Personal Finance 

Budgeting Is About Your System, Not Your Tools

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Yesteryday, I wrote a post about zero based budgeting, a type of budget that forces you to assign each dollar of income to an expense category. I think it’s a very good way of budgeting but one that can be difficult for nonbudgeters (I think envelope budgeting is the best way, of the five budgeting systems I’ve discussed, for nonbudgeters to get their feet wet).

However, in writing about all these budgeting systems, many of which are very similar, the conclusion is that there is no right way to budget. There is only a way that gets you to financial independence, the way that works best for you and your situation. In reviewing all of these free budgeting tools, it all went back to the simple idea of spending less than you earn.

How to Pick A Budgeting System

The first question you have to ask is why do you want to or need to budget? There are several answers but they fall into one of two buckets:

  • I want to budget. If you want to budget, you are already half of the way there. You need to pick a system that matches your tendencies. If you love statistics, trying to spend 10% less or have zero spend days, then you want to pick one where you track everything to the last penny and can tweak to your hearts content.
  • I have to budget. If you feel like you have to but don’t really enjoy the prospect of budgeting, then you will want a system that doesn’t jar your daily routine. Avoid systems that have you track everything expense down to the penny and instead try something like envelope budgeting. You want to ease yourself into budgeting because otherwise you will drop it.

Establishing a Baseline

In both cases, whether you want to or simply feel you must budget, you now have to establish your spending limits on categories. You can do this one of two ways – guess or measure. I recommend a compromise. Guess what you are spending in each category and adjust your budget after the fact. You will have to overcome a bit of cognitive anchoring but I feel that it’s better to guess and adjust than not budget for a couple months just to set a baseline.

Once you’ve established your baseline, pick the budgeting system that works best for you and do it “manually” at first. You can track your spending on a little notepad or enter it into spreadsheet later on. As you develop your system and firm it up, you should get a better idea of your spending habits so you can be more effective later.

Now Pick a Budgeting Tool

At this point, you will want to take a look at some tools to see which one fits your needs. You don’t want to force yourself into a tool’s system, you want to pick the tool that fits your system (which will be an amalgamation of several “basic” ideas). Unless you’ve developed the system independently, you won’t know which tool is best.

What’s your budgeting method look like today? How as it evolved?

{ 25 comments, please add your thoughts now! }

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25 Responses to “Budgeting Is About Your System, Not Your Tools”

  1. Safeway_Sage says:

    I didn’t really start using a budget until this year. I wish I would have started 20 years ago!

  2. Mrs. Frugal says:

    We use a zero based budget and it works great for us. I have toyed with the idea of using the envelope system for certain expenses such as groceries and dining out…the two places we typically go off budget.

  3. cubiclegeoff says:

    I track to the penny, but mostly because it’s easy since most of my transactions are credit card or online, so I never have to deal with collecting receipts. If I had to collect receipts I probably wouldn’t do it that way.

    As for trial and error, we’ve gone from a monthly budget, to trying an annual budget (since so many things are annual expenses), but that got cumbersome, and so we went back to monthly. But now since we’ll have day care expenses in the near future which are a weekly expense, we’re switching to a biweekly time frame.

    Also, our budget is probably more ideal than realistic. I’ve adjusted it a lot, and we could probably live within it if we tried harder, but random expenses always throw it off. I’m not sure how to deal with it yet.

    • Anonymous says:

      I have a special savings account set up for those little oopsies and emergencies. If the expense lies totally outside of the budget, I use that. It helps even out the bumps in the road.

    • Chris says:

      We do a monthly budget but the things that we try to cut down on and track closer are things that never have set price tags suchas entertainment.

  4. javier says:

    Budgeting is the first step to become wealthier over time, I started 2 years ago. I prioritize my needs, and now I have every month an available income that I invest in the stock market.

  5. Big Spender says:

    Budgets are like diets in that everyone wants to have one but it’s very easy to slip if you’re not 100% invested.

    You do need a system that you can live with, not one that works for someone else.

  6. Anonymous says:

    I once had someone tell me that if a business knew where all of its money was going, it knew what kind of business it was. I think this true of individuals/families as well. Budgeting not only helps you build wealth, it helps you to figure out where your values lie.

  7. Maddhatter says:

    I once had someone tell me that if a business knew where all of its money was going, it knew what kind of business it was. I think this true of individuals/families as well. Budgeting not only helps you build wealth, it helps you to figure out where your values lie.

  8. I started with a budget that tracked everything to the penny, but with the system I used it was difficult to compare spending to budgeting until the month was over, and by then it was too late.

    I simplified that system into 10 categories, and that was much easier to handle and project.

