Understanding this will help you keep track of your finances
Ledgers in the Past and Present
In the past, a ledger was a booklet that people carried in their wallets or pockets, writing down their expenses manually at the point of sale. Recently, people have been collecting receipts and inputting them into accounting ledgers on their home computers. Some use credit card statements as a rough and automatic ledger.
Budgets Directing the Future
By studying current personal spending patterns, you can identify areas in your budget where you want to make changes. For example, you might analyze your expenses and realize that you want to redirect 5% from one spending category, like clothing, to another category, such as retirement. In the following month, you can review your ledger to see how effectively you have implemented this goal according to your budget.
Ledgers vs. Budgets
Ledgers provide the financial data that forms the foundation of a successful budget. Understanding the differences between the two tools can help you use them together more effectively.
Ledgers:
- Data collection tools
- Focus on the present
- Provide financial information for use in budgeting
- Use financial information from ledgers to guide spending
Budgets:
- Planning tools
- Focus on the future
- Provide financial information for use in ledgers
- Use financial information from ledgers to guide spending
An Example of How Budgets and Ledgers Work Together
Let’s say Sally tracks most of her purchases by collecting receipts. She enters the amount she spends into a spreadsheet at the end of each day. Since she does this daily, it takes her about five minutes a day (less than half an hour a week) to work on this task.
At the end of the month, Sally reviews her spending and sees that she is spending significantly more on dining out than she thought. She also wants to go on a trip to Italy. With data from her ledger (the spreadsheet), she creates a budget (a big goal) that directs her to spend less on restaurant meals in favor of building a holiday fund.
Note: According to a survey from the Certified Financial Planner Board of Standards, Inc., 59% of consumers do not track their spending, and two out of five say they have never kept a budget.
Automated Sites
Budgeting sites like Mint.com act as automated ledgers. They track and categorize your personal expenses and display your spending in the form of graphs, charts, and other helpful visual tools. The data collection aspect of these sites reflects the properties of a ledger rather than the properties of a budget.
These sites also allow you to input your goals for future spending. For example, you can enter that you want to save $40,000 for a down payment on a house. There’s even a tool to help you calculate how much you can reasonably spend on a house based on your income. You can then specify the accounts or categories from which you want to withdraw down payment savings and monitor the progress you are making toward your goal. The progress tracking aspect reflects the true budget, which may never be fully automated as it requires human elements of judgment, assessment, and critical thinking.
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Sources:
- The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
- Certified Financial Planner Board of Standards, Inc. “Consumer Views on Personal Cash Flow Planning.”
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Economy
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Compound Interest Calculator
Best Savings Account Interest Rates in November 2023
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Best Auto Loan Rates
Small Business
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Credit Reports and Scores
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About Us
Financial Balance Review Board
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Budgeting
Budget Calculator
Financial Planning
Managing Your Debt
Best Budgeting Apps
Investing
Finding an Advisor
Stocks
Retirement Planning
Cryptocurrency
Best Online Stock Brokers
Best Investment Apps
Mortgages
Owner’s Guide
First-Time Home Buyers
Home Financing
Managing Your Loan
Refinancing Your Mortgage
Using Your Home Equity
Compound Interest Calculator
Best Savings Account Interest Rates in November 2023
Best Bank Certificate Rates in November 2023
Best Banks for Checking Accounts
Best Personal Loans in November 2023
Best Auto Loan Rates
Small Business
Entrepreneurship
Banking
Business Financing
Practical Taxes
Business Tools
Become a Owner
Operations and Success
Career Planning
Finding a Job
Getting a Raise
Job Benefits
Best Jobs
Cover Letters
Resumes
More
Credit Cards
Insurance
Taxes
Credit Reports and Scores
Loans
Personal Stories
About Us
Financial Balance Review Board
Diversity and Inclusion Pledge
Follow Us
Budget
Budgeting Calculator
Financial Planning
Managing Your Debt
Best Budgeting Apps
Investment
Finding an Advisor
Stocks
Retirement Planning
Cryptocurrencies
Best Online Stock Brokers
Best Investment Apps
Mortgages
Owner’s Guide
First-Time Home Buyers
Home Financing
Manage Your Loan
Mortgage Refinance
Using Your Home Equity
Economy
U.S. Economy
Economic Terms
Unemployment
Fiscal Policy
Monetary Policy
Banks
Banking Basics
Compound Interest Calculator
Best Savings Account Interest Rates in November 2023
Best Bank Certificate Rates in November 2023
Best Banks for Checking Accounts
Best Personal Loans in November 2023
Best Auto Loan Rates
Small Business
Entrepreneurship
Banking
Business Financing
Practical Taxes
Business Tools
Become a Owner
Operations and Success
Career Planning
Finding a Job
Getting a Raise
Job Benefits
Best Jobs
Cover Letters
Resumes
More
Credit Cards
Insurance
Taxes
Credit Reports and Scores
Loans
Personal Stories
About Us
Financial Balance Review Board
Diversity and Inclusion Pledge
Follow Us
Budget
Budgeting Calculator
Financial Planning
Managing Your Debt
Best Budgeting Apps
Investment
Finding an Advisor
Stocks
Retirement Planning
Cryptocurrencies
Best Online Stock Brokers
Best Investment Apps
Mortgages
Owner’s Guide
First-Time Home Buyers
Home Financing
Manage Your Loan
Mortgage Refinance
Using Your Home Equity
Source: https://www.thebalancemoney.com/what-s-the-difference-between-a-budget-and-a-ledger-453750
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