Print
(The Financial Literacy Blog) – For many, a budget is the key to their financial success—helping them balance their finances in the short-term, as well as achieve their long-term goals. However, before you create and start following a budget, it’s important that you have a clear understanding of both your income and expenses and have effective means of tracking both. While there are many methods of tracking income and expenses, here are the pros and cons of the most popular procedures:
Traditional Pen and Paper
Pros:
- Memory Benefits: Engaging the fine motor system to produce letters by hand has shown to have positive effects on learning and memory, with the same not being true by typing on digital devices. If you’re looking to keep your list of income and expenses top-of-mind, writing down the words and numbers on paper can help you keep track of them.
- No Technology Needed: This method is also ideal for those who prefer a simple, low-tech approach, or don’t have access to certain technology.
Cons:
- Time-Consuming: Tracking income and expenditures manually can be time-consuming and labor-intensive, with the lack of automation and technology meaning more time is needed to record the financial categories.
- Prone to Error: Manually recording and calculating on pen and paper introduces the risks of mistakes due to human error.
Spreadsheet Software
Pros:
- Customizable: Spreadsheet software such as Excel, Google Sheets, or Numbers allow for personalized tracking with the flexibility to create categories, formulas, and summaries—allowing you to tailor the spreadsheet to meet your exact needs.
- Visualization: If you are a visual learner, spreadsheet software can create charts and graphs to help you visualize income and spending trends.
Cons:
- Learning Curve: For those not familiar with spreadsheet functions or other software, there can be a learning curve to overcome.
- Manual Updates: Despite all the automation that spreadsheet software solutions are capable of, data still needs to be entered manually initially. This introduces the risk of human error.
Financial Institution Statements
Pros:
- Detailed Records: Paper or electronic statements from your financial institution provide a detailed, accurate statement as recorded by your credit union, bank, or credit card company. They are trusted and reliable records that can be referenced with confidence.
- Categorization: Your financial institution may categorize your expenditures into categories on your statement, making it easier to assess.
Cons:
- Multiple Accounts: If you have bills or other expenses linked to multiple accounts, no singular financial institution statement will capture the true picture of what you’re spending each month. You’ll have to track down all your statements—whether electronic or paper—for an accurate representation of your spending.
Budgeting Apps
Pros:
- Automated Tracking: You can link your credit union or bank account, as well as credit cards, to the app to have your income and expenses automatically tracked, categorized, and more.
- Additional Features: Some apps include budgeting tools, personalized financial tips and recommendations, and goal-setting functionalities.
Cons:
- Privacy Concerns: Some users may be concerned about having to share some sensitive data in order to link their accounts to an app. If the app has a data breach, your information could be compromised.
- Subscription Costs: Some budgeting apps require a monthly or yearly subscription.
The Bottom Line
By choosing the tracking method that best suits your needs and lifestyle, you can gain a clearer understanding of your financial situation and take control of your financial future. Whether you prefer a traditional approach or a high-tech solution, the key is to stay consistent and proactive in tracking both your income and expenses—ultimately allowing you to create and follow a successful budget.