A lot has been written lately about the American taxpayers’ failure to properly budget their finances. In fact, a recent Wall Street Journal article leads with its coverage on financial budgeting. The Article highlights two methods of personal financial budgeting: “Continuous Tracking” versus “Short-term Tracking”.
Continuous Tracking is for that type of person that is detail oriented, focused and disciplined. It asks that you be aware of where every dollar is being saved or spent continuously. This method of budgeting helps people track progress to certain goals like buying a house, college tuition and yes, retirement. Finally, Continuous Tracking will allow you or your financial advisor to see where you may be overspending so that you can meet those goals.
Short-term Tracking, on the other hand, takes into consideration that Continuous Tracking is difficult and that many people who try Continuous Tracking may surrender and then stop budgeting completely. So instead, Short-term Tracking requires that you track your expenses for a short time, say a few months, and that after this period you will be more conscious of your spending habits going forward.
As a financial advisor, clearly the more advantageous system is Continuous Tracking. If you have the desire and commitment, I would much rather my clients employ Continuous Tracking so that we can obtain a more accurate picture of their cash flow. That being said, if not budgeting is the alternative, I guess Short-term tracking is the next best choice after Continuous Tracking.
In either case, it is recommended to use Mint.com (an online program) or Quicken to record your cash inflow or outflow. If you don’t feel comfortable with these programs, then simply write down your figures in a notebook with each source of income listed along with each spending category. After each month, review your spending habits so you know whether you are saving as much as you can on a regular basis. Proper budgeting is the way you are going to be able to save enough money to buy that house, pay for college and even retire.