What is the best method to budget?

[vishenda]

We all I guess need to know how to budget but, short of counting every penny and what it is spent on, I' d like to know of a system or method that works well in getting control of personal finances.
How often do you need to reconcile the accounts?
I used to struggle making things balance when cheque books were in vogue - would be delighted with any positive ideas.
Many thanks

[magnate]

Get Quicken or Microsoft Money . You can track your expeses for a period of time and determine what you live on in a particular living expense.

A personal finance class I took also had some good points. The key to succesfully budgeting is to know what your goals are. If you know what you are working for you can always compare spending the money to what your long term goal is and think about if it is worth it to spend the money now.

You could also check out books by Dave Ramsey.

[Broken Arrow]

Rhetorically, the best method is one that works best for you.

[vsjhoc]

Spend a lot more than you earn.

[genmed]

I've been using Quicken, and keeping a "spending"/budget report to monitor my spending as the month goes on. I pretty much only "reconcile" the account once a month and enter reciepts twice a week. -- we mainly use credit cards for our spending -- cash gets spent too easily. I also like to keep a separate account for "replacement expenses" -- the refrigerator needs fixed, new tires etc. that I divert a certain amount a month to.

I have another friend who has a simple system -- she doesn't do well with credit cards and knows she get's paid xx amount every two weeks. All our her non-fixed expenses come out of a preset amount she draws out of the bank every week -- gas, food, and so forth. When she's out of cash she can't spend any more until the next pay period.

So overall, I agree with Broken Arrow -- whatever works for you.

[LivingAlmostLarge]

Spend less than you earn and you need never budget.

[Ima saver]

I have used the old fashioned envelope system for 40 years and it works for me.

[Budgeteer]

A couple really quick suggestions on budgeting, especially if you've never used one (or never successfully) in the past:

1) Start with something simple. You touched on this in your post. If it's too complicated or time consuming it can be easy to slack off and stop using it. I'd really recommend that you use very, very high budget categories (10 or less TOTAL) like "debt", "savings", "living costs" and "spending money".

2) Using software is one option, although there are others. If you use a bank that has online account access, it can easily be handled with excel, notepad, or even a piece of paper. Some online banking sites even auto-categorize all your spending for you. All you need to do is copy those numbers into your very high level categories.

3) Usually once a month is sufficient. I actually do mine about twice a month, once about a week before the month ends (to make sure my budget is going to hit as expected), and once a little after it ends to reconcile the last payments of the month.

Like someone else said, the best system is whatever works out for you. I'm a huge supporter of SOME kind of budgeting, however simple or complex it ends up being. Having more complete information about how you spend your money can only be good.

[PrincessPerky]

Originally Posted by Broken Arrow

Rhetorically, the best method is one that works best for you.

ditto

[disneysteve]

Originally Posted by vishenda

short of counting every penny and what it is spent on

This should definitely be the starting point. Until you know what you are currently spending, it is impossible to formulate a workable budget.

Once you have that spending log, sit down and review it. Divide all expenditures into 2 columns: Wants and Needs. Be specific and realistic. Having a phone is a need. Having caller ID, voice messaging, call waiting, etc. are wants, so split the bill accordingly. You may consider cable TV a need, but high-def digital cable with on-demand video is a want. Owning a car is a need. Driving a brand new BMW every 2 years is a want. Wearing clothing is a need. Shopping at the high-end boutique shops is a want. You get the idea.

Once you've figured out your basic expenses, you can compare that to your income and see where you stand. That lets you plan your spending accordingly.

Personally, I include savings in the Need column because I consider saving for the future to be a necessity. So be sure to add that in.

[Fern]

Whether you use the envelope system, track your expenses or use some other 'technique,' it's going to be tedious, but that, after all, is the definition of "budget," eg, having an intimate understanding of what is coming in and what is going out.

[vishenda]

thanks for the input everyone, will ponder on the envelope system

[scfr]

These are the 2 things I think are most important when doing a budget and tracking your spending:
- That you actually do it.
- That you really keep track of the total amount of money you spend.

In a perfect world, you'd keep track of where every penny is spent. But that isn't always practical. One thing I used to do was carry a small coin purse that was separate from my regular wallet which was for my "pocket money." Once in awhile, I'd stick $20 in my coin purse, and record the $20 under the "pocket money" column on my budget spreadsheet. Then, I was free to spend that money without having to account for every penny. So, if I went shopping during the holidays and decided to stick a dollar in the Salvation Army kettle, or if I ran to the drug store for some cough drops, I didn't have to write the amounts down. The key to this system is to make sure that the amount of "pocket money" you allow yourself is reasonable.

