Budgeting 101: How a Simple Budget Helped Me – And Can Help You, Too

Earlier this week in the reader mailbag, I mentioned offhand that I built a strict budget for the first several months of my financial turnaround, but now I am much looser about my budgeting. At the same time, I stated that this strict budget was vital in my financial turnaround.

This spurred several readers to write in and ask how exactly I built this budget – starting from scratch and having no real idea how to do it – and how I eventually loosened the reins on it as well.

So, here’s my guide on how to build a budget. This isn’t just a rehash of the budgeting guides that appear in countless personal finance books – this instead is exactly what I did. It’s the plan that I personally found very effective in helping me right my ship.

Let’s get started.

Save Your Receipts and Statements
Sitting down and immediately writing out a budget in the way most personal finance books describe is a giant waste of time. They often instruct you to write down how much you should spend in a bunch of categories that may or may not apply to your life and then stick to those amounts. That’s completely useless for the average person.

If you want to budget, the only way to start is to get a very firm grip on exactly how you’re spending your money right now.

Step 1: Starting today, save every single bill statement, receipt, or check that crosses your desk for at least one month, preferably three months.

You should be building two piles: money coming in (paychecks, etc.) and money going out (bills, receipts, checks, etc.). If you spend money in any way, record it in some fashion by saving the bill statement, a copy of the check, a receipt from the shopping trip, or even by simply writing it down on a sheet of paper. Every single penny should be accounted for.

The longer you do this, the better, but you need to do it for at least one month at the absolute minimum so you can scoop in all of your monthly bills. For most families, you’re better off scooping in three months’ worth of receipts so you can get a good “average” of what you’re spending.

I found it convenient to keep a “spending notebook” in my pocket. Whenever I spent a dime, I’d either make a note of it directly in the notebook or stuff the receipt in there. If I made an ATM withdrawal, I’d write on the back of that receipt what I did with all of the cash.

Sort Your Receipts and Statements
Once you’ve saved all of your receipts and statements up over a few months, it’s time to sort them into some sensible groups.

Most personal finance books provide a big list of groups for you to sort your stuff into, but the problem is that these lists try to be all things for all people. Very few people have financial lives so complicated that they actually cover all of those categories.

Instead, try this.

Step 2: Take all of the receipts/statements/notes/etc. you saved up and start making piles on the floor in a way that makes sense to you.

Just define your own categories. When I first did this, I basically had the following categories, which really didn’t match up very well with any personal finance book:

Required utilities (electric, gas, water, sewer, etc.); non-required utilities (cable, internet, etc.); gas; other car expenses; good food; junk food and eating out; household supplies; books; magazines; golf; video games; Magic: the Gathering; other entertainment; insurance; bank fees; finance charges; student loans; baby supplies; and miscellaneous

I still have that ancient budget, actually, and those were the categories listed on it, and they all started by piling papers and receipts and statements on the floor in various groupings.

Some receipts I came across actually fell into multiple groups, like receipts from Super Target. What I did then is go through the receipt, figure out which items went into which group, and then wrote a note for each pile with that total (including sales tax, which I divided up proportionately).

You’ll probably find yourself shifting piles around and making new piles throughout this process, as you should. The goal is to find ways to group your spending that’s natural to you. Don’t try to force it to match someone else’s groupings – if a group of receipts or statements feel like a natural group to you, that’s how they should be sorted.

Tally Them Up
Once you have all of your piles figured out, it’s time to tally up each pile.

Step 3: Add up the totals on all of the receipts and statements in each pile, then divide these totals by the number of months you’ve been accumulating data.

So, if you saved all data for three months, you’ll want to divide each total by three (remember, the more months’ worth of data you have, the better).

As you calculate the tally for each of your piles, start writing these totals down, making a list of the category names and how much you spent in that category for an average month. When you’re finished, you’ll have a picture of what you are really spending each month in each category.

When that’s done, total ‘em up and you’ll see how much you’re spending. Do the same for your income over an average month – see how much you’re earning. Those two numbers really make up the reality of your financial situation – are you spending less than you earn?

Find the Fat
If you’re like many people, the total amount you earn in a month and the total amount you spend in a month are going to be pretty close to each other – and that’s what you’re trying to correct. Spend less than you earn is the mantra, and it’s a good one – the bigger the gap between the two, the better off you are.

