have to add and subtract manually like we would have done in the past.
However, the important steps will still have to be done by you. You will have to enter each expense and decide which category it is coming out of. This will make you aware of each expense and put YOU in control.
The good news is that in practice it only takes a few minutes a day to keep track of your money. Enter all transactions as soon as possible. Don't fall behind where you have to enter a week worth of transactions all at once!