When starting the budgeting process, it’s easy to get overwhelmed with all of the little decisions that come up before you’ve even started to track one cent. To streamline the “getting started” phase, I recommend taking eight specific steps:
Go high tech. Managing the budgeting process in a low tech way simply means keeping a spreadsheet or written account of your spending. Things get missed very easily this way, whereas if you use budgeting software, you’re going to be 100% confident of the incoming data. Additionally, low tech budget management is easier to abandon and harder to get back on track than high tech.
Commit to your budgeting software. There are tons of good budgeting software options out there to help you manage the budgeting process; you simply need to decide what features you prefer and stick to it. I am sure hundreds of budgets have failed before they even started, just because the people became paralyzed when deciding which software option to use!
Keep accounts simple. Most budgeting software options allow you to track your entire financial life: loans, retirement plans, home values, etc. People get so caught up in setting up all of their accounts, they forget why they originally started the project: to bring clarity to the budgeting process! Therefore, I recommend you ONLY set up the accounts that have expenses running through them: usually your checking accounts and credit card accounts.
Keep budgets simple. You don’t need to track fixed expenses against a budget; for example, if your rent is $1,500 per month, you don’t need a “rent” budget that reflects that outflow each month. That’s just a waste of time, and potentially annoying, if you’re using a program that sends alerts about your spending! Therefore, unless you want to reduce a specific area of your spending—like food, shopping, entertainment—there shouldn’t be a budget item for it.
Use “rules” to reduce time spent categorizing. My favorite budgeting software is Mint, and it’s great at figuring out how charges should be categorized, but almost any option will have this same feature: the ability to make the program default to a specific category whenever it encounters a certain transaction. For example, I can set up a rule that anytime
Mint encounters a charge from Caffe Ladro, it should be categorized as Coffee House. Then I never have to worry that it’s miscategorized again (although you might know from my personal budgeting anecdotes how closely I have to watch my coffee spending!). The more you set up rules, the less time you have to spend categorizing expenses going forward.
The more you want to change your spending, the more detail you need. The budgeting process is mean to help you use your money more efficiently, so in order for you to really understand and take action, you need to understand where your money is going at a glance; if all your budget report shows you is that you spent $1,000 on Food and Dining, you have no idea what got you there. Many budgeting software programs will break this category down into Restaurants, Fast Food, Groceries, Coffee Houses, etc., but you may want to break it down even further—into such categories as Date Night, Workday Lunches, Networking, etc. Keep in mind you don’t bring this level of detail to ALL your categorization, only the areas where you want to cut back and understand your spending dynamics better.
Update at least twice per month. When starting the budgeting process, it can be fun to categorize and start to understand your spending behaviors; eventually, however, it won’t be as fun. This is when you need to book time in your schedule—maybe just 30 minutes to an hour–to review and manage the budgeting process every couple of weeks.
Review with your loved one. Once you have organized and updated your categories, you should book a special review time twice per month to share the data with your loved one or family member; you may have intimate knowledge of your spending patterns because you’ve been managing the day-to-day budgeting process, but for the person not involved, reviewing the spending can be a real eye opener. And, it can put you both on the same page in terms of clarity, inclusion and decision making. I have seen combative couples completely realign themselves and become a team after only 15 minutes of reviewing the Trends tab in Mint!
These 8 steps are meant to help you start the budgeting process in the simplest, quickest way. The reason I recommend keeping the budgeting process so basic is that the majority of your energy can then be spent understanding the thinking and emotion behind the behaviors that cause you to overspend. If you continue to examine your spending, analyze your behavior and make gradual modifications, you’ll be shocked at the improvements you can make in 6 months!
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