Step 4: Go through each category and find ways you could reduce your spending in each one.

Some categories won’t have much room to breathe, while others will be loaded with fat.

The key here is to be realistic. Look for ways to trim spending that you can easily maintain. For example, you can often trim your electric bill a bit by installing a programmable thermostat, or you might be able to cut some entertainment expenses by finding a different route home from work that doesn’t take you near your most tempting places. Maybe you could challenge yourself to cook one more meal at home each week, cutting down on food expenses a bit. If you’re a book or a movie lover, you can probably cut some fat there by digging into what’s available at the library. The next time you go grocery shopping, maybe you can make a list first or, even better, make a meal plan using the flyer before you even walk in the door.

Going overboard, though, is a bad thing. Just focus in on the baby steps – the easy things you can do to reduce some spending. If you go hardcore, it’ll fail just like most diets do. You’re developing a basis for the long term here, and by trying to force yourself into a bunch of activities that don’t come naturally, you’re asking for failure. Focus on things that are wholly automatic, like a programmable thermostat or a CFL (or a more fuel-efficient car in the future), and on just a small handful of changes you need to make to your behavior.

In a nutshell, go through all the categories and identify automatic ways to save money as well as five other ways you could trim the fat a bit. Estimate how much these will save, then subtract them from the total in that category. You now have your target numbers for next month (don’t worry about extras, we’ll deal with that later).

One more thing: add one additional category called “Flexible” and put in a dollar amount next to it equal to about 5% of your monthly take-home. This will help you during the month if a crisis comes up – just take the money from this piece to help with those unexpected. If there’s anything left over at the end of the month from this category, put it into savings.

Try It Out
Over the next month, just do things as normal except with the changes you thought up based on how you spend money – and one other little change.

Step 5: Work hard to stay within your target numbers in each category for the next month.

Remember, these numbers are completely realistic and based on how you’re really spending money minus just a few little lifestyle changes, so these are goals you should be able to meet. Even better, at the end of the month, you’ll find that you’ve spent a little less money overall.

You’ll likely stay under those numbers in most categories and go a little over in others – that’s fine, just as long as you know the reasons you went over and your total across all categories doesn’t exceed the total of all of your targets.

Even better, you’ll have a little left over, so do something productive with it. Use it to make an extra debt payment or sock it away in a savings account for a big emergency.

But even more important than that…

Rinse and Repeat
Budgeting doesn’t work unless it’s repeated, so just get in the habit of doing it at the end of each month.

Step 6: At the end of each month, refresh your budget.

This simply means go through all of your receipts and statements for the month and verify that you did indeed hit your targets overall. If you did, that’s a good thing – it means you’ve added real change to your life.

So, if you did make your targets, take that total amount that you have left over and add another line to your budget – debt repayment (or savings, if you have no debt) – and write that dollar amount in next to it. Each month, you’ll use that money to follow a basic financial security plan – first, build up a small emergency fund with it in a savings account, then start making extra payments on your debts.

Then repeat the whole process of making target numbers. If you feel confident, try adding in some additional cost-cutting tactics. If last month didn’t go so well, don’t be afraid to revise some numbers upward (and thus reduce the amount going into debt repayment or savings).

Training Wheels
The goal of budgeting is to keep in tune with your spending and don’t overdo it. Instead, treat it like an exercise plan or a diet – you gradually become more and more fit as time goes on and the budget begins to feel more normal in your life. Eventually, the little changes will become natural and you can take the training wheels off.

It took me almost a year to reach that point. I became so confident with my budget that I simply set up most of my bills to be paid automatically with online bill pay at my bank and I set up a bunch of automatic savings, too.

All of those little cost-saving tactics that I developed had become so natural that I was simply no longer spending money at an outrageous pace. Going to the library had become natural. Cooking meals at home had become natural. We were buying groceries in bulk as a matter of course now, saving money over time. We stopped shopping just for social reasons, as well.

Combining the automatic nature of my savings and bill paying with the natural reduced costs of my life was the very goal of budgeting, and thus the next natural step was to take those training wheels off and ride that bicycle of financial stability.

