5 easy tips and tools for creating a budget
Good money management requires developing a budget and sticking to it. It might sound impossible, but creating a workable budget is easier than you think. Here are five budgeting tools and tricks from financial experts:
1. Use pen and paper.
The first step in budgeting is to track your income and spending, right down to how much you spend on things like chewing gum or your daily latte.
“Start tracking your spending by carrying a notebook around and using it to record every single purchase you make in a month,” says Casey Gorman, a senior business analyst and member of the University of Phoenix Repayment Management team.
“You can’t develop a budget until you know exactly where all of your money is going.” You can later transfer what you record manually into a spreadsheet or other online budgeting tool.
Budgeting strategies like the cash-only envelope method rely exclusively on paper, according to Chris Conway, a personal finance expert and fellow Repayment Management team member. “A lot of people develop arbitrary budgets without tracking their spending first, so their numbers don’t correspond with reality,” she says. “Preset amounts of cash in envelopes prevent you from overspending.”
2. Design a spreadsheet.
Some people prefer to track their spending using a spreadsheet program, such as Microsoft Excel®. Although spreadsheets can require some math skills, they are quick to set up. Chances are you already have a spreadsheet program on your computer.
“My husband and I track all of our finances in an Excel spreadsheet,” says Conway. “We use it to record which bills we’ve paid, as well as what we’re putting into savings and other areas.”
3. Explore online budgeting programs.
Many online budgeting programs are available that can help you manage all your bank accounts, investments, bills and debts in one central location. Examples include free services Mint.com, Mvelopes.com (a virtual version of the envelope method), youneedabudget.com and pearbudget.com. Older financial software programs like Quicken® also remain popular.
“These programs get more sophisticated all the time,” says Gorman. “You can even set up spending limits for yourself and get automated reminders when you approach them. I’ve seen people who use budgeting programs become amazed with the results.”
4. Implement a buddy system.
People who have trouble sticking to a budget should consider the buddy system, according to Conway. “There is a psychological aspect to spending, and that includes positive and negative reinforcement,” she says.
Conway compares it to having a workout buddy or study partner. “You can even use sites like Stickk.com, where you and your buddy enter your goals along with a consequence if you don’t meet them, like donating money to charity or buying your friend dinner.”
5. Make a lifelong commitment to track your expenses.
Budgeting is a lifelong process, not a one-off or occasional activity. “You have to constantly keep learning about budgeting in order for it to work,” says Conway. “You have to stay involved.”
Gorman agrees. “We’ll be budgeting for the rest of our lives,” she says. “So plan accordingly.”
Excel® is a registered trademark of Microsoft Corp. in the U.S. and/or other countries.
Quicken® is a registered trademark of Intuit Inc.