The Basics of Budgeting

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. trends_blog_screenshot-copyIt 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_dsktop_smallPer­son­al 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.

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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?

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