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43 thoughts on “Budgeting 101: How a Simple Budget Helped Me – And Can Help You, Too

  1. Luke F says:

    Trent,
    I am not sure if I have read anything about this here but do you use any software (MS Money, Quicken, etc.) to help you get a feel for your spending?

  2. I do keep track of every penny I spend but don’t find it necessary to budget since I’m a frugal spender. If upon reviewing my expenses I notice one is getting out of line I just concentrate on lowering it the next month.

  3. mal says:

    This is wonderful advice and I will try this out. This month has been my first month of tracking expenses in a note book – although I haven’t been saving any reciepts. . . May 1st my plan was to tackle the budget. However, I intend to continue to track my expenses in my handy notebook because I find that it forces me to be mindful and thoughtful of each transaction. I’m definitely going to start keeping reciepts now tood. . .

  4. Great article, I actually was writing an article about budgetting pretty similarly to the way your suggesting.
    Always great reading!
    Thanks!

  5. Credit Expert says:

    It’s nice to see a well mapped out plan. I’m looking for as many tips as possible on creating a budget that I can commit to.

  6. JReed says:

    There are two types of expenses – fixed (have to pay) and variable (extras).
    Month to month budgeting isn’t as accurate or realistic as paycheck to paycheck budgeting.
    Using an Excel sheet, list all your fixed expenses down the left hand column.
    Mortgage/rent/car payments/cable etc.
    Be realistic and put an average payment amount for your utilities (just for now; you can work on reducing them later). In the next column, multiply each payment by the number of times you pay it per year…ie rent x 12.
    Now in next column, divide that number by the number of paychecks you receive per year (usually 26 or 52)
    Add these up and realize at the bottom of the third column, the number that is fixed and gone out of each paycheck as it is handed to you. That amount idealistically needs to be escrowed each paycheck into a checking account for fixed expenses only. Now your “nut” is covered and you can look at ways to get rid of high price debt and have savings be incorporated as a “fixed expense” automatically into your budget.

  7. Jen says:

    It is worth noting that there are certain catagories that come up only sometimes- vacation expense, holiday presents, that sort of thing. That is why I don’t generally budget (but then, I never spend more than I make)

  8. May says:

    I started budgeting in January, and it has made a tremendous change to my shopping and eating habits! I was shocked the first time I saw in summation how much I spent eating out, and how much I spent online shopping, which just happens with a few clicks in the late night.

    Since January, I have changed my entire spending and working on conscious spending choices. I am far from frugal, but I don’t just purchase on a whim either. I already paid off 70% of my student loans from this change!

    Thanks for the post! Check out my site at http://www.theconscioussnob.com

  9. Andy says:

    I just made my first budget a week ago. It isn’t actually based on what I spend now, but planning for when I move out of my Mom’s house to finish my masters degree. Most of the stuff I don’t spend money on now, but I should go through my expenses (which I’ve tracked for the last few months) and make sure I’m not forgetting anything. Am I the only one that thinks budgeting is fun? (Of course maybe that is because I am lucky enough not to be in financial straits.)

  10. Joe says:

    I have tried and failed at making a budget over the past several months using templates, inserting estimates and creating spreadsheets. Your idea of focusing on creating a baseline (collecting EVERY receipt) and forming your own categories really jumped out at me. I instantly knew that this would work, its seems so obvious. I think it is really easy to spend all too much time trying to follow some set system rather then keeping it simple getting something done.

    I do have one other question though… I think you would agree that one partner in a relationship should be responsible for ultimately tabulating finances at the end of the month. My wife takes over this task very naturally… but she is never really interested in looking for places to cut the fat. I limited success making suggestions about our budget if she is the one that collects the receipts at the end of the month. How do you get your partner involved in implementing budget cuts?

  11. Ryan McLean says:

    A great post
    so many people don’t understand how improtant it is to have a budget and stick to it.
    Thanks

  12. Lisa says:

    @JReed – That is just so simple, I have to try it! I struggle with budgets and this looks perfect for me. So simple, don’t know why I never did it that way.

    @Trent – thanks for this post. Got me thinking. It’s true that the traditional “budget” setup doesn’t work for everyone…it certainly doesn’t for me.

