Budgets Don’t Work

I don’t believe budgets work for the long run. We have our unique and different ways of doing budgets. Some of us allocate certain amounts for each expense category. Some go by envelop ideas such as putting money in different envelops for different expense categories, and spend money from these envelops based on circumstances. The problem with budgeting is that we usually stick to it for a couple of months and then get bored and get rid of it. Although I don’t believe in budgeting, I do believe in tracking expenses. Why and how you should track your expenses? Let’s talk about it.

Track Your Expenses

Tracking expenses gives you a visualization of where your money is exactly going. You need to know this to cut unnecessary expenses and increase your savings. You can do all sorts of calculations and thinking in your mind to figure out where your money is going – but the real picture may not be the same as your mind tries to depict. Don’t be surprised if you see a very different picture than what you had in your mind. Spending just a few dollars here and there daily can add up to a large amount at month’s end and tracking expenses will show you how powerful it can be to cut once-daily visit to your coffee shop. Tracking expenses will gradually help you make better decisions.

How long should you track your expenses?

How long should you track your expenses? It all depends. You can do it for three months, one year or for good. If you are looking to take immediate action on cutting unnecessary expenses, three months of tracking will give you a fair idea. If you want an in-depth financial picture, I would recommend tracking for four to six months. If you want to keep track of your changing patterns of spending behaviour and make adjustments accordingly to meet your financial goals, I would recommend tracking your expenses on a continuous basis.

Personal Finance Software

Now, here comes the main question – What financial software you should use to track your expenses? Personal finance software programs like Quicken and Microsoft Money are able to keep track of your spending. However, I recommend a simple and easy to use web-based program called Expensr. Expensr keeps track of your income and expenses and tells you where your money goes. It is very simple to use and let me describe some basics you need to know.

Sign up for a free account. On the main page, on the top left, you will see five tabs. These tabs are Home, Accounts, Analysis, Budget and Community. Accounts and Analysis tabs are the ones you will be using most. Enter all your income and spending daily under Account tab. You can create multiple categories to categorize you entries. Entering an item is easy, and you should be able to do it in a snap. Analysis tab shows how much you are spending in each category. You can view this either in a pie chart or in a bar graph. Charts or graphs show spending trends. Trends can be used to see how your spending behaviour has changed over time, and you make adjustments accordingly.

Expensr has many other features. I mainly use it to keep track of my spending and income, and to plot graphs to visualize my trends. If you are looking for simple, easy-to-use but powerful personal finance software, expensr is your answer.

NB – Expensr is now Moneystrands. Read my Personal Finance Software Review to find out more about financial software.

The topic for this article is Personal Finance Budgeting. The first step in becoming financially responsible is starting out with a personal financial budget. Absent a budget there is no way one can possibly track their income and expenses.

Before getting into what personal budgeting finances are I want to explain why budgeting is important. For this idea we will say that you have decide to startup a business, a personal financial advising firm. When establishing your financial advising firm the first thing to be done is the planning out of your company expenses. Most people would logically budget for their expenses before they began because without this financial planning you would have no idea of whether or not your financial advising firm could potentially be profitable. The next thing is to plan out your revenues. Then you would take the difference between the two and see whether things looked good or not.

This is what a financial budget is for a company and people should handle their personal finances in the same manner. When establishing a personal financial budget it is important to include everything that involves your money.

You can find personal finance software on the internet. This software is made so that you can easily enter all your income and expenses and it does everything else for you.

The components in a personal financial budget include both income and expenses. Examples of income in a personal finance budget include job income, gambling winnings, capital gains, social security, tax refund, etc… Examples of expenses in a personal budget worksheet include SAVINGS, electric bill, health insurance, cell phone, groceries, books, shoes, clothes, car insurance, gas, entertainment, travel, miscellaneous, etc.

This expense list does not include all potential expense, I’m sure you can think of others right now. Anything possible thing that you can think of that you might need to spend money on should be put on your personal budgeting worksheet.

I know that some of you are thinking to yourselves “Savings? What? Thats not an expense!” Well I’m here to tell you that savings should indeed be thought of as an expense. Each month one should personally budget for a certain amount of their money to be saved. This should not be an “if I have money left over” situation. It should be definite and as automatic as writing that check for your mortgage every month.

The most basic concept of personal budgeting is to control spending and use your money wisely so that you have money left over rather than having no money or going into debt.

After listing your income and expense on your budget worksheet you need to subtract the expenses from your income and get a Net Cash Flow for the month. The idea is to include all income and costs and come out with a positive cash flow on your personal financial worksheet. If the number comes out negative then you have a problem and your expenses will need to lowered.

