Budgeting isn’t fun. There’s no way around it. But budgeting is something that we must undertake in order to gain financial awareness and, ultimately, control both our spending and saving habits. The process of making a budget can be as simple or as complex as you want it to be, but you’ll want to record overall monthly inflows – take-home pay as well as other income sources – and outflows – amounts spent – at a minimum.
Most people will take things a step further, though, itemizing expenses, identifying specific spending trends and tracking savings goals over time. We’ll break down both approaches below.
Step 1 – Establish Goals:
A budget is a list of goals at its core. You intend to spend X amount of money on Y, for instance, which means that paying Z instead will leave you with either A in savings or B in debt. As a result, one must enumerate specific objectives in order to succeed at this endeavor. That can be done both at a high level and in the form of more specific, even daily, goals.
For example, your overall objective may be to get out of debt in 24 months. Or, maybe you’d like to save up for a $1,500 European family vacation next summer. Some financial maneuvering will be needed in order to achieve these objectives – increasing monthly savings or debt payments by a certain dollar amount for a certain period of time, for example. This will, in turn, necessitate careful expense allocation, which will ultimately serve as your recipe for success.
So, start by pinpointing your fundamental reason for creating a budget in the first place. Do you simply want to improve your financial awareness by identifying exactly where your money is going each month? Are you instead saving for a particular event – home repairs, college tuition, retirement and the like? Or perhaps you’re working your way to debt freedom and the security of an emergency fund?
This will dictate the extent of the changes that must be made to your day-to-day financial management, if any. Your budget will serve as the blueprint for these adjustments and ultimately the realization of your overarching objectives.
Step 2 – Set Parameters & Determine What To Track:
Much about a budget is at the user’s discretion, including the timespan you’ll be budgeting for – daily, weekly, monthly, etc. – as well as the types of expenses and income streams you’ll track and the manner in which you group them.
How you approach these decisions should ultimately depend on goals established in Step 1 as well as the amount of effort you are willing to put forth.
Step 3 – Choose A Template:
Budgeters have a host of effective budgeting tools at their disposal – from old-fashioned ledgers to complicated spreadsheet formulas. Your task is to cut through the clutter and find a reliable system that work for you. How you structure and record things ultimately depend on what you’re budgeting for, your technical skills and even what suits your eye.
Here are your basic options:
|Excel||Free with Microsoft Office (~$70)||• Most budget templates are made for Excel.• Useful for people of all technical levels.• Offers sophisticated analytical tools.||• Requires users to manually input information.• Can be a bit daunting for beginners.|
|Google Docs||Free||• Wide variety of budget templates.• Accessible to anyone with a computer connected to the Internet.||• Templates require manually inputting information.• Your information is at the mercy of Google.|
|HelloWallet||Free||• Enables automatic monthly updates and easy expense tracking.• Compatible with iOS and Android, and offers desktop access as well.||• Users must provide their bank account user names and passwords for the service to work.|
|Mint||Free||• Enables automatic monthly updates and easy expense tracking.• Compatible with iOS and Android, and offers desktop access as well.||• Users must provide their bank account user names and passwords for the service to work.|
|Open Office||Free||• Accessible to anyone with a computer connected to the Internet.||• Relatively limited number of budget templates.• Necessitates manually inputting information.|
|Quicken||$39.99 (basic version)||• Allows you to see all of your bank and credit card accounts in one place.• Automatically updates each month.• Free mobile app.• Works on all platforms.||• Users must provide their bank account user names and passwords for the service to work.|
|Wally||Free||• Compatible with iOS and Android.• Enables easy budgeting and goal-setting.||• Users must provide their bank account user names and passwords for the service to work.• No desktop application.|
|You Need a Budget||$60||• Automatically updates financial information each month.• Provides easy-to-use budgeting tools.• Free online educational classes.||• Users must provide their bank account user names and passwords for the service to work.• Works on all platforms.|
If you’re interested in a free template or just some inspiration, check out WalletHub’s editor’s picks for the Best Budget Templates.
Step 4 – Record Benchmarks:
In order to get the most out of the budgeting process, you’ll want to get a sense of your starting point. This will drastically improve your financial awareness and provide a basis by which to evaluate progress moving forward.
Start by tracking your spending for a month to see exactly how much you’re spending and on what exactly. You can do so by saving receipts and recording each purchase you make in your phone or a small notebook.
Step 5 – Itemize Expenses:
After determining the nature of your monthly spending, itemize the anticipated cost of monthly necessities like insurance, food, clothing, housing and health care. Then figure out how much you wish to allocate to your overall goal each month. This will dictate your timeline for accomplishment. After that, add as many discretionary expenses as your take-home pay and preferences allow.
That, in effect, is your budget – but it’s still theoretical. By tracking your expenses each budgeted interval and comparing reality to projection, you will gain valuable insight applicable to everyday life.
Step 6 – Develop A Maintenance Plan:
The true value of a budget comes with time. Not only will tracking your credits and debits allow you to see if you’re overspending, but you’ll also be able to see how your spending habits change over time.
The most logical approach, it seems, would be to schedule a time at the end of each month to update your figures. Your monthly bills will have been issued/paid, so you’ll have full information on hand. We recommend adding an alert to your phone and/or online calendar.
Step 7 – Reassess At Each Interval:
Blindly logging numbers each month won’t do you any good. You need to consider what the numbers mean. How does your spending compare to budgeted amounts? Do you notice any larger trends that may warrant a change in approach? These are the types of questions one must ask themselves if they want to get something out of the budgeting process.
Best Budgeting Tips
The above steps establish the practical parameters for how you will use your budget. In addition to those guidelines, here are a few tips for making the most of your budget.
- Save A Backup: It’s simply too risky to have a single copy of your budget. So, Xerox photocopy your paper or save a digital copy on an external hard drive or a cloud account such as Dropbox.
- Leverage Excel: If you’re using a spreadsheet to track your budget, it’s worth the trouble to learn some of the useful features conducive to budgeting, including the ability to automatically add up numbers and use formulas to unearth interesting insights from data. Here are a few articles that will help you grasp the basics:
- Find A Budget Buddy: Simply telling someone else about your budget plans is helpful because it adds accountability to the equation. Having someone to share in the process with is even better because you can act as each other’s support system.
- Make Sure You’re Committed: Drafted and forgotten budget templates can pile up as quickly as crumpled pieces of paper in a trashcan. But while the simple act of making a budget may have some therapeutic benefits and certainly provides practical perspective, the real value comes when you couple your budget with month-by-month (or week-by-week) expense tracking. Budgeted amounts are really goals, and goals necessitate follow-through and then follow-up.In other words, get your mind right if you’re serious about budgeting and, ultimately, improving your financial performance.
Ask the Experts: Effective Budgeting Explained
For more insights into the budgeting process, including effective strategies and money-saving measures, we posed the following questions to a panel of leading personal finance experts. You can check out their bios and responses below.