Like eating a healthy diet, maintaining a well-planned budget is generally more of a wish rather than a reality.
This is because planning and keeping to a strict budget entails a lot of work -- so does counting calories and hunting for and preparing organic and nutritious food. Balancing your checkbook monthly is already a tedious process; consider how much more time you will need to evaluate every purchase you make.
Electronic banking and computer apps can help ease up the task. Whereas before you would need to check every receipt and expense made, now, software programs such as Quicken and tracking websites can make the work much easier with your computer.
With an Internet connection, you can access your bank account and credit card transactions and download them to your computer to just beware of online fraud like phishing. Depending on the services provided, such information may even include type of expense for certain items. Using the data, you can derive a general perspective of your financial situation where you are and what you need to do to improve your lot.
Remember, these applications are only as good as the data they receive and process. Not many individuals have such simple finances as that of using only a credit or debit card for all their purchases. Usually, the small cash purchases you often overlook pile up to a substantial amount that impacts on your finances. Since those cash expenses do not appear on any bank or credit card statement, your budget app will not churn up accurate statements -- unless you input such information yourself.
A solid comprehension of your income and expenses is vital in building a personal financial budget; hence, try to input as much detailed information as you can. Nevertheless, if you find that task above your skills, try these guidelines to help you obtain financial self-awareness.
The easiest strategy to budget is to go on all-cash mode in all your financial transactions. There are several ways to do this. First, cash your salary checks and then use the cash on hand for expenses – although having so much cash with you may not be a safe way to do it. Second, you can deposit your checks and take out a certain amount of cash you will need for a few days or a week each time. This is a safer way.
But you cannot avoid using alternative means of transaction other than by cash. Banks, for instance, may demand customers to pay mortgages by automatic withdrawal from a bank account. Utilities and other firms that bill on a regular basis have required clients to transfer to automatic billing as it saves time and expense for all parties concerned. If you cannot avoid those, transferring most of your transactions to cash will help provide you with a better picture of your financial health or un-health.
After every month, check how much cash you have on hand, if any at all. This will give you an idea if your expenses are within your income. While this may not tell you specific information on where exactly your money flows to, it helps you appreciate how you can manage the small cash expenses which are often bypassed by most tracking programs.
Use the envelope method
This is similar to the cash method, although it requires a little more planning. As in the cash method, encash your paycheck; but categorize the cash into several items. For example, if you receive $4,000 monthly, you can put $1,000 in an envelope for your mortgage payment, $300 for gasoline, $350 for dine-out food, $450 for groceries, $500 for utilities, etc. Divide your cash into as many types of payments as you can afford to monitor.
This approach allows you to gain greater awareness of how you dispense with your money. For instance, if your grocery envelope still has cash at the end of the month but your dine-out envelope empties out sooner, it tells you where you spend more time eating out rather than at home. Likewise, based on the number of envelopes you have, this method can easily show you the weak areas in your finances you need to strengthen.
The hybrid method
These various schemes can be effectively utilized even if you do not use an application in your PC. Nevertheless, with an app, they can help fill up the gap which such software programs usually miss out.
For instance, your app may tell you that you earn an average of $700 monthly beyond what you are spending on tracked categories. However, a quick check tells you your checking account has not increased the same amount every month. Most possibly, the difference comes from the cash expenses that are not inputted into the app. Using either the cash or envelope method for that $700 will reveal a clear picture of where that surplus is flowing into, providing a more comprehensive perspective of your total expenses.
Indeed, budgeting requires quite an investment in terms of time and effort. But imagine the huge benefits you will derive from the savings on cost and decrease or removal of unwanted expenses. A solid budget plan can help you raise some money you already have toward making some savings or investments, not to mention the cash you will have for emergency purposes. Such easy-to-do steps will help even the most time-strapped individuals determine their financial situation.