A reader emailed me asking me where to start with a budget. She said her money situation is an absolute mess. I wanted to give this reader a straight forward answer. This is not meant to offend, rather inform.
By trade, I am an accountant. What exactly does that mean? I went to community college, followed by undergraduate and finally graduate school. During those 8 long years, I studied Finance and Accounting. I can whip a spreadsheet into shape like nobody’s business.
As an accountant, whether it be public or private, you learn alot about people’s finances. I am not quite sure why, but as soon as you tell people you are in Accounting and Finance, they tell you their business. I mean, ALL OF THEIR BUSINESS! The most frequently asked question is “How can I be better at managing my money? I am just not that good at it.”
Let me decipher what I am just not that good at it means. It means you haven’t taken the time to get real with yourself about your finances. I am not suggesting that we all should be able to balance our checkbooks in our heads. However, we all should know where our money is coming from and where it is going. This is the foundation to any successful financial situation. We should have an honest accounting with where our money is going.
I find that most people tell you they spend about X dollars on something. What that really means is they spent X dollars plus 20%. People have the tendency to underestimate their spending. I have never met with a client who spends less than what they think. 9 times out of 10, they are spending more than what they tell me.
If you don’t know where your money is going, how can you fix it? Like any relationship, your relationship with money has to be based on truth and transparency. Some of you might find it odd that I say relationship with money. I really believe we have to treat our money and our finance like a relationship. Relationships take time and energy to work. For your finances to work, you must take the time and spend the energy.
So what is the first step to getting real about your finances? Put it down on paper. If you don’t do a weekly/monthly budget with updates, I am sure you will be surprised at your spending. When I say a budget, I don’t mean a list of what you should spend a month. I mean a list of what you should spend each month with a comparison of your actual spending. To accomplish your budget you can use a simple notebook or spreadsheet.
Sample Budget Spreadsheet
If you are computer savvy there are many programs out there that you can buy. You can try a free program like Mint.com. Mint.com will send you email alerts when you over your spending limit. A program like this gets very sophisticated and you don’t have to do much work. This is what I use to keep a budget. You set it up once and it will automatically download your transactions. It spits out a report at the end of the month. This is my recommended method, regardless of how little or how large amount of money you have.
Mint.com Screenshot
No matter what you decide to use, take the first step of getting control of your finances. I’d love to hear how you keep your budget. Do you have any suggestions for this reader?
Update: Alicia added this wonderful tip:
If you do not have excel, you can try google docs or open office for free. They both offer scaled down versions of Excel, totally free. Also, it reminded me that Microsoft Works, which comes on many computers, also has a spreadsheet package. Thanks, Alicia.
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What a wonderful post. I, too, am an accountant by trade, but am taking a break and discovering the blogging world.
I would like to point out that for many of us in rural areas, mint.com is not an option (oh, how I wish it were!). Many smaller banks are not yet available for automatic download with mint.com. A website I’ve found that offers a very simple way to track a budget is Budget Simple (www.budgetsimple.com).
I do love excel (must be a number fanatic thing), but if you do not have excel, you can check into Google Docs and Open Office. Both are free to use and offer a toned down spreadsheet application that is great for basic spreadsheet needs.
My best advice is to sit down and write out everything you spend. Then compute how much you spend on each particular item yearly. Comparing those figures to the cost something large that you deny yourself (such as a vacation!) will help motivate you to stick to your budget.
Alicia,
Welcome fellow number junkie.
Thanks for the great tips. I updated my post.
Good point about rural people! I live rural myself, but fortunately my bank is included.
Great point about yearly comparisons.
You are lucky that your bank reports to Mint- mine just starting reporting to a credit agency last year, so we had NO credit for the longest time..
Glad I could be of help!
Your reader should also be reminded to start small and tackle individual tasks or she will get burnt out on the entire budgeting process before it’s even fully implemented.
Great post! I have been wanting to start and stick with a budget for a while now, but find it very difficult. My husband works a seasonal job, so our income varys greatly depending on the time of year. Because of this, I’m not sure how to begin a budget and saving plan. Do we go off the least amount he makes during the year, or do we change the budget to fit what the income is during different times of the year?
Anon,
Excellent question!
I am in a similar situation. My husband gets paid a quarterly bonus, so 4 months of out the year our income is higher than the rest of the year.
Here is what I suggest -
Sit down and create a budget that you can live on. See where the numbers come out. If you can live on just his least amount during the year, you are golden! If not, each months shortage during the leans months should be saved during the higher paying months.
For example:
Your Monthly Expenses are $2,000.00
You Make $1600.00 in the off season
$400.00 Deficit in off season
Lets say your off season is 5 months so 400 x 5 = 2000.00
Your Monthly Expenses are $2000.00
YOu make $3000.00 in season
So over the in season seven months, you need to add an additional $286.00 to cover your expenses in the down season.
So you essentially have $2286.00 outgoing in the in season months. I would set up a separate bank account to accumulate these funds to pay your bills in the slower months.
Does that make any sense?
yes it does!
The problem for us is he work is dependent on the weather. So some years he may work 9 months and some years only 4 to 5. Because it varies so much, it’s hard to know how much to save when he is working, but I think with your idea of setting up a separate acct for savings, it might really help. I’m thinking of just saving like he’s going to be off for 6 to 7 months a year (to be on the safe side)Thanks so much for the advice and for all you do!