Everyone says having a budget is the first step on the journey to financial independence. Ok, fine, almost everyone. But, no one ever tells you what a budget should look like or even how to make one. Budgets can be devastatingly simple or hella complicated. What your budget looks like depends solely on you and your situation. My problem these days is the ol’ paradox of choice: there are so many options out there it’s difficult just to choose one of them! I've listed some of the most popular below:
Tools of the trade:
Mint is a fantastic way to keep track of your money. It links to all of your accounts- unless you have a super small credit union- and aggregates the information into easy to use bites. You can create a budget and it will tell you how you’re doing as the month goes on. It summarizes all income, spending and any investments you may have. Mint also has handy charts of all your information, should you like to look at pretty pictures instead. They have an app for both tablets and phones, and it is really easy to use to keep an eye on all your accounts. Some people are a bit hesitant to link all their accounts to Mint due to safety concerns, but it links to all your accounts with read-only access. So even if someone were to gain access to your Mint account, they wouldn't be able to actually do anything with your information. Unless they wanted to screenshot it and put you on blast from the social media account of their choice.
Personal Capital is very similar to Mint, but different enough it deserves its own mention. Once again, you can link all your accounts, setup a budget and track your spending. However, the main reason I use Personal Capital is for its excellence in the investment areas. Ideally, they want you to give them your money to manage (much like Betterment or Wealthfront). Their investment overview really dives in deep and looks at the various holdings within your investments. That comes in handy when your friend asks you, are you invested in small caps. Look it up, and yes, 3% of my investments are in small cap funds. One slight flaw of Personal Capital is it isn't super great at categorizing any transactions you make, so you have to go in and manually categorize them. That takes away from the ease of use it promises.
Excel. Spreadsheet glory. Who doesn't want to make tables and perform advance calculations? I use a spreadsheet for my month and year end budgets as more of a comparison tool. How am I doing this year compared to 12 months ago? I use a spreadsheet that I've cobbled together from random people on the internet (I recommend this one from Mad Fientist as a good starting place).
You Need A Budget (YNAB in the blogger lingo) is the darling project of Jesse Mecham. What started off as a kickass spreadsheet has now transformed into budgeting software. You can try it out for 30 days for FREE (my favorite word!) or buy it. I recommend waiting until it goes on sale through Steam, since on sale is slightly below free in my favorite word lexicon. YNAB is different in that it makes you manually enter in each transaction, the thought being that taking the time to enter in each one will make you even more aware of where your money is going- yes, that includes that dollar you spent on your coworker’s cousin’s daughter’s fundraising candy bar. Lots of people swear by it, but I prefer the other options I've listed above. This can be really great for those that need a proactive approach to their budget and not a reactive one like Mint.
To start out, I'd recommend tracking your spending for a set period of time with one of the options I've listed. You need to track your spending for AT LEAST two months, and then you can set a budget. This will hopefully negate any major fluctuations and avoid setting any unrealistic budget limitations, whether they be too much or not enough. The great thing about budgeting is it's a flexible process. Did you overestimate your spending in the auto category, but didn't leave enough in your grocery budget? Simply adjust it! No one but you can tell you what a good budget setting is. By all means, have someone review your budget (I'll gladly offer my help!), but at the end of the day they can only offer opinions. What you might find reasonable, they might find wholly ridiculous or vice versa. Therein lies the best part of personal finance- it's personal. Everyone is different, and everyone's finances will look just as different.
How do you budget?