Counting Pennies: Ideas on Budgeting
Despite the benefits, many individuals and families struggle with budgeting and tracking expenses. Begin with a clear purpose, an appropriate strategy, and the right tools - otherwise you may fail before you even start.
Focus on the Purpose
Ask yourself why you are interested in budgeting. Is it to get a better sense of control over your expenses? Achieve savings goals? Set boundaries between household spenders and savers? Stop living paycheck to paycheck? Continue to remind yourself of your desired outcome as you go through the budgeting process.
Also consider reframing the idea of budgeting. Even the word “budget” can be the cause of a great deal of anxiety for some of us; if that is the case, think of this exercise as developing a “spending plan” instead. The important part is to have an end result in mind and a positive attitude.
Choose a Strategy
Take a step back, and look at how you and others in your household handle day-to-day banking. This can help you select the strategy that will work best. Do you have direct deposit, or are you paid by cash or check? Do you keep all your receipts when paying with cash? Are bills automatically drawn from a checking account/credit card, or do you write a lot of checks?
Tracking expenses and developing a spending plan can be as rigorous or simple as you want; here are a few essential questions to ask yourself:
- Level of Detail: Will you track your expenses in detail or more simply?
- Frequency: Will you track cash flows all the time or just intensively once or twice a year?
- Maintenance: Who will do the tracking work? What is their comfort level with software/technology? What is their availability and willingness to do it?
- Accountability: How will you review spending and plan future expenses as a household? Will you enforce strict spending limits?
Tools You Can Use
There are really great software tools and websites that can help you create a spending plan and stick with it. Each varies in cost and effort to maintain:
- You Need a Budget (YNAB) – Has good ideas around building budgets, but takes a bit of time to put together and add expense information.
- Mvelopes – Has a slightly different take on budgeting versus YNAB, and adds some automation/bill pay features.
- Mint – Offers a simple way to track expenses with a good mobile app and website, but the advertising can seem intrusive.
- Yodlee – Similar to Mint but without the advertising (Yodlee is the software behind many of the personal finance tools that major banks offer).
- Quicken – Classic software that takes a little effort to maintain but offers powerful features.
- Spreadsheet – Provides great flexibility but depending on the complexity of the worksheet, it can be difficult to maintain.
- Pen and Paper – Simple but takes work to maintain and doesn’t offer automation or reports.
I suggest starting with at least two of these tools – then you will have a point of comparison, and each may provide different perspectives on how things are going. It may take several months before you discover which works best for your household.
Remember, this process is a marathon not a sprint – so it’s important to avoid getting burned out. If you are just getting going, start simply and add complexity as you go.
This means pay yourself first by automating your savings (401K, emergency/buffer fund, etc.). After that, consider just tracking expenses for a month or two – and don’t evaluate or judge this in any way.
Be sure to block out time on your calendar to maintain/review your income and spending; and if you will be discussing things with other family members, let them know about it ahead of time (nobody likes an impromptu “money talk”). For many of us this may be as far as we get and that may be enough!