Now you know exactly what a budget is and how to make one. The next thing to is run a few Google searches an find a budget template to make things easier.

You need to keep a budget every month. No, you cannot simply make one plan for the whole year and stuff it away somewhere to forget about it. Our income levels change and our expenses change and these changes need to be accounted for.

To be successful with your personal budgeting plan you need to make out a projected personal budgeting plan for the whole year. Then as each month passes you can make monthly adjustments.

The other thing to do is keep a record of your actual income and expenses and compare that to your personal financial budgeting worksheet. You want to make sure that your original estimates were correct or at least close.

The thing about a personal financial budget is that it sets you up for success and helps keep you from needing to use credit cards or other debt to make it.

If you have an accurate personal financial budget then you will be prepared for the unexpected financial burdens that happen from time to time.

There should be no issues when your car breaks down and you suddenly need $300 to fix it. All is good because you have been putting money into savings each month.

This is the most basic idea of personal financial freedom and personal finance budgeting. If you can establish a sufficient level of savings then you can begin to be at ease with your financial situation.

Most people are clueless and don’t realize that their unplanned/unwritten actual personal finance budget includes something like $4500 of income and $4700 of expenses each month.

Next time I will take a short break from the Mini Series and instead suggest a few personal financial budgeting software programs that are available out there.

In this article I would like to conduct a personal finance software review of the Quicken product offerings designed for personal use. There are several personal finance software products on the market that do wonderful jobs of helping families manage their finances, but I am most familiar with Quicken as I have been a user of its products for over eight years. I have been completely satisfied with the features Quicken provides and would like to review and compare the benefits that its product offerings deliver.

Quicken Starter Edition

Formerly known as Quicken Basic, the Quicken Starter Edition is an excellent solution for individuals who will be using personal finance software for the first time. The three main features the Quicken Starter Edition delivers are: (1) balancing of your checkbook electronically, (2) tracking how you spend your money by being able to categorize purchases, and (3) monitoring and updating all your investment and banking accounts in one place. It basically provides a “one-stop shop” for all of your personal finance concerns.

Quicken Deluxe

Although the Quicken Starter Edition is a fantastic product, I believe the average family considering a personal finance software product should start with Quicken Deluxe. The reason is that, in addition to offering all of the features of the Quicken Starter Edition, Quicken Deluxe provides the capability to download banking and investment account transactions automatically. This makes reconciling your checking account, as well as your other accounts, extremely simple. In addition, Quicken Deluxe allows you to create savings goals and track their progress, store statements and records electronically, and plan for a new home, a baby, or retirement. For most families, this is the best place to start.

Quicken Premier

For those families who manage their own investments and require additional tools to monitor and measure their progress, Quicken Premier is the perfect solution. Quicken Premier offers all of the wonderful features from Quicken Deluxe plus several others, including: (1) generating various investment performance reports, (2) analyzing and optimizing your portfolio with special tools, (3) generating Schedule A, B, and D tax reports, and (4) setting investment alerts to notify you when certain conditions are in place. A truly remarkable tool for the do-it-yourself investor!

Quicken Home & Business

The three software solutions above are all excellent choices, but if you own your own business, none of these will be sufficient for the additional monitoring and record keeping required of you. Enter Quicken Home and Business. Though not as powerful a solution as Intuit’s QuickBooks products, it is the perfect choice if you have a small business with no payroll requirements, or especially for a part time business. In addition to providing all of the wonderful features of Quicken Premier, Quicken Home and Business allows: (1) tracking and categorizing of both business and personal expenses, (2) creating customized estimates and invoices, (3) generating profit and loss reports, (4) tracking vehicle mileage and other Schedule C items, and (5) monitoring upcoming bills and unpaid invoices. If you are considering a small part-time business, this solution is perfect to get you started.

In conclusion, Quicken offers a wonderful lineup of products that are designed to meet the varying needs that different families require. This personal finance software review has aimed to provide you with a basic overview of each product to help you decide which solution would be most appropriate for your family. Hopefully this discussion convinces you of the incredible value personal finance software delivers to its users. I can only speak from personal experience.

In the good old days, personal finance for most people meant simply balancing their checkbook once a week and making sure they had enough money in the bank to cover the monthly bills. Of course that was long before the days of multiple credit cards, electronic fund transfers, PayPal, and the dozens of other complicated financial transactions made by even the average person on a daily basis. These days, keeping track of person finances can be quite a chore and can often overwhelm you, leading to a less than perfect financial situation.

Modern life has created additional headaches in our daily lives, but fortunately it has also provided new tools to use to control them. Personal finance software is the best option for keeping one’s personal finances organized and up to date.

