Will creating a budget really help me get my financial life under control?
Forget for the moment the word “budget”. Let’s start with what problem you are trying to solve, what challenges you want to meet, and how best you can accomplish this.
First ask yourself whether you have experienced one or more of these scenarios:
I have difficulty distinguishing between needs – things I can’t live without – and wants, so I sometimes cannot meet either one and frequently suffer from the result. A budget will not fix this, but taking a good look at what you’re spending money on can help clarify things.
I would like to save some money every month but can’t figure out how to do that. You can do this with or without a budget.
I have trouble paying monthly bills in terms of finding the money and then scheduling the payments. You have a cash flow problem and probably need a budget.
Like many Americans, I can’t pay an expense like an unexpected car repair without either charging it to a credit card or borrowing the money from friends or family. This is less a budget problem than it is the lack of having an emergency fund.
Now consider which of these best fits your personality and past behaviors:
I’m not likely to write down and track a lot of my spending. This is way too much trouble. The idea of giving myself monthly spending quotas is worse than having a root canal.
My income is erratic; I have occasional expenses I cannot anticipate very well.
I tend to view spending as a means to achieve emotional gratification.
While I don’t consider myself a control freak, I like the idea of documenting my financial life and monitoring how I’m doing relative to my objectives.
Take a moment and think about your answers and they mean to you.
Now apply them in practical ways.
Track your expenses for one month.
You’re probably very aware of the amount of your income that comes in every month; you may not be very familiar with how the money goes out every month. So, start thinking about what expenses are fixed (like rent or mortgage payment), what expenses are variable (like restaurants), and how that distinction relates to needs and wants in your life.
Then develop some categories that make sense to you for each of the two types of expenses. And for one month write them down in their respective categories. A good time to do that might be after you get home from work and are enjoying a glass of wine or whatever else is your choice of drink. Don’t put it off by skipping days as you will very likely forget what you did yesterday or the day before.
At the end of the month look at what you’ve written down. I guarantee it will surprise you. If you survived that experience, add another month so you have two months of data.
Decide if there are areas of your spending that could be reduced.
If there are, try doing so for the next few months. Set that money aside through direct deposit or any other electronic means so you don’t have it available to spend. This is sometimes referred to as “pay yourself first”. Now spend what’s left over any way you want.
Note this approach is not what most people think of as a budget with all the associated restrictions, it’s a simple way to track your spending and to determine whether your spending aligns with your needs, wants, and financial goals.
If you don’t have one or more financial goals, think about what they might be and write them down in whatever detail suits you at the time.
Now consider whether you need a budget.
If you like the idea of documenting your financial life and monitoring your progess against your objectives, I recommend a budget program.
Here’s what you will want in a downloadable software or web-based budget program:
- Easy to use, otherwise you won’t use it.
- It does what you want it to do, meaning you’ll need to figure out what that is.
- Gives you more than just numbers tracking – it also supplies helpful suggestions.
- Offers very high levels of security since you’ll be syncing with credit card and bank accounts.
- Runs on multiple operating systems on both desktop and mobile devices.
- Handles all your financial accounts.
- Gives you the assistance that works for you such as online manuals or telephone support.
- Is available at low or no cost.
Mint and You Need a Budget are two good options to consider. There are many other programs you can find by doing a simple search on “personal finance software”. Don’t jump into picking one – review one or two and pick the one that you think has the best chance of your sticking with it.
I’m a big fan of budgets but only if chosen for the right reasons by the people who can benefit from them. The amount of upfront work that is required depends on what you want the program to do; once that’s done they do not require a lot of time to maintain.
And they have another upside – or downside, depending on your point of view – they get partners involved in the process. There is considerable research concluding that people in otherwise serious relationships are less than forthright about their financial circumstances with their partners. Fighting over financial matters has always been very high on the list as a cause of divorce.
Decide the level of involvement you want and think you can stick with, and go for it!