The concept of budgeting is pretty simple:  Create a plan for your money and stick to it.

The reality is much more complex.  There are countless decisions to be made when it comes to your money.  There are periods of unexpected expenses.  There are sometimes periods of inconsistent income.

But there’s one thing people do when budgeting that can really cost you money.  I know this because I’ve been guilty of it.

The biggest mistake people make when budgeting is thinking that tracking is budgeting.

Tracking is simply keeping track of all the money you spend in the course of a day, a week, a month or year.  It’s merely a bookkeeping exercise designed to help you see where you are spending your money.  Its goal is to help you establish a baseline for spending.

Tracking is not budgeting.  Budgeting looks at what you’ve tracked and looks for patterns.  It makes you ask yourself how you can reduce spending in a particular area.  It allows you to set goals for what you’ll spend your money on before you spend it.  Tracking is for after the fact.  Tracking means you’ve already spent the money and it’s not coming back.

I’ve been dutifully using the budgeting software You Need a Budget  (YNAB) for the past year in an effort to better manage our family budget.  I have loved using YNAB for tracking expenditures and keeping track of income.  It’s an easy to use program that allows you to quickly see a lot of information about your spending and earning habits.  I love that it has a mobile app to enter in transactions when I’m on the go.

At first, I was put off by the price tag.  After all, there are plenty of budgeting spreadsheets and trackers like Mint.com that I could use for free.  But here’s the thing:  I do not have to enter ANY personal banking information into this software.  All I enter are numbers and transactions.   I don’t need to give any sensitive personal financial information to a third party.  I can download info from my bank and then upload it into YNAB if I want to, but it’s not required.   The fact that my data is as secure as my home computer is all the reassurance I need to use YNAB over other free alternatives. If you’re looking for budgeting software, YNAB is worth every single penny.

But here’s the thing: YNAB is only as useful as the user is dedicated, and I slipped a bit when it come to using the software to its full potential.  Instead of really diving into using it as the powerful budgeting tool that it is, I started to use it more as a tracking tool.

Sure, I entered in ballpark figures for all the categories each month –  things like electricity, gas, groceries.  But I made very little effort to stay within those constraints.  Instead, I overspent in nearly every category, taking money out of savings instead of taking a critical look at my spending habits.  I was deficit spending. Of course, I tracked it all, and told myself I was doing a good job budgeting.  I was lying to myself.

Once I realized I was making this giant mistake when it came to budgeting, I knew I had to do something.   So I sat down and really reviewed all of my budget categories.  I determined which categories may have been under-funded.  I tried to see if there were patterns to my overspending in particular categories like eating out.  I actually created a working budget.

I now have a budget and I am tracking with a purpose:  To stay within those budgeted numbers.  I’m using the vast resources compiled by the folks at YNAB to help me focus on my financial goals.

Despite making the big mistake of confusing tracking with budgeting, I still think that YNAB helped keep me more accountable than if I hadn’t been tracking at all.  I think I would have spent much more frivolously if I had not been regularly entering in every single penny I spent.  I also think the lengthy period of tracking has provided me with a wealth of information that will help me create a more liveable budget than I had not tracked.

Tracking is good.  But it’s just part of the budgeting process.  Now the real work begins.

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