Friday, June 22, 2012


I honestly really struggle with the concept of budgeting, mostly because it consists of so much prediction. I never know what expenses are going to come up - sure there are the regular things like gas, groceries, rent, tuition. But how do I estimate when I'm going to run out of shampoo/need new underwear? I used to not think budgeting was necessary, but if you are serious about saving money, you really need a budget!

I think the most important part of budgeting is just tracking your expenses - what are you buying? How do you know what you can afford when you don't even know what's going on with your money? You can do this manually on a piece of paper or use an electronic service that tracks your expenses automatically. is an example of a free website that links to your debit/credit cards to help you analyze your spending. Quicken is a (not free) software that also links to your accounts. You might even be able to use your bank website. Sometimes we don't realize how much money we're spending on things like restaurants, new clothes, vending machines, etc. When you start tracking your expenses, you get a better idea of where your money is going and where you can cut back. Are you spending so much money that you don't have anything left to put into savings? Tracking your expenses also helps you estimate future expenses.

The old way of budgeting was to save whatever portion of your income wasn't spent. My personal finance professor taught us what he called "the better way to budget." In this method, you pay the Lord first (tithing) and pay yourself second by setting aside a set amount of your income for savings. Then you allocate the remaining income to your expenses. Everyone has to start somewhere. If you're living paycheck to paycheck, find a way you can cut back on even $5-10 per paycheck. Saving to buy the things you actually want is more fulfilling that wasting your money on things you don't really care about. Getting in the habit of saving money now will help you start saving for retirement and other goals as well. Start saving now, no matter how little it is! Don't think that it's not worth it to only save a little bit. Financial freedom is more the result of decreased spending, not increased income. Make saving money a conscious effort.

Dave Ramsey has a method for budgeting where he says "give every dollar a name." In other words, whenever you receive income, sit down and break that income up into what you're going to spend it on. For example, if your paycheck was for $700, you would say $550 is for rent this month's rent, $70 is for tithing,  $40 is for groceries, the rest is for savings. This method doesn't really work for me. Sometimes, our paycheck doesn't cover all the expenses we need for that two week period so we end up spending more than we made  for that paycheck, but our expenses will be lower for the next two week period so it all balances out over the month. I prefer to take a big picture view of budgeting and this way feels too stifling to me. But I know several people who budget this way and have great success. I think this way is great for spenders who really need to discipline themselves or people who have a lot of regular monthly payments (rent, car payment, phone bill utilities, etc). Dave Ramsey's website has some cool forms you can use to budget:

Another way to budget is to sit down in advance and estimate your upcoming income and expenses. You can do this weekly, every two weeks, monthly, every two months, etc. I like this way a lot better because I get to choose how often I want to make estimates. I can even estimate for the whole year to see if I will have enough many for big future expenses (such as tuition). This method still involves a lot of estimation, so it can still be tricky. I've gotten better about estimating our expenses but I'm still off by quite a bit each month. I used Quicken software for this, and I really enjoy it. If you're willing to shell out the money, Quicken runs from $50-100 based on the version you get.

This is what Quicken looks like:

Screenshot showing part of our future income and expense estimates:

Screenshot showing how we are doing this month

Next personal finance post: I've been saving money .... now what do I do with it?

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