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Budgeting vs Expense Tracking - YouTube
Channel: You Need A Budget (YNAB)
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hello today i'm here to clear the air a
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little bit
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there are some sneaky words in the
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financial sphere
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that tend to sound the same but they are
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different but we
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think they're the same but they're not
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you know
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so let's just let's just iron that out
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[Music]
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hello friends and probably family today
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we're going to chat through the
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difference between
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budgeting and expense tracking oh
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to kick us off real strong expense
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tracking is
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reactive while budgeting is proactive
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let me explain
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what i mean expense tracking often looks
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like going back into your bank account
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every once in a while to reflect
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on the purchases you've made after
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you've already made them
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and maybe lumping them all into certain
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logical categories
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so you can see how much you spent in
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that category
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it's a great way to see where your money
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has gone
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after the fact if you've been expense
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tracking you're probably pretty familiar
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with the
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huh i had a thousand dollars in checking
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at the start of this week and now i only
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have 300 type
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situation in that kind of scenario you
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go back to your bank account and try to
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figure out how
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you got there there's not much of a plan
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for your money or how it will be spent
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you just end most months realizing about
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30 days too late how much you've really
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ate out and saying for the
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fourth month in a row oh well i'll just
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do less amazon shopping next month
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funny how that seems to go budgeting on
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the other hand
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is deciding before you even spend a dime
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what each dollar you have is going to do
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for example you put a certain amount of
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dollars in a category for rent
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give your family five hundred dollars to
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spend on groceries that month
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let yourself have fifty dollars just for
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fun random expenses
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set aside eighty dollars for future car
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repairs you get it
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you're making a plan for what each of
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your dollars jobs will be
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before even ever spending them budgeting
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gives you more control and clarity about
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your money because you can see
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before the month ends roughly about how
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the month will end
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no plan ever goes perfectly of course
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you'll have to move some dollars around
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here and there
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but you'll know when it's time to reel
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it in on the eating out when you see you
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only have ten dollars left for eating
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out
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if you think about it like driving a car
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expense tracking
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is cruising down the highway with your
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eyes only on the rear view mirror
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only looking back to determine where
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you've been
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first off terrifying secondly
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that does not give you a good sense of
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control
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third how are you supposed to figure out
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where you can safely go
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or turn next budgeting on the other hand
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is pulling out your map to figure out
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where you want to go
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first before you even put the pedal to
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the metal and making a plan for how
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you're gonna get there
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now that you're looking ahead out the
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windshield instead of the rear view
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you can start to see bumps coming in the
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road and prepare for them
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instead of running into them at 70 miles
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an hour
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and since you have a plan for where
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you'd like to go and when you want to
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get there by
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you know when you're good to pull over
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and grab a shake at sonic
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and when you can't do you have enough
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time and gas to do that
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or should you save your time and guess
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to reach the place you want to get to
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first are you seeing what i'm saying
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here so
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how do you know if you've just been
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expense tracking this whole time
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well i'll tell you i was shocked to
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learn the other day that even
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jesse mecum creator of the app you need
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a budget
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admitted to using his app only as an
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expense tracker for the longest time
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before he
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truly moved into the budgeting headspace
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what
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jess you made the app but
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then i think to myself huh wait no i
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definitely use ynab as an expense
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tracker too
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for years before i actually wrap my head
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around
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productive budgeting okay never mind
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jess
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you off the hook jesse says that you
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might be an expense tracker rather than
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a budgeter if
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one you don't establish budgeted dollar
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amounts at the start of the month
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but rather you just write down how much
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you spent in a certain spending category
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at the end of the month like it's march
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1st and after you calculated the fact
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that you spent 200
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eating out in february you write down
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february
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eating out 200 i mean
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that's like straight up expense tracking
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in its purest form
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you can't even disguise that two you
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consistently budget the exact same
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amount to a budgeting category
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every month even though you always spend
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more than that amount
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every single month this is how despite
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the fact that you're budgeting every
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month
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you can still rack up more and more
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credit card debt
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you're completely ignoring the budgeting
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guidelines you've set for yourself
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i've been guilty of this at many a time
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in my life
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and i would be lying if i said i didn't
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do this
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just last week so you're not alone or
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three you rarely or let's be honest
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never
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check your category balances to see if
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you can afford something before spending
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but you always make sure to record your
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purchase to your budget
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after the fact as if writing it down
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makes it more
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responsible or something well luckily
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this is a
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very solvable problem i would guess that
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almost all of us probably start out
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simply expense tracking before we
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realize it's not
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quite enough to make a significant
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impact on our financial decisions
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so if you want to move away from just
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expense tracking
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and start truly budgeting here are four
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steps
