Budgeting: a very good place to start

KJ: The first step toward financial security begins with one word: budget. While sometimes the word can trigger images of pulling teeth or getting mauled by bears after falling down a rocky slope, it’s truly the only way to know if you are on track. You start by figuring out your income sources (for most of us that’s pretty easy…a salary) less your expenses. If you haven’t tracked your expenses before, you will be in for a surprise! If nothing else, you will have some great ‘AHA’ moments of ‘OH, that’s where my money goes!’

The bottom line is…if you don’t know what you spend, you don’t have a clue what you can save or what you’re aiming for. Think of it like sailing across the ocean without a compass, map, or eyesight. You aren’t likely to get very far, especially not to your intended destination.

Fortunately with today’s technology, there are a lot of tools available to help track and manage a budget. My particular favorites are Mint.com and Quicken, which are owned by the parent company, Intuit. Mint.com is a very easy, user-friendly personal financial tracking system. You go to the site and input your various credentials to other financial institutions to link your bank accounts (checking, savings), brokerage/investment accounts, loans (home, auto, student), and you can setup your own values of other assets (what you own). Not only is it free, but it has a robust budgeting tool to be able to quickly and easily stay on track at any point in time during a month. After you have a steady handle on budgeting they also have functionality to track your net worth and expenses over time (checkout the “Trends” part of the site).

My recommendation if you haven’t set up or used a tool like Mint.com before is to link your accounts to let it download any transactions it can, and then monitor it for about a month. After a month, you can get a general sense of what your main expense categories are and where to really track different categories, so they can be more realistic. The process of having a budget is a continuous cycle of updating and modifying it based on your needs, savings patterns and goals: maybe you’re saving up for a car downpayment or large gift. The more you utilize the system to track your expenses, the better you will have a grasp on what your regular and non-regular expenses are. You have the ability to be broad in your budget tracking by tagging one category for ‘everything else’ if you wanted to have a place for all discretionary monthly expenses (this would exclude payments for a house, car, student loan, insurance, etc.) or you can create specific categories for items like shopping and food & dining. In some instances (and what my wife and I did when we first started using this system), it may be useful to break out food & dining to show targets for groceries, restaurants, coffee shops, alcohol & bars, and fast food to get a good handle on your spending patterns.

They have some great mobile versions, so if you don’t have your computer around (as is true for my wife and I when we are at home), you can download the free apps for Android, iPhone, and iPad.

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