We’ve all known, somewhere deep down inside, that it’s a good idea to budget our cash. But how many of us actually do? Fifty percent of Americans have less than one month’s income saved for a rainy day. Top personal finance advisors will tell you to have at least six months’ income saved, just in case.
In my household, we tried a few things before we found the budgeting and saving system that worked for us. What was the impetus? A very common sentiment – that each month we seemed to be spending (and owing) more money than we were bringing in. Where exactly did it all go? How did it add up? At the time, it seemed like an impossible task to track every single expense, but after the initial set-up, it is now habit. We don’t even buy a soda for $1.50 without tracking the purchase. The result? We know exactly where our money is going, and where we can save.
Budget Helper #1: A Spreadsheet
Maybe you don’t love technology. Maybe you don’t have a smartphone. Maybe you don’t trust any of those online services with your financial information. It’s cool – you don’t have to justify your decision. You can keep a simple budget in a spreadsheet - and you can even use Google Drive to do it for free!
Simple tips to making your budget spreadsheet useful:
- Decide how you are going to use this spreadsheet.
- You can use it either as an overview of fixed costs and income each month, so you know how much you can spend on things like groceries, entertainment, and so on, or you can plan to enter every line item into the spreadsheet as you go along each month.
- Define categories for yourself.
- Think of common categories, like salary, taxes, utilities, savings, insurance, groceries, and so on, so that you can easily see in broad strokes where money is going - and where it isn’t going.
- Keep your spreadsheet up-to-date.
- This may seem obvious, but one of the biggest reasons budgets don’t work is because people forget about them. You need to start “living” your budget as a regular habit if it’s going to be useful for you.
Now that you know how much you make and how much your fixed costs are, you can choose where the rest of the cash goes. (My favorite use for spare dollars: online shopping!)
Budget Helper #2: Mint.com
Mint.com is a free online personal finance service similar to Quicken. You can manage your money, set money-saving goals, and track expenses all in one central location. It ties directly to your bank accounts, and will categorize any purchases made through them, to save you time.
My husband and I tried to use Mint.com a few years ago, and it never really took off for us. The biggest reason was probably the hassle (to us) of having to log into the system each time we wanted to see what was what, and not being able to quickly track small expenses in cash. This, of course, was before we were both armed with smartphones and apps.
Despite our experience, Mint.com is an extremely popular tool for budgeting and tracking expenses, and it has no doubt come a long way in the past few years in terms of ease of use. My two cents – anything that is free is worth trying!
Budget Helper #3: Asking the right questions
This isn’t an app, or an online service. This is just a basic life skill that some of us never acquire. When I was in college, I had a fixed monthly amount of money, and not too many concerns beyond that point. I worked a couple of regular part-time jobs and knew exactly how much they brought in. I knew what I had to pay for rent each month, I hardly ever cooked, sometimes ate in the student cafeteria, and I had Pizza Hut on speed dial.
Anything beyond rent and food went into purchasing the loosely defined group of things called “stuff I want.” “Stuff” could include a night out with friends, or a take-home container of Cold Stone ice cream. More frequently though “stuff” literally meant “stuff.” Like throw-away clothing from Forever 21, or yet another pair of high-heeled shoes that looked pretty and would never be worn, or a bad ‘80s movie on DVD from the discount bin at Target.
These days I look back and cringe at the sheer amount of stuff that was purchased for absolutely no good reason. “Because I want it” no longer qualifies as a good reason in my household. Unless it involves ice cream. That will never change.
hat I’ve learned since those days is to ask myself a question when I’m off spending (rare) extra money on stuff that may not be absolutely necessary. What do I plan to do with this item? How will this purchase fulfill a need that is not currently being met? Do I really need another pair of sweatpants?
Of course, this can be taken to an extreme. I have a bad habit of cheaping out on things that would actually be useful, and talking myself out of purchases that may actually enhance quality of life in some small, First World way – like paying for a quality pair of leather sandals that will last a long time instead of being satisfied with the existing pair of blister-causing tattered flip flops.
The right questions to ask will differ for each of us, depending on our priorities and desires in life. Figure out what your questions are, and ask yourself before major (or minor) purchases are made. Even at the grocery store! Gourmet mayo sure sounds nice, but isn’t regular mayo fine 99% of the time?
Budget Helper #4: Toshl
Toshl is the budgeting app that finally changed things for our household – and it’s more than an app, really. It’s a lifestyle.
Toshl makes it easy to see your spending trends and set goals. You can pull up the website on your web browser, or the app on your phone, and enter expenses on the go. You just enter the amount and add the appropriate tags for that purchase, and over time you’ll be able to see where your money is going. Toshl is available on iPhone, Android, Symbian, Windows Phone, and Meego, as well as online at Toshl.com.
Over the past couple of years, our use of Toshl has changed a bit. We’ve gotten more succinct in how we categorize things, we make more use of the “description” when we’re buying random items that aren’t part of our daily, weekly, or monthly routine, and we keep a very close eye on the “Sum Up” section of the app, to see where we’re trending each month.
Our biggest revelation from integrating all of our expenses into Toshl: Holy smokes, groceries are expensive. Our second-biggest revelation: Going out to eat is expensive. Everyone knows this deep down inside, but until you add up what you spend at restaurants in a month, you don’t really get it.
It’s also fun to see how you’re trending in different budget groupings during the month. If you’ve allowed yourself $500 for entertainment during the month, you’re a week from the end of the month, and you’ve only spent $300, it almost feels like a treat to head out for dinner and a movie. It’s like a gift you’ve earned for being frugal during the month. Of course, you could also put your extra dollars into savings, but if you already budget for a savings transfer each month (like we do) then your “extra” money truly becomes “extra” and you can enjoy it all the more gleefully.
Budget Helper #5: A Cook Book
I can hear you sigh inside at this helpful suggestion, but stay with me here. During my not-so-frugal college years, I picked up the current edition of the Better Homes and Gardens New Cook Book from my local book store. I don’t get too crazy in the kitchen, and to a large extent I use the recipes more as guidelines or suggestions than actual firm instructions. Why is this a budget helper? Because some of the things that we pay so much for when we go out to eat are so incredibly easy to make. You don’t even need a bunch of fancy kitchen tools to do it – although a Cuisinart will go a surprisingly long way towards dressing up dinner.
This has led me to a new rule when going out to eat: don’t order anything off the menu that I could make easily myself. This way you get more value out of the dollars you spend when you’re out treating yourself, and you can enjoy restaurant-quality food at home for the simple stuff. Sorry Chicken Alfredo, I just won’t order you anymore. You’re too easy to make.
Whether you’ve spent the last few years with extra dollars to spend, or you’re scraping by and are still in the red, you can use these budgeting tools and helpful tricks to get you set up for a healthier financial future. Stop looking back, because your future looks bright – and green!