Personal finance software comes in many varieties, each offering a specific set of financial tools. The simplest forms simply keep track of multiple bank accounts, including credit card accounts. The most complete versions offer tax tracking, investment tracking, budget analysis, electronic banking and a long list of other features. How much you need depends on your situation and how closely you want to track your finances.

Most banks now offer free electronic banking to their customers. Make sure that whichever program you choose, it is capable of taking advantage of electronic banking. The vast majority of programs offer this feature as standard so you shouldn’t have to look hard. With electronic banking, you can easily check your balance, automatically download statements, transfer funds among accounts and have all your information seamlessly transferred into your electronic account register.

The two powerhouses of financial software are Quicken from Intuit Corporation and Microsoft Money. Both companies offer several versions of the program and generally offer the same features. The interfaces are slightly different and one’s preference will likely come down to which one appeals to you most. New editions are released each year to account for changes in banking and tax law and owners of the previous year’s edition will receive discounts to upgrade.

Another option that is growing in popularity is software that is kept entirely online. You never actually download a program to your computer and can access your information from any computer connected to the Internet, including SmartPhones. This is referred to as “cloud computing.” Some websites offer a low monthly fee to use the software and other sites are free and entirely advertising supported. Some people prefer this method for its convenience and other people stay away from these programs due to security fears.

Once you begin to use personal finance software you’ll wonder how you ever managed your finances without it. People become addicted to seeing the computer generated reports of exactly where their money goes each month. They often find this makes it easier to create a budget and stick to it. Even if you simply want to keep your basic checking account up to date, personal finance software is worth the small price.

If you’ve tried using personal finance software to take control of your household budget only to find yourself with more questions than answers, take a look and seriously consider an innovative online budgeting tool.

An online budgeting program takes an old-fashioned money management concept and updates it for the world of online financing. Remember when all of your transactions involved cash? When the cash was gone, you couldn’t spend anymore. Your personal budget was broken down into categories such as rent, groceries, utilities, and leisure. Many people would split the cash into marked envelopes dedicated to each category. When the envelope was empty, that was the end of spending.

With ATMs, credit cards, and automatic withdrawals, we’ve lost the hands-on money handling skills that once defined household budgets. With that in mind, online budgeting was born. Now, you can create virtual envelopes to help you manage your money online.

While traditional budgeting tools analyze your spending after the money’s been spent, an online budgeting program takes a hands-on, proactive approach to help you manage your spending before the next purchase. With a powerful personal budget tool in your hands, you are in the driver’s seat as you navigate the complexities of managing your household finances.

The old analytical approach points out where you went wrong whereas an online budgeting program steers you in the right direction so that you avoid the common spending pitfalls that will tempt you along the way. End result: spending is curbed and your household budget stays on track.

What would you prefer – endless reports at month end telling you where you blew it or helpful reports along the way showing you the financial hazards that will throw you off course?

An online budgeting program compiles all of your personal and household finances into one place and allows you to set up a spending plan. As you progress through the month, you’ll have up-to-date information from all of your accounts as well as detailed reports showing your progress. With this key information available 24/7 from any internet-connected computer, you’ll be able to make an informed decision before you spend your next dime.

Awareness is a key concept in financial planning. Are you aware of what you’re really spending? Many financial planners will have you keep a diary of all expenditures in order to help you see where your money goes each month. With a proactive approach to your spending, you can set up categories and delegate acceptable spending limits beforehand. Whereas an online budgeting program will let you know if you’re in the danger zone so that you can adjust your finances as you go – long before you go over budget.

Traditional budgeting is a bust. You won’t know you’ve exceeded your personal budget until the money’s already gone. Catch those frivolous expenses before they happen by becoming more aware of your spending on a day-to-day basis.

Creating a household budget doesn’t mean doing without; in fact, you set up what you are willing to live with. If you simply won’t give up your daily latte, that’s fine. Allocate the appropriate amount of money to your latte category and the software will let you know if you’re going overboard. For example, if you’re willing to spend $15 per week on lattes and each one costs $5, you can indulge three days per week. Your online budgeting software will keep track and alert you if you are going over or under budget. Because of the alerts, you’ll know exactly where you stand and be able to make an appropriate choice.

By creating your envelopes, you’ll be able to spend within your limits without the guilt. If you’ve carefully planned your household budget and have covered all of your necessities, you’ll be able to manage your budget according to your standards. Helpful tools will keep you on track and prevent you from going overboard. By uncovering hidden spending – before you spend it – you’ll come out ahead of the pack!