I have to admit this is one of my favorite posts (if not THE favorite post). Budgeting is so powerful and yet so misunderstood. When I say budget I hear a collective groan so sad that is makes my heart break (just a little).
Its the same sound I hear the first time I serve Roasted Brussel Sprouts… until folks try one … then … they are hooked and must have the recipe.
Budgets are misunderstood – plain and simple. The best analogy I can come up with is when people ask me how I can cook for the family most every night. My answer is always the same. When your kitchen is organized and you have the proper tools, its easy. But if I have to go and search for bowls, pots, pans, etc… I suddenly don't have the energy or interest to do it.
Budgeting is the same way. Once you get organized and have the right tools, then its easy. That's what this post is all about. Outlining the different tools for you to review and pick what works.
I personally use excel because I love the flexibility it provides, plus I already have it installed on my laptop and I am very familiar with it. Does that work for everyone? No.
My point is, having the right tools can make the most boring of tasks fun and easy. The easier the task the more likely you are to stick to it and once you have been sticking to it for a month or two, that is where the fun comes in.
So lets get started…
Get Money Organized.
There are 3 categories we need to track to have a successful home budget, 2 of which we have already covered:
a) Net Worth (calculate and track annually)
b) Credit Score (pull annually or a few months before a large purchase)
c) Monthly spending, saving & investing
67% of the way there! How exciting is that? OK. Before we go shopping for financial tools to organize our money kitchen, we need to decide what we are looking to make. In other words, what's on the menu?
To create our menu, we would need to make note of what your needs are. Here is a starter checklist. Feel free to make the list your own.
Choose your tools.
As I said, I am a MS Excel person. I know it very well and use all kinds of functionality. Every year when I build the new budget, I tweak the spreadsheet to get even more information about my spending habits, net worth, and financial goals… It works for me.
I am not going to spent a lot of time here except to say, do you homework. Use the list above to narrow your search for the right tools.
At a minimum, the budgeting app should have categories and be able to pull from various accounts for tracking. It should be able to tell you if you have maxed out on a category. Also, do NOT use the miscellaneous category, ever, for anything.
To help you along, I did find this great Forbes article on FREE budgeting apps. Its a great starting point.
Pick a Time of Day.
Now that we have our tools laid out (credit score, credit report, budget tracking app), we need to pick a time of day that is most convenient to check your daily spend. For now, don't get hung up on where you spend your money.
If you are eating out twice a day just own it. For right now, how or where you spend your money doesn't matter as much as recording it daily.
Pull out your shiny new app and spend some time setting it up. Do not use a Misc. Category. Its the kiss of death. Don't do it.
Then commit to checking it daily to make sure all spending and income are recorded correctly. That is all I want you to focus on.
Check your budgeting app daily. Same time every day. Make corrections as needed. Take the time over the next month or two to familiarize yourself with it and make any adjustments to make the app more user friendly to your lifestyle.
That's it for now on Budgeting homework.
Summary: Make a checklist of what you need to record your daily spend. Pick a budget app. Take 1-2 months to pull in some money data. Once we have that, move on to the next steps.. Budgets: I spent how much??
Which tool did you pick? why?