Setting Up a Budget

Now you know why having a budget is so important. It can help you:

• Make long- and short-term projections about your financial situation
• Avert a financial crisis
• Get the most from your money
• Plan for major life changes
• Achieve peace of mind
• Live the life you want

If you’ve never had a budget, you may be feeling daunted by the prospect of setting one up. In this section, we’ll show you how to do it. We’ll provide a sample budget that you can copy to create your own budget with pen and paper, a spreadsheet or a budgeting app. We’ll also recommend some popular personal finance apps for tracking your spending and saving.

Money-Tracking Systems

First, let’s discuss the various systems you could use to track your money:

• Paper and Pen. This option is within anyone’s means. It doesn’t require a computer or smartphone. You can easily carry it with you and access it at any time, and electronic failure won’t cause you to lose your data. However, notebooks can be misplaced, and meticulous record-keeping can be ruined by the swift tip of a nearby glass of water (so use a ballpoint pen or permanent ink). Perhaps the biggest drawback of this method is that there are no shortcuts since you can’t create formulas or link entries or pages to each other.The simpler your budget is, the better the pen and paper method will work for you. Once you start having multiple accounts, loans and credit cards, technology can make tracking everything much easier.
• Spreadsheet. If you have a computer, chances are it came with a spreadsheet program. If it didn’t, you can download Open Office to get a free spreadsheet program. If you use a spreadsheet to track your income and expenses, you can easily do calculations, such as adding up your weekly grocery receipts or determining how much you spent on groceries for the entire year. In addition, a spreadsheet can keep a running total of how much money you have left to spend in a particular month or category that adjusts every time you enter a new expense or income source into your spreadsheet. (See the next section for a simple example of a spreadsheet.)
• Apps. Desktop-only software is a thing of the past. Today’s budgeting programs assume people want to be able to link all their bank and credit card accounts for automatic updating of income and expenses and stay on top of things using their smartphones and tablets when they’re away from the computer. These apps can make your life easier by categorizing your expenses automatically, tracking your bills and creating reports such as spending by category, spending by payee and income vs. expenses.

Some people may not feel comfortable giving all their information to an online service, though – you’ll need to import data from your bank, credit card and other financial accounts by using your login and password from each account – and no matter how well-designed it is, any online system could have weaknesses that hackers can exploit. However, the best programs have strict security measures such as multifactor authentication, multilayer hardware and software encryption, bank-grade traffic encryption, controlled access to customer data by company employees, the ability to remotely remove mobile access to your account in case your phone is stolen and more to keep your information safe.

Speaking of apps, here are a few of the most well-known budgeting software options that you may want to consider using:

• Quicken. Available for both PCs and Macs, Quicken is the granddaddy of the bunch. Like tax software, it comes in several versions at different price points depending on your needs: Starter, $34.99/yr., is advertised as best for tracking spending. Deluxe, $49.99/yr., will also help you track savings goals. Premier, $74.99/yr., adds investment tracking, and Home, Business & Rental Property, $99.99/yr. (available for Windows only), adds business features. (All prices refer to the 2018 version and are current as of October 2017.) Quicken may be your best option if you want to manage all your financial tasks in one place and simplify tax preparation since Intuit, the company that makes Quicken, also makes Turbo Tax.
• Mint. Mint is a cloud-based app that you can access through your computer, phone or tablet. Linking all your financial accounts lets Mint show you all your transactions and account balances in one place. You can create budgets, set savings goals, categorize transactions and sign up for custom alerts to let you know if you’ve gone over budget or need to pay an upcoming bill.  (Learn more in How to Use Mint: Budget Simply and Mint.com: Top Free Money-Tracking Tools.) While Mint is free, it’s user interface is somewhat cluttered by targeted ads. (See How Mint.com Makes Money.)
• Personal Capital. Personal Capital is similar to Mint in features and price. Where it differs is in its investment services. It’s designed to help you plan for retirement in a way that other budgeting apps aren’t. For free, you can perform retirement-planning calculations and analyze your investment fees. For a fee of 0.89% per year for up to $1 million in assets, Personal Capital provides investment and wealth management services. (For more, see Pros and Cons of Robo-Advisor Personal Capital and The Top 4 Portfolio Management Apps.)
• You Need a Budget (YNAB). Like Quicken, Mint and Personal Capital, it lets you sync your bank and credit card accounts automatically so you can see all your transactions in one place. But YNAB may be the best of the bunch for not just managing your money but actually learning how to budget and how to live within your means. This program is also excellent for paying off debt. It teaches you how to give every dollar a job, plan for future expenses and adjust when you go over budget in a certain category. Daily free, live workshops teach you how to pay for big expenses without borrowing, break the paycheck-to-paycheck cycle, budget when money is tight and more. YNAB offers a 34-day free trial after which you’ll pay $50 per year ($4.17 per month).

These are just a few of the many personal finance apps available;  new ones are coming out all the time. There’s bound to be one that works well for you. Try a program for a month or two, and if you don’t like it, move on until you find the right fit. (Learn more in Best Budgeting Software Of 2017.)