This is a post I wrote back many months ago. I tend to get this question alot , so I want to repost this for those of you who might need it.
A reader emailed me asking me where to start with a budget. She said her money situation is an absolute mess. I wanted to give this reader a straight forward answer. This is not meant to offend, rather inform.
By trade, I am an accountant. I hold an MBA in Accounting. I can whip a spreadsheet into shape like nobody’s business. I worked in public and private accounting from 1998-2009 doing business finance, accounting and taxes. (why do I tell you this? Only because I want you to know that I am qualified to give this advice :)
As an accountant, whether it be public or private, you learn alot about people’s finances. I am not quite sure why, but as soon as you tell people you are in Accounting and Finance, they tell you their business. I mean, ALL OF THEIR BUSINESS! The most frequently asked question is “How can I be better at managing my money? I am just not that good at it.”
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Let me decipher what I am just not that good at it means. It means you haven’t taken the time to get real with yourself about your finances. I am not suggesting that we all should be able to balance our checkbooks in our heads. However, we all should know where our money is coming from and where it is going. This is the foundation to any successful financial situation. We should have an honest accounting with where our money is going.
I find that most people tell you they spend about X dollars on something. What that really means is they spent X dollars plus 20%. People have the tendency to underestimate their spending if they don’t have it documented. I have never met with a client who spends less than what they think. 9 times out of 10, they are spending more than what they tell me.
If you don’t know where your money is going, how can you fix it? Like any relationship, your relationship with money has to be based on truth and transparency. Some of you might find it odd that I say relationship with money. I really believe we have to treat our money and our finance like a relationship. Relationships take time and energy to work. For your finances to work, you must take the time and spend the energy.
So what is the first step to getting real about your finances? Put it down on paper. If you don’t do a weekly/monthly budget with updates, I am sure you will be surprised at your spending. When I say a budget, I don’t mean a list of what you should spend a month. I mean a list of what you should spend each month with a comparison of your actual spending. To accomplish your budget you can use a simple notebook or spreadsheet.
If you are computer savvy there are many programs out there that you can buy. You can try a free program like Mint.com. Mint.com will send you email alerts when you over your spending limit. A program like this gets very sophisticated and you don’t have to do much work. This is what I use to keep a budget. You set it up once and it will automatically download your transactions. It spits out a report at the end of the month. If you do not have excel, you can try google docs or open office for free. They both offer scaled down versions of Excel, totally free.
No matter what you decide to use, take the first step of getting control of your finances. I’d love to hear how you keep your budget. Do you have any suggestions for this reader?
Kristi says
AngryJulie sent me over here, what a great post! I did a post on Mint last year and I was just about to post about them again next week as I’m revisiting it right now. Your advice is spot on. Love it!
Maria says
So I want to try mint.com but my husband usually takes money out of the bank and uses cash for all of his purchases. I tried to get him on board for one month. Every day I hounded him for what he spent that day (it got really annoying even to me) and by the end of the month we found out he spent around $800 for food/drinks/misc. So if I used mint.com would I have to be hounding him again for what he spent his cash on?
Shelley says
DAVE RAMSEY TOTAL MONEY MAKEOVER!!!!!! This book is really inspirational and the steps really work. We have managed to pay off almost $20,000 in debt within the last year with our same salaries. Don’t spend more then you make and stick to your budgets!!
Julie {Angry Julie Monday} says
Is there a way to budget my Monsters, Dr. Peppers, and Etsy purchases?
Shannon says
Julie,
You cannot budget your addictions.
Crystal says
This is a great post. I use mint.com and I LOVE it!
Becky says
Your comment about people spending X + 20% is true. My son asked me the other day how much money we spend on things. We are not the average American family, so I decided to put it in perspective by comparing what we spend to what the average family (usually 4, although we are 5) spends. We came up with about $3,200 originally and about $6,000 for the average family. After thinking about it though, we figured we should add another $400-600 for things we did not take into account.
Our main savings are now in insurance (used to be $800/month, now $200 w/ high deductable), we don’t have cable ($0), I don’t own a cell phone and my husband has a paid company one ($0), we own all our cars ($0), and now spend $200 or less in groceries/toiletries per month. That’s a total savings of $1,500 + just in the things I listed.
I will try the free online money management system. Thanks! After we did our little excercise in what we spend on what, I wanted to find such a program. Great timing!
Nicole says
I am currently revamping my own method. I just opened a new checking account at my bank that I will use only for groceries and household goods. I currently use quicken and I have several different “accounts” listed but in actuality it’s ony one single real account at the bank. However I use my different subaccounts in quicken to budget for each monthly expense, mortgage, electric bill, fuel, etc. I tend to let my grocery fund go in the red which is just robbing from Peter to pay Paul. So I am hoping that by having an actual real life checking account that is only for that purpose I will be forced to watch and follow my budget more closely.
You make a great point that you have to be honest with yourself. I intention disillusion myself into thinking that it’s not that much. However I do think that as I get further into couponing I am seeing a difference in my spending.
Tabatha says
I’m not one for using a computer for finances for some reason I always forget to enter it and some of those programs can get expensive month after month. So I went the old school way with pen and paper. But instead of making up my own budget I went to http://www.listplanit.com and printed their Financial Planner list for $4.95 and placed it into a binder. Once printed I put them into page protectors so that I can use a dry erase marker. This has worked wonderfully for me and my husband to keep track. Plus, we can take the binder anywhere in case we need to, unlike our desktop computer. Plus, we don’t leave our computer on all the time and this is accessible at all times.
Felicia says
Dave Ramsey has a section in his books about budgets, it really helped me. Also, the envelope system and just using cash helps me with my budget, you can’t spend what you don’t have.
Shannon says
Felicia,
I am not a big fan of the envelope system for tracking how much you spend on what. It is good for CONTROLLING how much you spend, but not getting a handle on what you are spending on, because if you have a “slush” fund, your really not accountable. I think as a first step you need to really know what you are spending.