[Aleta]

I read the book ALL YOUR WORTH by Elizabeth Warren and found the book an easy read and the information on budgeting common sense. She spends a lot of times on must haves and wants. It would surprize you what she would consider a must have and a want. It was quite an eye opening book for me for a budget that would work regardless of what straights you are in.

[Diolla]

I budget by having 3 basic categories

1-Bills
2-Savings (Long term and short term)
3-Expenses

1- My bills are mostly fixed so this amount stays in my checking where the bank pays them automatically via online bill payment.

2- This amount is sent to my online savings account, included is small amounts I put aside for irregular expenses like taxes & car insurance which are due twice a year. Here is also where I put savings for things like Christmas and vacations.

3- This is separate from my bill pay and is basically my spending money. Most of it gets withdrawn and placed in envelopes so I pay cash for things like groceries, pet food, renting videos, kids school money etc. A few things like gas money gets left in there to pay the Visa bill cause I like to pay at the pump.

It works well for me because I don't have to track everything that I pay from envelopes, when the money is gone I am done. I only spend a little time each month figuring how much I will need in each place.

[PrincessPerky]

If tedium is stopping you you could try the lazy way. We make almost 100% of purchases with debit card..not CC, it is not unlimited, in fact it runs low all the time, so if I want something I really have to consider if we can afford it, anyway..I keep no firm track, I one time added up all my bills (they are pretty constant), anything left after the checks come in is used for 'everything else' literally. I am too lazy to decide if dinner out is food or entertainment, I just don't care either way using money in one spot is less for another, and I don't care, so long as I buy food to feed us every week, the money leftover is find to waste...I pay (paid..it is gone now) the CC first, then go to the store, then whatever is left I spend.

course since there really hardly ever was anything left that was easy too
Now adays there is more since I don't pay the CC and we got a raise..it is actually harder when I have more to play with!

Anyway budgeting for the lazy soul.

[smooper]

This worked for us for 16 years, and we are not broke.
We have a copy book with a sort of spread sheet that track what bills are due, and what have been paid. It just gives us a snapshot of $ needed each monthe for mort,elec,water,phone....
After its all paid, which for us happens the last week of each month, we know we are in the clear for a month and since not much $ is left, know what needs to be saveed in the next 3-4 weeks.
Its very lazy, but qiucker than Quicken, and of course doesn't cover everything, but it covers the bulk of it.

[Budgeteer]

Personally, I think it's a really good idea to separate expenses like groceries from "going to the movie theater." I don't track cash - I have a budget item called "Spending Money." Every month I transfer that amount into my own personal account. I spend that money at will on whatever I want - my wife doesn't track the account, doesn't care what I spend it on, and doesn't ask me about it. It's not part of the budget. As far as the budget is concerned, I spent exactly $100 from our budget on fun and frivolous stuff.

When you group this kind of spending with mandatory living costs like groceries, gas, etc, you don't really have a way to know how you could change your spending if you wanted to. I can easily glance at my budget and make a conscious decision to cut back my discretionary spending by $50 a month in order to afford XXXXX or YYYYYY.

[vsjhoc]

Originally Posted by Aleta

I read the book ALL YOUR WORTH by Elizabeth Warren and found the book an easy read and the information on budgeting common sense. She spends a lot of times on must haves and wants. It would surprize you what she would consider a must have and a want. It was quite an eye opening book for me for a budget that would work regardless of what straights you are in.

Do you remember any examples you can share? Thanks. I must have them.

[Aleta]

She used a rule of 50/30/20. She believed that your must haves should not exceed 50% for a common sense reason. Say, tomorrow that you are unemployed, you're only going to receive 50% of your pay and that will go to what has to be paid. She says that 50% is sustainable; it is safe. ( because of what I said about unemployment and disability checks only covering 50% of income); and it has been tested over time.

Your Wants are for cable TV, lbeer, haircut, home computer, new sofa, movies, car wash, magazines, and etc.

20% if for savings. Emergency, saibings for plumbing, mechanic, etc. Also to be used to pay off debt. Her theory is to pay 10% to your retirement and 10% toward your debt. After the debt is paid you can then use the 10% to either contribute more to your retirement fund or to save for short term or long term goals.

For instance, in the book for must haves this is for your utilities, mortgage, food insurance, etc. She only considers the basic service part of your telephone service and the other part should go into your wants because you could do without all the bells and whistles if you had to. Also, she considers cell phones a want to unless you are under a contract. Then it would be put in the must haves. There is a lot to the book and you can get it from the library. You may not agree with everything, but there is alot of good information in there.