The Diary of a Budgeter – Day 59

Bobbi Olson Articles, The Diary of a Budgeter

Spending Plan Versus Budget

I often hear people refer to budgets as a planning tool. That’s partially true, but it’s so much more! I also hear them use the terms “spending plan” and “budget” interchangeably. I used to do the same, until I learned the crucial difference between the two – and this is one of the biggest reasons, I believe, that budgets often fail.

A spending plan is a plan for what to do with your money, once it hits your bank account. A budget is a breakdown of the money that’s already in your bank account. Think about that for a moment. What do you want your next paycheck to do for you? That’s the spending plan. What would you like the money you already have in your account to do for you? That’s the budget – but it’s only the start of what the budget is for.

Now that you’ve categorized the money in your account, or “budgeted” it, what comes next? Monitoring and tracking! I monitor my budget before I spend, to make sure I actually have money to spend on that item.

It’s not enough to know there’s enough money in my bank account. I need to know that, if I spend this money, I’ll still have enough for everything else I need – groceries, gasoline, bills, etc. Who can keep track of it all? No one! That’s why I love my budget! I can always monitor it for an accurate answer.

But how do I know it’s an accurate answer? Because I track my spending! By tracking each purchase, as I make it, I always have an updated budget, because the purchase isn’t just subtracted from my bank total, it’s subtracted from the category I used to spend! So I know, instantly, how much I have left in that category! It gives me confidence in making spending decisions anytime, anywhere!

My spending plan helps me plan the money coming from my next paycheck, so I can add it to my existing budget, in various categories. And monitoring my budget helps me update my spending plan. I know I need about $125 per week for groceries. But if I’ve already got some money in my grocery category, when I get my paycheck, maybe I don’t need to add as much as I’d planned. And maybe that money can better benefit me elsewhere!

The spending plan and budget are very different – both are essential, and very powerful when used together!

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