USE AN APP OR DO IT YOURSELF?
There are dozens and dozens of online budgeting apps that can help you create a budget, such as YouNeedaBudget, Mint, PocketGuard, Wally, Good Budget, BudgetPulse, MoneyTrackin, and BudgetSimple to name a few. Some are free, while others charge a fee. They offer a variety of features depending on the app. Most can sync with your bank and credit card accounts, post your income and expenses onto a spreadsheet, and do calculations to show averages and trends with your spending. In essence, the app creates a budget for you. They also may provide budgeting advice and email feedback about your spending habits. Some will even help you find a better deal on some of your regular purchases.
Should you use one? The best budgeting method is the one you are most likely to stick with. So, by all means, investigate the apps if you are intrigued and think they may work for you. However, if you are new to budgeting or don’t have much patience with tech, you may find these apps to be daunting. Some have a significant learning curve. A low tech paper and pencil, or simple spreadsheet may be the best approach for you.
Many personal finance gurus maintain that a do-it-yourself budget is best. They believe you will have a better idea of where every dollar is going if you write down your income and expenses yourself. You can always start with this simple approach and try an app once you’ve got the basics down and have formed a budgeting habit. Or you can stick with the DIY approach permanently if works for you.
Whether you choose high or low-tech, you need to create a budget document (actually a series of documents—one for each month) that records your income and expenses. A written document that you can study and review is a must. Trying to keep a budget in your head simply will not work. There’s just too much to remember and you are too likely to fool yourself into thinking you are spending less than you actually are.
CREATING A SIMPLE DIY BUDGET
Here’s a three step process along with a simple budget worksheet to get you started with your budget.
Step 1 Determine Your Monthly Disposable Income
Begin by determining your monthly disposable income after taxes and other deductions. For most people, that means checking your pay stub. You may also have other sources of income such as alimony, child support, social security, or pension benefits, for example.
Step 2 Tally Your Monthly Spending
One way to accomplish this is to keep a daily record of your expenditures for a month or two. Record everything you buy, no matter how small. Keeping a daily record has the added benefit of discouraging frivolous and unnecessary expenses. If you have to write it down, you will think about it more before incurring the expense. You can review your record on a weekly basis, take note of unnecessary expenses, and resolve to reduce them going forward. Many budgeting experts recommend that you continue to keep an expense journal even after you have completed your budget so that you are always aware of where your money is going.
If writing down each expense is too tedious for you and you don’t want to take a month or two to get started, you can get a good idea of your spending by reviewing your bank and credit card statements for the past several months. This method won’t track you cash expenditures. If you make a lot of cash purchases, you’ll have to get them from receipts or estimate them from memory.
Add in expenses that you pay less often than monthly, such as insurance premiums or utilities that you pay annually, semi-annually, or quarterly. Convert these amounts to a monthly expense (e.g. $1200 a year for car insurance means you need to budget $100 a month).
Assign each expenditure to a category. Some typical categories that apply to most people include:
• Housing: rent or mortgage, property taxes, insurance, utilities (electric, gas, cable, phone, trash etc.), regular repairs, HOA dues.
• Transportation: gas, car payment, registration, insurance, repairs, commuting expenses (train, bus).
• Medical: health and dental insurance, deductibles and co-pays, glasses, prescriptions.
• Personal/miscellaneous: groceries, clothing and personal items, life insurance, student and other loans and debts, child care, child support, tuition and school expenses, gifts, entertainment.
• Taxes (if not taken out of payroll): FICA, Medicare, income taxes.
Once you know where your money is going, you will be able to determine the minimum you need each month, and then make decisions how, where, and when to allocate your money.
Your spouse/partner will need to do the same.
STEP 3 MAKE YOUR BUDGET
Make a new budget at the start of every month—e.g., a January budget, a February budget. Apply your monthly income to your expenses. Your goal is to make a budget that allows you to set aside 10 to 15 or even 20 percent of your income first for repayment of any outstanding debts that survived your bankruptcy and then for saving. The older you are, the higher this percentage should be.
The easiest way to make sure you set aside your target saving percentage is to have it deducted from your paycheck and deposited in a savings or retirement account. Money is harder to spend if it bypasses your checking account and your wallet. Start with a small percentage … one you can stick with … and then periodically increase it.
As debts are paid off, you will retain more and more of these deducted funds. Eventually you will be able to keep the entire payroll deduction, and that is when you will start getting ahead. If your bankruptcy eliminated all your debts, you can begin saving immediately!
Budgeting experts recommend that, once you begin to save, you have a goal for those dollars. Your initial goal may be to establish an emergency fund of a few thousand dollars, then to save for retirement and your children’s education. Other goals may be a home remodel or dream vacation, for example. Once you decide, you can add categories for your savings on your budget worksheet. Then every dollar that comes in can be assigned to an expense or savings category and your total income minus your expenses and savings will equal zero. This is known as zero-based budgeting. Allocating every saved dollar to a specific purpose minimizes the possibility that it will be spent frivolously.
A Simple Budget Worksheet
You can use this form as a starting point for your monthly budget. If you have Excel or another spreadsheet program, you can use these categories to make a spread sheet that will do the math for y
ou. Or you can find a number of free simple budgeting spreadsheets and templates online that you can download.
