Already, in response to the first challenge, it is apparent that budgeting approaches vary quite a bit.
Now that we’re in our second challenge, I’m going to tell you our budgeting approach.
Whether you track your budget on paper, in Excel, or online, you can use the following steps as a comparison. Here are the steps we take:
- Decide where to track expenses. See this post for info on some financial software. Microsoft Money was beneficial for us in the past, but we are switching to Mint and/or Yodlee since they are free and (slightly) simpler.
- Import accounts and expenses. Import all bank, credit cards, and investment accounts.
- Setup expense categories. When we used Microsoft Money, setting sensible categories became our most important step to understanding our finances. For one, it helps us to understand expense types by identifying them as frequent, infrequent, or fixed bills. Unfortunately, Mint does not let you create your own categories or exclude any of their default ones. This is a common complaint about Mint, and I hope they will change it soon.
- Categorize expenses. It might take awhile initially, but once you categorize everything in the past, it won’t take long to categorize things as you go.
- Review expenses routinely. That’s it – from here, we’ll continue to categorize new transactions weekly and then review the spending report routinely at the end of the month. As I have mentioned, we don’t like to set arbitrary numbers as budget goals. Instead, we view our last month’s spending habits as a benchmark. Our favorite type of report is a month-to-month comparison of spending trends to see how we’re doing.
Mint was extremely easy to set up and start using right away. Anyone can do it!
I’d say Mint is great for anyone looking to track his or her expenses and find out where the money is going.