Keeping Track Of Your Finances With A Budget

Depending on the individual, there can be lots of different reasons for wanting to know exactly where their money goes. Some people need a roadmap to get out of debt as quickly as possible. Others are debt free and would like to keep it that way. This newlywed might have a baby on the way or this executive might just have been downsized, with an uncertain couple of months ahead of him. No matter the reason, it all comes down to the simple fact that having your finances organized is one of the best ways to achieve your financial goals.

The simplest tool for keeping track of your finances is a budget. It’s actually not that simple, because it’s easy to make yet harder to follow. And even when making it, you probably won’t get it right the first time. At the same time too, that shouldn’t be an excuse for not doing it, because if you don’t, then you’ll never get it right. There are lots of ways you can go about creating a budget, but remember that at the core, no matter what tool you use to put it together, it all comes down to putting together your incomes and your expenses, with the goal of having the former at least equal the latter.

Some people think that it’s best to keep a monthly budget, others think it’s best to keep a yearly budget, then divide it by twelve. I think it’s a personal choice, since some people will handle one or the other differently. I know some people who can track every cent they spend every single day. That’s what works for them. I’d like to throw one suggestion out there, though: if your income is irregular, your best bet is to budget on a yearly basis, otherwise you’ll overspend on the good months and come up short on the lean months.

If you’re planning out your budget well, though, monthly vs. yearly shouldn’t be a problem. You know for a fact that you’re going to spend more on the last two months of the year: Thanksgiving, Christmas, New Year. Round up the birthdays that will require you to spend money. Do you have a wedding anniversary? Do your parents have one and to you usually give out a gift on this occasion? Will you plan something special like a family trip for your vacation? Try and track all those occasions.

Next, consider all your yearly bills. They’re the ones that only come up once a year, like renter’s insurance or homeowner’s insurance. You have two options when it comes to how you’re going to account for them. You can either assign them to random months, or you can divide the total amount by twelve and set aside this amount every month to pay for them when they’re due.

Your next step is to consider your income on a yearly basis. This is because if you’re getting paid every two weeks, you will have 26 paychecks instead of 24. Similarly, if you’re getting paid every week, you’ll have 52 paychecks instead of 48. Now take the yearly amount and divide it by 12 so you can come up with a monthly amount. Refrain from the temptation to add bonuses and other potential windfalls into your income. This can get you way off track.

Now tally up your monthly expenses, which are all the things you must pay to live your life (including work-related expenses). We’re talking about rent/mortgage, insurance, utility bills, car payments and expenses, transportation, clothing, food, and so on.

You now have everything you need to make a reliable budget. Tally up all your monthly expenses (both the monthly ones and the monthly portion of the yearly ones) and compare them to your monthly income. If your income is greater than your expenses, you’re on the right track and you can actually start either an emergency savings account, or you can start investing if the emergency fund is already taken care of. If your income is pretty much equal to your expenses, you’re getting by but you’re going to have to make some cuts to achieve your financial goals. If you’re spending more than you make, you’re going to have to go over your expenses and do some cuts to at least bring them in line with your income.

Home Budgeting Software

Back in the days, people used to do all their budgeting on paper. Today, that’s no longer necessary, as budgeting software is much more flexible and offers many more capabilities. When setting up a budget, home budgeting software can give you invaluable help, such as time savings, better accuracy, and overall efficiency. The thing is, when choosing which home budgeting software program to buy, you have to know exactly what you need as opposed to what you want. Not everyone has the same needs and what your brother or neighbor uses isn’t necessarily what’s best for you.

Home budgeting software helps you create a budget easily and follow it effectively. Personal budgeting software has features that can track your spending and access your bank accounts to reconcile records with your credit card and bank account balances. They also offer online bill payment and many other convenient features. Popular budgeting programs like Quicken offer a lot of features, although that can be overwhelming for beginners.

You can use plain old Excel to set up your own budget spreadsheet. There are also a host of free online options, among which Quicken Online, Mint, Geezeo, Buxfer, Wesabe, and so on.  They’re all free home budget software options out there to assist you in getting your money under control and show you where your money is coming from, how much of it there is, and where it’s all going.

Even with all these options, THE most important thing is for you to stick to your plan. You won’t get anything out of any budget, even the most detailed one, if you don’t stick to it. The best home budgeting software program will not make the money savings magically happen. You actually have to take action and follow the budget.

If you go over your budget anytime, don’t kill yourself over it. We said at the beginning that you most likely won’t get it right on the first try. Adjust, and the next month try to do better. Every month that passes, you’ll get better and better at it.

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