Budgeting is the foundation of personal finance; it is an estimate, but your goal should be to make as educated an estimate as possible. Whether or not you use budget spreadsheets, smartphone Apps, online software — you’re probably already budgeting.
Learning how to budget your finances is a fundamental step towards financial independence. Without a budget, you’re not holding yourself accountable to your spending. Success comes when you adhere to your budget criteria. If you’re thinking of skipping this step, I suggest you stop reading further. If, however, you have an open mind and are interested in learning simple strategies for successful lifelong investing then read on.
A monthly budget is a plan for how you will allocate income to meet your expenses for a designated month. Some think of budgets as spending constraints, but budgets are better described as spending plans. If you budget correctly you will be able to spend money on things you enjoy without worrying about meeting other financial obligations, going into credit card debt, overdrawing your accounts.
A monthly budget typically consists of a list describing your income sources and expenses. It can be an Excel spreadsheet, managed within a software program or simply jotted on a piece of notebook paper (more on that below)
Setting a budget allows you to examine your spending at a detailed level and helps you understand where your money is going! Start by listing all your expenses; items such as:
- Household- Mortgage/Rent
- Debt- Credit card bills, loans
- Utilities- Phone, cable, water, internet
- Living expenses- Groceries, etc,.
- Transportation- Car payment, insurance, gas, maintenance
- Entertainment- Clothes, Club memberships, etc,.
Separate the ‘Needs’ from the ‘Wants’ and the ‘Nice to have’ (Essential, Lifestyle, Priorities)
Become computer savvy and learn how to use Excel. Generate a budget spreadsheet, enter all your spending items one by one. Visually you will be able to identify every incurred expense. Trust me, that helps tremendously. That’s how I started.
Most top-tier financial institutions now offer tracking services online. I use Bank of America; they have a feature that allows clients to enter the username and password for their other accounts at institutions throughout the world, including retirement and brokerage accounts, and the Bank of America website will pull all of the data together on one screen so you can see your entire financial picture. You can even create manual entries to track loans from family members or other items that don’t show up on a regular statement. I find it to be a very useful tool.
Use online software and tools: There are plenty of online money management tools you can check out. Each site tracks your cash flow by collecting your financial information in one place, providing access to your complete financial picture anywhere you have Internet access. To maximize their value, most sites require that you link them to your financial accounts by providing your online user names and passwords. They guard your information from hackers with bank-level security; they encrypt your user names and passwords, meaning they cannot be viewed anywhere in plain text without a key. Even if your account were hijacked, intruders would not be able to execute any money moves because the sites access your financial accounts on a read-only basis. Read more HERE
Those sites offer features such as: account dashboard, goal settings, progress tracking, building emergency funds, etc,.
Here are my top 3:
- Mint.com (they also have a smartphone App)
- LearnVest.com
- Payoff.com
Examine your budget monthly (or weekly), and monitor your spending. CNN Money offers a Free Portfolio tracking software (you need to sign-up for user account first; super easy).
More Free budgeting Software
- Mint: As mentioned above, it’s a Web and mobile budgeting tool. Users can securely link bank accounts and credit cards to Mint, create budgets, and set alerts for when balances are low or spending exceeds set amounts in a certain category.
- MoneyStrands: A Web budgeting tool that links to bank accounts and credit cards and accepts manually or bulk-uploaded transactions from bank accounts.
- Rainy Day Budget: An online manual budget tool.
- GnuCash: Free financial software for Windows, Mac, and Linux. Handles small business accounting, too.
- Yodlee MoneyCenter: An online money management tool that aggregates bank accounts.
There are several other options, including Quicken, and QuickBooks to track your investments. In an Internet-based world, it’s not difficult to find reviews of software packages so you can find one that works for you.
If you ever want to build wealth and stay out of debt, you have to spend less than you earn. And a budget can ensure that you do that. Vigorously tracking every dime you spend is like counting calories — it sounds good in theory, but most of us fail to keep up with it; therefore, keep your budget as simple as possible.
After you get a handle on your budget, you’ll be able to focus on other priorities like getting out of debt, building emergency savings, and begin to save for retirement. They aren’t the most exciting financial goals of your lifetime, but once they are out of the way they provide solid footing for financial security for the rest of your life.