Budgets are a lot like diets: No single approach works for everyone; overly complicated plans rarely work for long; and sometimes it takes a few tries before you get it right.
One stumbling block for many people is thinking of a budget as a form of punishment rather than as a means to achieve their goals in life. Say you dream of buying a house: A budget shouldn't serve as a constant reminder that you can't afford a down payment; but rather, as a tool to help identify where the money goes each month so you can adjust your spending -- and saving -- accordingly.
Getting started. If you're new to budgeting or you haven't been successful in the past, start slowly. First, for a few months write down every cent you spend: mortgage/rent, utilities, food (including snacks and coffees), gas, medical copayments, birthday presents, credit card interest, children's allowances -- the works. Also, divide annual expenses like insurance and income tax into monthly amounts and add them to the list.
To help track what you spend, review your checkbook and credit card statements and hold onto all cash transaction receipts. Don't feel compelled to categorize expenses at first; just total them up each month. It sounds tedious, but I guarantee you'll be amazed by the bottom line. Eventually, you can start grouping expenses into categories, which will help identify items to trim.
At the same time, track your income. If your pay varies from month to month, average it out for purposes of this exercise. Comparing money coming in versus money going out can be quite enlightening. Breaking even or losing money each month may mean you need to find additional income sources and/or aggressively alter your spending habits. You'll probably ask yourself, "Do I really want to spend $60 a month on coffee?" and "How can I reduce my utilities bills?"
Budgeting tools. Many tools are available to help track income and expenses. You can go the pencil-and-paper route by downloading a budget spreadsheet template (Google "Budget Worksheet" to find one you like). Interactive, online budgeting calculators that can help you plan for a variety of expenses also are widely available. For example, Practical Money Skills for Life, a free personal financial management program run by my employer, Visa Inc., includes budgeting calculators for everything from back-to-school costs to holiday expenses to retirement.
Once you're ready to go to the next level of managing your finances, many software packages and online account management services are available -- some are free, while others charge a one-time or monthly fee. Among the more popular products are Quicken, Mint.com, Yodlee, Mvlopes and YNAB (You Need a Budget). Some, like Mint and Yodlee, can be accessed online, including by smart phone; others, like Quicken, must be accessed from a dedicated computer.
Commonly available features include:
It's at this "behavioral change" point, when the compilation of so many long-term goals seems overwhelming, that many people give up on budgeting. Think about the tortoise and the hare: Slow and steady wins the race.
You won't solve all your financial challenges at once, but you can start whittling away at them. Over time, you'll notice gradual improvements and be encouraged to up the ante -- it's like losing weight gradually and keeping it off versus drastic weight reduction.
Here are a few suggestions:
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.
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