Mar 6, 2006

Five Tips To Make Your Spending Plan (aka Budget) Work For You

Whether you call it a budget or a spending plan, you should have a system that gives you a pretty good idea of how much money you bring in, how much you save, how much you spend, and where it all goes. I use Quicken, simply because it's what I started with about five years ago, I've got everything set up the way I like it, and most importantly, it works for me. I don't really use Quicken the way it was meant to be used - I don't use it to reconcile my accounts or track my investments. I really use it mainly to keep track of our expenses. So here's Tip #1: Find a tracking system that works for you.

I keep a basket by the computer and toss all of our receipts into it. I create a new cash account in Quicken each month, and once a week, I sit down and input all of our expenses. That's Tip #2: Update your expenses at least once a week. It will take less than 15 minutes and will keep the receipts from piling up, which will discourage you from ever entering the information. My bonus organizational tip is to keep two envelopes in your receipt basket, one marked "keep" and the other marked "toss" or "shred." After you enter the amount into your tracking system, sort the receipts into three categories. Some can go straight into the wastebasket. The receipts that you might need later, for example, for warranties, go into the "keep" envelope (or better yet, filed away). The remaining receipts, which in my case usually for credit card purchases, go into the "toss" envelope. You can dispose of them after you get your credit card statement.

Like I said, I mainly use Quicken to track our expenses. I like my system because I can generate reports to see how much we spent on a certain category in a certain time period. That leads me to Tip #3: Check regularly to see how you're spending your money. Early on, I found that a frequent problem I ran into was that I underestimated how much we spent in certain categories, and I had to ask myself if the amount I had budgeted was realistic (it wasn't). Frequent checks to see if your spending matches your budget will keep you on track.

Tip #4: Remember that your system is a work in progress. That's why I recommend frequent checks to see how things are going. A couple of months ago, I doubled the amount budgeted for natural gas because the cost had gone up so much once it got cold (I think we're also using more hot water now that Alex takes real baths). I also recently changed the way I budget for unpredictable but inevitable expenses (like home repairs) because my previous way of doing things just wasn't working for me. I don't think I'll ever achieve the "perfect" system, but that's not my goal anyway. My goal is simply to manage our money, and I think I'm doing that pretty well. :)

Tip #5: Don't obsess. If you follow Tip #s 1, 2, 3 and 4, you'll probably spend an hour a month making sure your family spending plan works for your family. That's all you need! Okay, so it'll take more time if you have to start at the beginning and create a family budget from scratch. But a computer program like Quicken that has templates can make that pretty easy (I'm sure MSN Money and other programs work much the same way, I just don't have any experience with them). Once you have a basic plan, it won't take a lot of time to tweak it so it fits your family. And the peace of mind you'll experience from having control over your finances will be priceless.

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