    A little over a year ago, we discovered envelope budgeting and have used that exclusively ever since. Coincidentally, we’re back to a high level of detail, because that’s not overwhelming, but actually beneficial, with an envelope budget.

  9. eric says:

    Yeah I’m very casual with my budget, meaning I know relatively how much I’m earning and spending but I don’t track to the penny. It works for me and makes budgeting manageable.

  10. lostAnnfound says:

    Ditto, Sage. I wish we had started a budget 20 years ago also.

  11. cg says:

    I use a combination of bucket and zero-based budgeting. As in, I have a bucket (checking account number 1) that I use for “fixed expenses” (rent, groceries, utilities, basically things I have to pay every month although some may fluctuate and some can be pared back if I need to), and another bucket (checking account number 2) that I use for everything else (my fun money). What’s left stays in my high yield savings account (paycheck gets direct deposited to savings and then transferred monthly to the buckets) and this account has a zero-based budget. Everything in this account gets distributed into virtual buckets in a spreadsheet (auto expenses, new car fund, house downpayment fund, efund, etc), so that at the end of the month every penny has a name.

    It sounds complicated, but its evolved since graduating from college 4 years ago and helps keep me on track.

  12. ziglet19 says:

    I have a budgeting system and it works okay for me, but I have been thinking of refining it a bit. I basically set aside my savings and bill money right away when I get paid, and then what I have left over is what I use for gas, groceries, entertainment, etc. over the next two weeks. It has been working okay for me because I am putting aside what I want for savings and paying the bills, but sometimes I wonder where all my spending money went. Maybe I will give the envelope budgeting for my spending money a try…

  13. Shirley says:

    An excel spreadsheet showing the item/category, 12 months, and annual total of spending has kept us on track with its eye-opening figures. An annual summary sheet at the beginning of the workbook also shows how we are staying in line or improving efficiency.

  14. JNichols84 says:

    I’ve found that keeping track of everything through a customized excel sheet has worked better for me than trying to fit all my wants into other budgetting programs. I even crafted a coversheet that has everything laid out in front of me at a glance!

  15. jsbrendog says:

    it will have been a year i started budgeting and since i opened my roth and became conscious about this stuff in about a month and i am still tweaking. approach and implementation are everything with a little will power thrown in

  16. ebekele says:

    I stopped using the word ‘budget’ five years ago or so… I started using financial awareness and I’ve been able to get a grip on my spending & maximize on my money; except for the real estate swing, but that’s another story 🙂

  17. Pam says:

    What seems to be working well for us is to enter our expenses into Quicken. It keeps us accountable and at any time we can check to see how we’ve been doing for the month. It also makes it easier to compare the current month with previous months to see if our spending is still on track.

  18. valletta says:

    I’ve been budgeting my whole life and since selling a business a couple of years ago have been unemployed for 2 years (first time in my life).
    Just started a new, very good job and am committed to saving a full 50% of our joint take home pay.
    I’ve been using the Mint iPhone app and Quicken online, which is awesome and free.
    Quicken online allows you to enter “pending” income and expenses which you then delete after they’ve cleared your bank, a feature I find extremely helpful. You can also see all your accounts on one screen or select one and get down into the gritty details. Love it.

  19. Soccer9040 says:

    Great concept. I kind of do this, but never knew the name for it.

  20. Wilma says:

    I have never been successful with the envelope budget. If money is at hand and freely available I will spend it. Although I have coin jars all over my room. All my change is separated. State quarters, Bicentennial quarters, regular quarters, dimes etc. All have their own jars and I don’t have the urge to spend them like paper money. These jars saved my bank account when the stock market took a dive and my employer dropped a day of work and I couldn’t get unemployment. I guess you could call it my rainy day fund. =)

  21. lucilla says:

    One way to start saving is to pay less for what you think you can’t do without, like a cell phone. If you must have one, forgo the iPhone, which will cost you about $150 a month and get a prepaid cell phone like the NET10 at a Walmart, Target or Best Buy. For 10 a minute or 5 cents a text you will shave hundreds of dollars off your annual cell phone budget.

  22. Dustin says:

    I used to try to budget because I knew I was supposed to. I then read a book by Ric Edelman that basically said, “don’t bother budgeting”. So I took his advice and just stopped worrying about it. That had to be the worst advice I ever took! I then heard Dave Ramsey’s take on the budget and created my own envelope budgeting software. Now I love budgeting 🙂

  23. Christina says:

    Very true…even if you have the best tool there is, it will still depend on your budgeting system. The tool is only there to facilitate with the process. I’ve tried different method and so far what works for me is the envelope system, but I would still love to try use a software together with my envelope system.

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