By Lorraine Zenge
Is your wallet leaking? Do you ever ask yourself where your money went and why you haven’t saved more than last year? If so, you have plenty of company. Only 40 percent of Americans use a monthly budget to track their finances, according to a recent National Foundation for Credit Counseling survey.
Although the idea of doing a budget may seem overwhelming, the process does not have to be difficult. After sticking with the process for a month or two, the feeling of being in control of your money – rather than having no idea where your money goes – is so satisfying that it provides its own incentive to continue.
1. Write It Down
For a week or two, try the envelope method. When you make a purchase, the receipt goes in the envelope. If it’s a cash purchase and no receipt is given, you write the amount and what was purchased on the outside of the envelope. At the end of the week, add up how much was spent on your purchases – lunches, vending machines, coffee at Starbucks, etc.
You may be shocked when you learn the sources of your money leaks. You may want to give up eating lunches out. Instead, use the money you would have spent to build a fund for something you want or need, such as a new laptop or summer vacation.
2. Track It
Start your household budget by listing all your cash inflows and outflows starting with your paychecks and regular monthly bills. Then list all your other expenses – birthday gifts, clothing expenditures and entertainment.
Next, develop your tracking mechanism. Although some people develop their own spreadsheets to track their finances, budgeting software like Quicken, and Web-based budgeting tools, including the free and highly rated www.mint.com, can make setting up your budget a breeze and almost fun! Both tools allow you to download transactions from your bank accounts and credit cards, which make the tracking of your expenses less time consuming.
3. Set Your Goals
After you develop your tracking mechanism and have used it for a month or two, set some financial goals. Once you are tracking how you spend your money, you can develop a budget for how you need and want to spend your money. This may mean cutting back in some areas – for example, eating out for lunch every day – and adding to others, such as retirement savings. And of course, you will need to tweak your budget as your circumstances change.
Some people allot themselves a certain amount of cash for eating out, snacks and other “mad money” purchases at payday. When their “mad money” is gone, they don’t get any more until the next payday and must modify their behavior, such as taking a brown bag lunch to work rather than eating out.
4. Stick to It
The budgeting process itself is easy. Sticking to it can take some motivation. However, over the course of time you will be rewarded by building your retirement savings and having money in the bank for budgeted purchases, which may include new furniture or a family vacation. With your budget in hand, you will truly be on the path to financial security.