There are many ways to create a budget and track your spending. The only “right” way is the way that works for you. This is a short list of some ways you can track your spending and create a budget.

Paper & Pencil or a Spreadsheet (Microsoft Excel, OpenOffice Calc, or Google Docs Spreadsheet)

       Creating your own method of tracking and categorizing your spending and then creating a budget can give you a much better understanding of your situation. It takes a bit of time and is not the easiest way by far, but it is free and keeps all of your information private. You simply create categories for all of your expenses, track them manually, and then create or update your budget as your situation changes. If you don’t have the discipline to track all of your expenses and continue to update the spreadsheet, then I don’t recommend you try this method.

Quicken

       Quicken has been the standard personal money management software for quite some time, but many competitors are emerging and offering better products. Quicken can import data from your financial institutions, track your spending and help you create a budget, and offers various reports so you can get a better picture of your financial situation. Quicken Online is currently free (but that could change), so if you’re comfortable storing all of your login information online in one spot you might want to check it out. If you want an alternative that keeps all your information on your computer, you can try Quicken Deluxe for $59.99. (You might be able to find a better deal elsewhere online, so shop around!) My own personal experience with Quicken Deluxe wasn’t especially great. It takes a while to set it up and you’ll have to get familiar with how the program works. However, if you need a way to automatically track your spending it may be worth the initial effort.

Mint

       Mint is a free, online money management program that can pull together all of your bank, credit union, and credit card data to help you track your spending and budget for your expenses. To get all that information in one place, you’ll have to give them your user names and passwords. While Mint uses the same kind of data encryption as your bank, there is still risk in putting all of your financial information in one place online. If that data were ever compromised, you’d have to change the information on all your accounts to protect yourself. I’m OK with using Mint because I researched their security measures and feel comfortable with it, but you might not. I recommend you look into it for yourself and make your own decision. Also, Mint’s computer algorithms look at your spending patterns to offer you specific deals through their sponsors so you may or may not be comfortable with that as well.

Mvelopes

       Mvelopes is another online money management program that has received good reviews around the web. You get a free 30 day trial, but after that it will cost you anywhere from $7.90/month to $13.20/month depending on the membership period you select. Like Mint, Mvelopes gathers data from your bank, credit union, and credit card accounts to help you track your spending and create a budget. Again, I personally wouldn’t feel comfortable with having all of my account logins stored in one place regardless of the encryption and security used. But if you’re comfortable with it, Mvelopes might be another easy way to start tracking your spending and keeping a budget.

My Method

       Personally, I just use a Google Docs Spreadsheet to create a budget so I can have an idea of what my spending should look like. Every so often, I check over different categories to make sure I’m not overspending. However, I don’t really track my spending closely because I have my spending well under control, my savings is automatic, my bills are on auto-pay, and I have a sizable emergency fund. Unless all of those apply to you, I recommend you track your spending. The Spreadsheet method also isn’t for those who don’t have the discipline to dig in and do most of the dirty work themselves (as opposed to a computer program doing the grunt work for you). Here’s a template of the Google Spreadsheet I use. You can save a copy for yourself if you have a Google account and use their “Save” feature under the “File” menu. You should be able to save a copy to your computer, too. You’ll have to edit it for your own situation, as I can’t list every possible expense category a person might have.

There’s More Than One Way to Skin a Budget

       There are many other ways you can track your spending and create a budget. I didn’t even mention You Need a Budget or PearBudget. You can also do variations on any of these methods. For example, for the paper & pencil method you could use envelopes to split up your money and make sure you don’t overspend. What are some other methods you use to track your spending or maintain a budget? Leave your tips in the comments!

       Budgets are good. That’s right. I just said a budget is good. We hate the sound of that word, don’t we? It reeks of denial, hardship, restraint, and, for most people, boredom. But failing to create a budget and stick to it (to some degree) is one of the primary reasons so many people have a hard time managing their personal finances. So here are a few reasons why it’s good to have a budget and track your expenses.

You can easily figure out if you’re spending too much money.

       By tracking and totaling your expenses over one or two months, you can easily figure out if you’re spending too much money. Add up your monthly income, subtract your monthly expenses, and if the result is negative then you’re spending too much money. There are other ways to tell if you’re spending too much money (is your debt increasing every month?), but this is one surefire way to double check it.

You can see where your money is going.

       It’s easy to lose track of all your bills and remember where you spent the cash you had in your wallet or purse. By creating a budget and continuing to track your spending, you can keep a comprehensive list of all your expenses and how much they cost. From there, you can see where your biggest outflows are and find ways to save money in those areas.

You can target specific areas for improvement.

