The major difference between people ruled by money worries and people in control of their financial destiny is that dreaded 6-letter word: BUDGET. Starting and maintaining a budget are hurdles many cannot overcome, and for that reason, they are forever struggling, living paycheck to paycheck. Here are five easy-to-follow steps that will help you get your budget and finances in order with budget management software.
1. Figure out how much money you have and where it goes. Many people skip this step because it can be difficult to pull together all their financial information without budget management software, categorize it, and keep it current using existing online banking and desktop software programs. But you can’t afford to skip this step. To maintain a successful budget, you need to answer the following questions:
- What is your average, monthly spending across all your bank and credit accounts?
- What are your major categories of spending-utilities, household, loans, shopping, etc.?
- In which categories are you spending the most, and is that amount typical for someone in your financial situation?
How Mint helps: A budget tool like Mint lets you view your spending on any debit or credit card from over 3,500 U.S. banks — all in one place. Mint accurately and automatically categorizes and classifies transactions. Plus, it updates your accounts automatically so you don’t have to. With that kind of ease of use, you’ll be able to answer those three important questions about your budget in a matter of minutes.
2. Next, you need to set achievable targets for future spending. You can do this by looking back at your spending history, identifying categories and spending trends that may surprise you. Don’t guesstimate this. If you can’t accurately see where you have been, you can’t see where you’re going.
For example, could you be spending less on Dining Out or saving money on Shopping by changing stores? If you are spending cash too fast after ATM withdrawals, could you spend slower by using your Debit card and tracking the spending?
Based on what you learn, you can start to budget for each category. Start with specific ideas, like picking categories or merchants to cut back on, or setting a target of saving 10 to 20% on purchases. Remember, expecting to maintain large budget cuts is like expecting to stick to a crash diet (with the same probability of success), so start small and make changes gradually.
How Mint helps: Budget management software like Mint can show your pattern of spending for the past few months the first time you log on and setup your accounts. It accurately shows your average spending trends, categorizes your expenses, allowing you to rename or re-categorize transactions, and provides you with analytic tools, charts and graphs that make understanding your budget weaknesses easier.
3. Once you start tracking expenses and identify weaknesses, you need to stay on top of your spending within the month. If you are current on your actual spending versus your target budget, you’ll be able to stay on track easier. Unfortunately, since most people are busy-finances can get put on the back burner. They end up waiting until they get their bank statements at the end of the month to see how well they stuck to their budget, and as a result, they get nasty surprises. Budget checks should be done on a weekly basis so you can keep an eye out for unusual or unexpected expenses.
How Mint helps: Mint makes active monitoring easy by providing weekly financial summaries (in- and out-flows) that can be emailed or text messaged to you. Mint offers alerts about upcoming bills, unusually large transactions, paycheck deposits, and those pesky bank fees. It allows you to customize your alerts to trigger at specific dollar amounts. Mint even lets you set budget targets for specific categories and then sends notices when you are close to or have exceeded the target you set for yourself.
4. Another key to maintaining a successful budget is to fight inertia. Once you identify your personal “budget busters”, you need to act. Research competitive pricing to find ways to: lower the interest you pay on credit cards; get higher interest on your savings accounts; and reduce your utility bills, etc.
Lend your budget a hand. Easily earn rates 11 times higher than that of the national average. Taking advantage of high yield savings account will allow you to earn extra interest so you can better meet your budgeting goals.
Can’t find a high interest savings account? Look no further, here’s one!
- E*Trade Max Rate Savings – Sign Up
When you’re armed with competitor pricing information and rates, you can contact your current service providers to negotiate for lower payment plans. Read the previous Mint article called Three Ways to Ask for More Money for more information on fighting against overpaying for needed services. If they don’t give, switch!
How Mint helps: Mint analyzes your personal spending and recommends “unique to you” savings opportunities. Mint pulls recommendations from a proprietary database offering you thousands of offers from hundreds of service providers and credit card companies. After that, Mint continually monitors offers and prices for you. If your credit card’s introductory rates expire or your current service provider offers a new, lower rate plan, Mint will notify you and give you the details — so you can negotiate for better deals.
5. Lastly, you should always budget to spend less than you earn. The four decisions that have the biggest impact on your cost of living are renting versus buying a home, deciding when you’re financially ready to have children, choosing where to live, and buying a new versus used car. Mint’s Three Principles of Personal Finance offers some guidance on these big decisions.
Mint’s Point of View: Successful budgeting requires that you :
- Understand where your money really goes NOW
- Set realistic targets
- Stay on top of your spending with budget management software
- Fight inertia
- Spend less than you earn
And, of course, we recommend that you sign up for Mint at www.mint.com, so you can start budgeting easily and successfully today.
Since budgeting borders on a religious question, we’ve taken the step of searching the blogosphere for the best and the brightest opinions on budgeting strategies. One of these has GOT to work for you:
- Where Does Your Money Go? by Millionaire Mommy Next Door
- Create a Budget and Follow It! by Gather Little by Little
- The Spending Plan: Budgeting for Non-Budgeters by Get Rich Slowly
And let us know, what budget approach is working for you? If there’s something we improve in Mint’s budgeting feature, what would that be?