I have briefly talked about the importance of budgeting before, but I wanted to take a deeper dive into the methods that people can use to make sure they’re staying on top of their finances. The attitudes towards budgeting run the gamut from those who meticulously track every number and live and die by their budgets vs those who take a far more relaxed approach and use it as a check in to see if their still aligned in their financial goals. Today we’ll look into both strategies and you can decide if you fit into group A, group B, somewhere in between, or you’re simply aware that budgeting exists.
In the first group we have those who very carefully add every expense and income to their budget and are always aware of where they stand in regards to their financial health. This can be a good approach (in various extremes) for those who have never tracked their income/expenses before and are looking to get more involved in their finances. Both mint.com and my planning software Right Capital have free budgeting tools that you can use to create a budget and track it over time. This can also be done with a spreadsheet if that’s what you’re more comfortable with, and you like your budget offline. This method is also a good approach for those who want to reign in their spending during the month as being able to track that and set up limits is helpful in creating good spending habits.
I’m calling the second group checkers, because their focus is more on checking in (usually monthly) to make sure that they’re still on track with their finances. While the trackers are charting each change, checkers tend to look at the bigger picture while passing on the minutiae. An example of a monthly meeting would be to make sure their financial priorities are still aligned with their family, make sure there’s money set aside for taxes, allocate savings accounts towards financial goals, determine allowances, and catch any fraudulent charges. Your meetings could be different or focus on different things, but the point is that they are looking at a larger picture and not focusing on how much they spent on groceries each week. I will say that this method is more feasible once you’ve become a nurse or attending, but each method can work for as long as you stick with it.
So which method is best? The first group is definitely better for creating good spending habits whereas the second group is great if you aren’t worried about income and want to make sure things run smoothly. That being said, the method that’s best is the one that you’ll be able to stick with for long enough for it to have an impact. If you start out as a tracker and get exhausted by always being vigilant and your spending is under control, then look at moving to group two. If you’re a checker and are anxious because you don’t feel you have enough control, then maybe sliding into group 1 would be beneficial. The point is that this is useful as a long term tool, so whatever you’re going to be able to stick with is going to be best.
If you have questions on either of these groups or want to share your own style, please leave me a comment below or shoot me a message.