       Once you’ve tracked your spending for a bit and are comfortable with the numbers, you can decide on budget goals. Where do you want to cut back and by how much? If you don’t have your budget written down (on paper or electronically), it’s much more difficult to set these goals for yourself.

You’ll start spending less.

       The mere act of tracking your spending is likely to cause you to spend less. Why? You’ll become more conscious of your spending habits and begin to carefully examine your purchases. Once you start to question whether or not you need to spend money you’ll start spending less. Be careful – Corporate America doesn’t want you to do this!

You can have less stress and make better decisions.

       Do you want to take your significant other out to dinner but you’re not sure if you can afford it? Check your budget. Friends invite you on a weekend road trip but you’re worried about money? Check your budget. If you can fit the expense into the appropriate budget category, then you can spend without guilt. (Assuming, of course, that you are meeting your savings goals.) Finally, you’ll have a good idea of how much money you should have in your emergency fund. Take your necessary monthly expenses and multiply by some number between 3 and 12. (You can’t do this if you don’t know your monthly living expenses!)

My Budgeting Confession

       With all that said, I have to tell you that I no longer stick to a strict budget. I track my expenses in Mint, but I don’t restrict my spending in any certain categories. I do have a budget, but it’s mostly because I like numbers. I don’t manually keep track of what I spend. I have all my bills set on auto-pay (except heating oil), my savings is automatic, I have a sizable emergency fund, and I have my spending under control. If you can say the same about your own situation, then I actually encourage you not to track your spending too closely. It’s a waste of time if you don’t need it. But I would still recommend periodically reviewing your spending with a tool like Mint to make sure you don’t get too far off track.

       On the other hand, if you aren’t paying yourself first (automatic savings), haven’t established an emergency fund, or don’t have your spending under control, then you absolutely need a budget until you get to that point. If you really hate the idea of budgeting and tracking your expenses, just remind yourself that eventually you won’t have to do it anymore. It’s only temporary!

       I’m going to make a confession. Although I recommend you create and use a budget, my wife and I don’t actually follow our budget. In truth, that’s not a confession because I have nothing to feel guilty about. Why? Because we have our spending under control. We’re not big spenders and we don’t buy on impulse. Our savings, giving, and bills come first. We live easily on the rest because we control our money.

       I hope you, too, will be able to say the same someday. But until your spending is completely under control and you have laid a firm foundation for your finances, you need to make and stick to a budget. You can live without a budget, but first you must learn how to live within your budget.

       I made my first budget when I was 15 years old. I was a very independent teenager and paid for the things I needed on my own (aside from the very basic necessities). No one taught me how to create a budget. I just understood the simple math that I cannot spend more than I earn or I’ll be in trouble. At that age, credit and loans were not an option, and I’m grateful that’s the mindset I grew up with. I learned to stick to my budget very carefully – down to the last dollar. If I spent too much money on one thing, I adjusted for it somewhere else. And I always made sure my important expenses were covered first.

       This discipline of budgeting, tracking my spending, and sticking to my budget carried over into college. I had more money now, but I still had to be very careful how I spent it. Credit cards became an available option, and I hate to say that I did make some mistakes. For the most part, I stuck to my budgets very well. However, I did end up coming out of college with about $5,000 in credit card debt.

       When I graduated, I made paying off my credit card debt my top priority. I promised myself I would pay it off in that first year out of college. I made a new budget and carefully watched my spending so I could put any extra money toward paying off that credit card debt. Because of my dedication, I paid off all my credit card debt in less than 10 months. I even managed to save about $3,000 in an emergency fund over that same time period! I learned the value of keeping a tight rein on my spending and avoiding impulse purchases.

       After that experience of living within a tight budget, I found it much easier to control my spending. I still have a budget, but I no longer find the need to track all of my spending carefully. I look it over from time to time, but I don’t have to track every penny. Because I can control my spending and say “no” to impulse buys, I can easily live on what’s left over after my savings, giving, and bills.

       You can do the same, but not until you have control over your money. If you can’t say that your spending is completely under control and your savings, giving, and bills come first, then you need to keep sticking to your budget.

       Even when you’re able to live without a budget, you should still keep updating your budget every year. Why? Because it helps you see where your money is going and where you can save on your expenses. It’s also a valuable tool for figuring out how much income you’ll need in retirement. Do everything you can to get yourself to the point where you don’t need to stick to a budget any more. But do not neglect making or updating a budget just because you don’t have to follow it down to the dollar.

       If you’re struggling to save anything, find yourself using credit cards to pay for essentials, or just can’t control your spending, sign up for free updates to Provident Planning so you can learn how to stick to a budget and find power to control your money through contentment in Christ.