    @Andy – Yes, you are lucky. Budgeting IS fun when you have money to work with. If you don’t, it is just a major stressor. :)

  13. jtimberman says:

    Rather than sorting things into categories that “make sense to you”, sort them in order of priority.

    Giving.
    Saving.
    Food.
    Shelter.
    Clothing.
    Transportation.
    Debts.
    Entertainment/extras.

    Giving won’t be a priority for everyone, but it is important spiritually, and something I believe in as a way to grow financially.

  14. Good Advice Trent. I used the budget sheets on Dave Ramsey’s Website and found them to be WAYY too detailed for me. I used it as a template and made more general categories to allocate our money to.

    I used this modified budget sheet for the first 6 months or so. It did help tremendously in getting our awareness level up about where our money was going. As time went on we would do even more general budgeting once we got into a “groove”.

    Doing a budget is absolutely essential for anyone just starting to “turn it around”.

  15. NED says:

    Methodical, incremental steps to reduce spending, that’s what a budget is. This post outlines the main steps, fleshes them out with details that make the steps work, then ties them together with an overarching philosophy to give the whole project direction. In other words, great post, Trent delivers in spades.

    Long response to Jreed (Comment #6):

    I disagree with planning yearly based per paycheck. It sounds fine in principle, but such a top-down approach comes with drawbacks that curtails its effectiveness.

    Firstly, you lose your sense of immediacy with your spending. Using your approach, I know I spend this much on average and I should keep my spending within this amount. Using Trent’s approach, I have a vaguer idea of how much I spend in a month, but I also have an impression of the physical, discrete items I spent it on: The detergent i picked up at a sale yesterday, the super-rare 2nd edition Magic booster deck I chanced upon last week, the materials for the birthday cake i baked for little Sandra etc. In my gut I can feel what is truly frivolous, simply because I remember what I actually spent it on. If you cannot remember what you spent on, it probably was not important to be spent on in the first place. Working out an average using a larger sample size is statistically more accurate; but do you need that kind of accuracy?

    Secondly, I touch upon workload. Do you know how many receipts a person can accumulate over a year? I did a fun experiment once, just collecting all the receipts, bills and IOU reminders in a shoebox. The pile was about 5cm thick fully compressed, the thickness of good-sized paperback (400-500 pages). Uncompressed, my shoebox was overflowing with receipts before October came. It made a nice bonfire too. (Health warning: Don’t toast marshmallows with this bonfire unless you don’t mind chemical poisoning from evaoprated ink.) You can argue that these receipts should be processed monthly; but budgeting is more than just noting down how much you spent. It is about evaluating what those expenses mean to you. That leads me to my third point.

    Thirdly, turnaround time. In project management, you learn the basic 5 step action cycle, or CASE.
    1) Consider, determine objectives to achieve and planning your actions
    2) Act, carrying out the action
    3) Solicit, gathering feedback on the impact of your action
    4) Evaluate, organizing feedback and gauging how much the action has achieved with respect to the objective/s.
    5) Step 1 again.

    Budgeting falls within steps 3 and 4, or soliciting/collecting feedback in the form of receipts and evaluating how much you have spent. Step 4 is important because without truly knowing how you have spent in the past, you cannot truly improve how you spend in the future. A yearly review will (obviously) occur once a year. That means that it takes a year before you truly know how you have spent; Therefore it takes a year before any meaningful tweaks to your expenses occur.

  16. NED says:

    jtimberman (Comment #10):

    i do not fully agree with your comment. Taking such a utilitarian view of expenses will lead to what i call a “spartan” mindset. Once you decide to sort expenses by priority, the first factor you sort is by necessity. Necessity to living, e.g. food, water, shelter. Necessity to functioning in work, e.g. telephone, electricity, transport, basic work clothes. Anything left after that then goes to individual desires. This sounds good in theory; in fact, everyone should adopt a healthy dose of “spartanism” in their daily expense choices. But too much of a good thing need not be a good thing.

