Creating a budget is one of the best ways to improve your understanding of your financial health. Budgeting can sometimes seem challenging and even overwhelming if you need help knowing where to start or how to manage the process. Yet, there are various ways to budget and several tools to help you with the process. Select the best method for you and then use it consistently to track your income and expenses month-to-month.
Methods for Budgeting
Several methods are available to help you with budgeting; many do not cost you anything to use. Depending on what you like to do, you may find using one or more of these methods beneficial.
Pencil and Paper
Pencil and paper is the simplest method and ideal for those who want to use something other than online budgeting tools like software. You only need a piece of paper and a pencil to start your budget.
To do this, consider these tips:
- Make a list of all expenses you have each month.
- Place each of those items into either a needs or wants category.
- Add up all your income from all sources throughout the month.
- Now, work to create an estimated amount to spend on each of the needed expenses based on what you pay month to month.
- After needs, work on wants the same way, allocating a specific amount of money to each expense based on available income.
Be sure to include savings (pay yourself first!) and work to pay down credit cards. If you need more income to cover expenses, you may need to find additional sources or reduce expenses.
Envelopes
The envelope method is another effective and straightforward way of managing your money. This system is easy to use. You’ll follow the same process as above, creating a budget for how much you are allowing yourself to spend in each category of expenses each month.
Then, once the budget is outlined, place the specifically assigned amount for each expense category into an envelope and label it. For example, you may have an envelope for “grocery” and another for “rent.” Place cash within that envelope for the specific amount allowed and then only spend that cash on the expenses labeled on the envelope.
This budgeting tool is very effective as a way to control overspending. With it, you know you are deciding to spend money on specific expenses by handing over cash, and that’s not as easy as paying with a credit card.
Spreadsheets and Worksheets
Spreadsheets and worksheets are similar types of tools to paper and pencil, but you’re using a simple program to help you. If you have Microsoft, turn to Excel. If you do not, you can use Google Sheets to help you (this is a free option for anyone with a Gmail email account).
The programs work in the same way. You can customize them as you see fit and be as elaborate or simplistic as you like. You can access the free-to-use budget tools and templates that these programs offer. Even if you do not want to use those tools, you can create a simple budget using the spreadsheet. Create a column for your expenses and allocate the dollar amount for each area. You can track how much you pay out throughout the month in another column.
Check out some of the tutorials for creating spreadsheet budgets on YouTube if you want to start something more elaborate and use all of the program’s tools to help you.
If you want to use worksheets, head to an office supply store or Amazon to buy a package of worksheets. Follow the same method you would if you used paper and pencil to create your budget.
Online Tools
Many free online tools can help you create and manage your budget. For example, BudgetPulse is a good option for those who want a spreadsheet-like tool, and GnuCash is another option used on the Linux operating system, macOS, and Windows.
Banks and Credit Unions
If you have a bank account that’s accessible online through an app or through a website, check to see if they offer a budgeting tool for you. Some banks and credit unions provide this tool to help customers manage money in the best possible manner.
These tools typically do not create the budget for you, but you can use them to help track spending and create a spending plan. Some will provide free services, like spending reports, showing you where you spend your monthly money, which can help you see areas where you may wish to trim back.
Evaluating Third Party Apps
Finally, check some of the third-party apps out there. Mint, Goodbudget, EveryDollar, and numerous other budgeting apps are available on your smartphone. Check out a couple of these to find one that you like using. You can often link them directly to your bank or credit union accounts so they can help you automatically track your spending.
If you plan to use these services, be sure to research them. Learn as much as possible about the app, how it works, and what to expect, and be sure that it’s well-recognized for being safe to use.