Before I start posting a bunch of screenshots, tutorials and budgeting tool reviews, I should probably start at the very beginning. What is a budget and do you even need one?
One of the attendees at Sunday’s meeting doesn’t use a formal budget at all. Her financial management tactic is simple: Keep a balance of at least $500 in the checking account. If it falls below that, stop spending on unnecessary things until it’s back up.
I’m endlessly impressed by naturally frugal people, because I’ve struggled to control my own spending pretty much my whole adult life. The whole “spend less than you make” philosophy, which is at the core of getting along in a money-based society, somehow didn’t register fully when I was younger.
But through talking with people and through my online community that I frequent (http://www.savingadvice.com/blogs/), I’ve encountered those paragons of thrift who don’t need a budget, because they find it easy to do everything they need to without it.
So, if you’re unsure you actually need to change your current financial process, here’s a quick quiz:
5. Do you find it easy to live within your means, without sacrificing health, nutrition, comfort or happiness?
If you answered “Yes” to all of the above, congratulations! Your present financial picture is pretty much in balance. You may want to take a closer look to see if there are tweaks or refinements you could make, but you probably don’t need to track your budget daily or worry too much about where your money is going.
If you answered “no” to any of the questions, you’re in good company. A few short years ago, ALL of my answers would have been “no.” But there’s hope, too. Today I can say “yes” to every single one of those questions. (Well, the one about whether it’s easy to live within my means, that depends on what day you ask me. But I find it possible to live within my means, and that’s enough to make me happy.)
So if you didn’t have a perfect score of “yesses,” the first thing you want to do in your financial life is assess your income and spending and create a budget.
OK, so say you’ve taken my quiz and decided you need one, for the first time in your life. What is a budget?
Basically, it’s any organized way to track the money coming in and going out. Your fixed bills are pretty easy to figure out, but there are “variable spending” areas as well. Usually you control this by by dividing variable spending into categories and putting a limit on the amount you can spend in each.
Your budget could be on a post-it note, in a notebook, in a Word doc or spreadsheet, or in a more sophisticated budget system online or on your hard drive. It could be something you tinker with constantly (ahem) or something you set up and only check on every few months to make sure your actual spending is in line with your intended budget.
It can have as many or as few categories as you like, depending on how closely you want to monitor your spending on certain items. It can be designed to have $0 left over at the end of the month, so that every penny is allocated, or you can have money left over. The one thing you don’t want is for there to be a negative balance, (i.e., credit card or overdraft charges you can’t pay back, or bounced checks or insufficient-balance fees).
Over the next few days (or weeks), I’ll detail several different methods of budgeting so you can choose the one that you think best suits your lifestyle and mindset.