I ran a recent poll in my LinkedIn group – Personal Finance and Investments on what tools people use to help put together and track their budget. Somewhat surprisingly, Excel was the clear winner with 65% of the vote. I use Excel in my practice, as it is a good way to get a quick, high level account of your finances. I also wanted to highlight some other tools that received votes in the poll and can help give more insight into your spending habits.
Mint (www.mint.com) Mint has two features that make it a great budgeting tool. The first is that it allows you to see all of your accounts in one place. Maybe you have a credit card at Capital One, a checking account at Chase, a savings account at ING, a mortgage held at Wells Fargo, an investment account at Scottrade, and a car loan at The Provident Bank. Without Mint, if you wanted to get an update on all of your accounts you would have to log in to 6 different websites. Mint aggregates all of that information so you can see it in one central location.
The other feature of Mint that is great is that it will categorize your expenses. If you want to see how much you are spending on food or gas for the year, Mint will tally up all of your purchases and categorize them way you want to see them.
QuickBooks – (Not just for your business) many people track their business income and expenses extremely carefully, but then pay less attention to tracking their personal finances. Advice I like to give is you should treat your family’s finances as if it was its own corporation. What better way to do that than to use the same tool that businesses use.
With QuickBooks you can set up the accounts you would like to be tracked. Many accounts will be able to have data directly downloaded into QuickBooks allowing you to get around the manual work that is common with Excel. QuickBooks also has a great suite of reports that can help give great insight into your spending.
My personal favorite is You Need a Budget (YNAB). YNAB is not only a budgeting took, but a methodology. They have four simple rules that help you stop living paycheck to paycheck, get out of debt, and save more money faster. The four rules are:
Rule One – Give Every Dollar a Job – You’ll organize your budget by creating job descriptions for your money. Once your jobs are set up, you’ll decide how many dollars you need for each job.
Rule Two – Save for a Rainy Day – Unexpected expenses hit everyone. This rule helps you anticipate them and break them down into monthly manageable chunks
Rule Three – Roll with the punches – Teaches how to make your budget flexible and address overspending as it happens
Rule Four – Live on Last Month’s Income – helps get you out of the paycheck to paycheck cycle
I’ve seen this system very beneficial for people whose income varies month to month. (Many small business owners)
There was one more category that received some votes in the poll. 20% of people voted that they do not budget. Many people argue that they don’t want to track their personal finances this closely. They are fine with knowing that they have a roof over their head, the bills are getting paid and they are investing for retirement. I will argue that it’s not good enough to have a feel for your personal financial situation. It is nice to know exactly where all your money is coming from and going to, right down to the penny. How can you identify overspending if you are not tracking it? How much did your basement remodel cost? How much are you spending each month going out to eat? Could you reduce an expense and invest that money elsewhere? Budgeting and cash flow management is the foundation of any financial plan. Whether you are using Excel, one of the tools above, or something else, the key is that you are doing something.
Join the Personal Finance and Investments LinkedIn Group and participate in discussions that will help take your finances to the next level.