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jesse of you need a budget recommends to
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help you get
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on the right track first if you've been
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expense tracking for a while
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use your spending history to determine
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comfortable dollar amounts for each
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category in your budget
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decide at the start of the month how
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much you'll give yourself
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for groceries or car fuel clothes or
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even meals on the go
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but remember that you should only budget
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dollars you
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have don't budget out a future paycheck
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before you have it
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you don't want to think you have more
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dollars to spend in your budget than you
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actually do if it's not in the bank
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don't budget it
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give every dollar you do have a job that
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it's going to do
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even if that job is savings so that you
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know how far
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all of your current dollars can take you
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you won't feel in control of your money
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until you have a plan
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so carving out a plan is a hugely
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important step
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secondly you have to consult the budget
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before making a purchase
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a written down budget is only a pipe
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dream until you can start
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looking to the budget to answer the
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question can i actually buy this thing
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right now
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if your budget says you don't have
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enough money in your home improvement
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category to buy a new shoe organizer for
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the entryway
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you have two options one you can listen
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to your budget and say
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okay i guess we'll have to buy the shoe
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organizer another month
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or two you can look at your budget see
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what other categories might have some
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extra money in it that you won't need
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that month
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and move it over to your home
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improvement category so you
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can buy that thing this month just know
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that you'll have
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less money to spend in the category you
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borrowed money from
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but that's okay because you got your new
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shoe organizer
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and that's what you really wanted this
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month
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man you know you've really reached
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adulthood when
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a shoe organizer is your number one
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third
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identify what your key goals are and
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make a small space in the budget for
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each one
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in other words trim a few of your normal
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categories to free up some extra money
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to send to your goals
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can you get by with 10 less dollars in
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your eating out category so you can
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move that money over to get the instant
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pot you really want
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it'll speed up meals after work and you
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won't have to eat out as much
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budgeting doesn't have to be restrictive
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it can also
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very much get you exactly what you want
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and jessie's last piece of advice
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seems a bit odd but it's totally the
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secret sauce
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allow yourself to get addicted to
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progress
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and let that addiction motivate you to
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squeeze your daily spending so that you
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can boost your progress
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on your goals let your enthusiasm to
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live the life
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you want guide you to be more
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intentional with your dollars
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rather than just trying to cut spending
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because you think it's what you should
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do
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and here's the big kicker the sign that
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you've made it you'll know you've fully
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transitioned from
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expense tracking to budgeting when you
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use your budget to tell your money
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what to do instead of using it to tell
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you what your money
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already did does that make sense that's
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the power of a good
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true budget you are in control and you
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have security knowing that you've got a
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plan
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that can work because you can see right
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in front of you
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how it's going to work so
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again to sum it up first step budget to
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zero
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give every dollar in your bank account a
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job it's going to do
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whether it's buying groceries paying
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rent crushing your student loans or
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padding your dog's vet fund secondly
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look to your budget
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before you spend it will tell you
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whether you're able to purchase that
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thing right now
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or if you might want to wait till later
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third
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if there isn't enough money in a
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category to buy the things you want
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decide which category in the budget
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you're going to borrow that money from
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before you spend it as you keep
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following your plans and seeing that
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progress
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this will be the fuel to help you keep
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reaching your goals
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that's it now i'm not going to lie to
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you numbers 2 and 3 are harder habits to
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build than they seem
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but they are absolute game changers that
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will start to give you the confidence
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security and motivation you need to
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actually start to build the financial
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life
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you want now tracking all of this in a
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journal or on an excel sheet can get
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complicated or
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a little messy if you're interested
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jesse's app
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you need a budget was created for this
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exact budgeting strategy
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it makes it easy to divvy out all your
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dollars to your different categories
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super simple to move money from one
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category to another
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and even has tools to let you track your
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net worth and help you see
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how quickly you're spending your money
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to check it out go
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to unitabudget.com and get your hands on
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a free
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34-day trial because 30 days is
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never quite enough is it i'm happy to
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say that you
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do not have to enter any card info when
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you sign up for a free trial because
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we hate being tricked into subscriptions
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and we know
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you do too there are also tons of
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resources over there on the website to
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help you learn
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how to use the app the best strategies
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to save your money
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how to pay off your debt without
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breaking the bank everything
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just give it a shot for 34 days
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there's no reason not to thank you so
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much for tuning in
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and i'll see y'all in the next video
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welcome back budget party people people
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that like to
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party on a budget let's move into the
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action steps
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you're making a plan for what each
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dollar's job will be
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joller's job are you freaking kidding me
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