Everyone hates doing a budget and tracking their spending but it is really important to in order to make smart financial decisions. Doing a budget doesn’t have to be that hard and once you’ve done the inital work keeping it up to date is pretty easy. There’s a lot of tools that you can use but I like to keep it simple with a spreadsheet that lists your income and recurring spending such as rent, insurance, utilities etc. I also list all expenses that recur yearly and just dived it up to each paycheck. That way I know exactly how much I have left after all my mandatory expenses. Also if I ever need to cut spending it’s easy to see what are the big expenses I have and if I can lower them. My budget also includes all my savings efforts. I’ve created a Google Spreedsheet Budget Template which you take and modify it to your needs. It’s quite simplified version of what I use because I have income and expenses in two countries in different currencies. Many of us get our paycheck on bi-weekly basis but our expenses are on monthly schedule so that can make budgeting tricky. In my template I have split both expenses and income into monthly and bi-weekly columns. The monthly expenses are calculated into bi-weekly so you know how much you need to save from your paychecks.
Now another hurdle many people have with their budget is that they don’t actually know how much they are spending in many of the categories like groceries, dining out etc. That’s where Mint.com comes in really handy. It pulls all your credit card transactions and bank account transactions and automatically categorizes most of them. You can use their mobile app to check your account balances and see what’s happening with your finances. Mint also supports budgeting but I like my spredsheet more for that purpose. I’ve setup some budget just because it will alert me when I’m over those.
Now when you are creating your budget don’t obsess about listing every little thing in it in too great detail but try to list everything in your budget that you pay for regularly even if it’s just once a year. That way you aren’t hiding any expenses and it’s easier for you to see where you are actually spending your money and if you have some expenses you really don’t need. If are spending a lot on groceries for example you might want to dig a little deeper to see what are you actually buying. I’ve really only done that few times to cut out bad habbits. The easiest way to do it is to save all your receipts for a month and then at the end of the month look through them what you’ve bought and record them in a spreedsheet categorized. For groceries the categories could be: food, sweets, alcohol, pet foods etc. Knowing where you are spending money helps a lot in modifying your behavior. a Dollar here or there might not sound much but it easily adds up if you are not careful.
Many personal finance gurus suggest that every cent you earn should have a purpose. I really don’t like that and my budget doesn’t account for every cent I earn. What ‘s not in my budget is my discressionary fund. Some months it goes into extra loan payments or saving and some months I just use to buy things I want. Now if money is tight for you then you might want to budget them as savings goal. If I didn’t have extra wiggle room in my budget I would be really stressed out and couldn’t really enjoy life but having a budget also helps cut those impulse buys because when you are aware of your finances you know what you can afford and when you do give in to those urges to buy something it doesn’t get you into trouble because you knew you can afford it.