    Not every expense can nor should be tied in with necessity. Let us take “spartanism” to its logical extreme. Food is for nutrition; therefore I get the necesary nutrients by the cheapest means possible. Let’s say a human just needs carbos and water for a healthy lifestyle. Beans are the cheapest source of carbos required to fuel my day’s activities. Water in its “pure” form from the tap is the cheapest, no coffee or soft drinks thank you. A steady diet of beans and water is cheap and offers all the nutrition you need. We should therefore all eat nothing but beans and drink nothing but water. There’s only 1 problem with that logic. Any normal human faced with nothing but mountains of beans and oceans of water will probably go mad midway and discontinue the whole diet. I drink coffee not just for caffeine; I drink coffee because I enjoy the taste of coffee. The same thing with food; i eat not just for nutrition, but also because I genuinely enjoy the sensations that come with eating.

    Budgeting should be a balance of resources (money, time) with desires (food, clothes, luxuries), keeping in mind that we don’t just live in the now, but also in the future. Prioritise your expenses, but there’s no hard and fast rule for every moment for every man. There are times when you should spend your money on “non-essential” stuff; you just have to keep the big picture in mind when you make that purchase.

  17. Oleg K. says:

    I did this exact thing last year and I was shocked by how much I spent eating out. It also gave me a handle on the specifics of my spending instead of it being an amorphous mess. That was probably the most useful thing about it. As you did, I’ve loosened up since then, but I remember it being extremely useful.

    I’m glad you wrote this post, if not for me, than for all of those who will also become more conscious of their spending.

  18. My Small Cents says:

    I created my budget in December 2006, using data from September, October and November of that same year and doing so has helped me enormously. I agree that the first step in any financial turnaround is creating a budget. However, I think that most people reach a point of extreme frustration with their finances and need to fix things NOW. Waiting one, two or three months to collect all your receipts is discouraging. So is writing down all your spending. There’s the temptation to throw in the towel if you’ve missed a day.
    I reversed the data collecting point in the process- I went to my online bank statements and entered everything retroactively. This allowed me to see where I was much more quickly than your method. Of course there were a lot of vague things, as I couldn’t clearly identify them, but that was ironed out rather quickly, after I got into the habit of looking at my budget every day.

  19. david says:

    I went through a similar process , ( Not so deatiled with the receipts ) and I could not believe how much money I was wasting , 4.00 every time i used the local oit stop added up to 60.00 a month , or stopping in and buying coffee in the am while giving them a ride to school I would of course get them a drink and a snack for the day , that was usually 10.00 a day . Its no wonder I was always broke , well I am still broke but at least my money is going to pay debt

  20. Germstorm says:

    I use http://expensr.com/ instead of a notebook

  21. jacl says:

    Dear Trent,

    Thank you for sharing your own experience with budgeting. I used to do that years ago and it really helped me then, but somehow I fell out of the habit. It’s something I need to do once again. Reading your article and everyone’s comments is encouraging for me. Thank you again.

  22. Green Panda says:

    The beautiful things with a budget is unless there is a change, it takes 5-15 minutes each month to follow. Until our recent move, we took maybe 5 minutes every other week. Once the structure is in place and works, you just set it and forget it.

  23. A in NC says:

    To My small cents #18-
    I totally agree with your approach. That is what we did. 95% of our spending is with a debit card so we could track what we spent at the grocer store etc. We were HORRIFIED when we realized our family of 3 was spending $700 at the grocery store. WE have it down to $260 a month now.

    We also just put our teenager on her own $20 week for breakfast and lunch so she can learn to budget for food. I got this idea from http://www.debtfree-revolution.com/2008/03/14/putting-teenage-son-on-a-budget/
    WOW, what an eye opener that has been for her. She threw up her hands after the first trip and decided she was just “going to be rich” when she is on her own. Sigh. we have our work to do!
    Regardless, it IS a work in progress whether you are 43 or 17.

  24. AC says:

    I highly recommend using http://www.pearbudget.com for this process. I’ve never been able to keep and track daily expenses for longer than a couple of days when using the notebook and spreadsheet method. I’d forget to track for a day or two and poof, the next thing you know, it was next month. But pearbudget is easy to use, web-based and can be accessed from any computer. It’s been working great for me. I just set up a simple budget, entered receipts throughout the month, and voila, I know what I am spending. Not even a full month and already I can see areas where spending needs some adjustment. Simple, no tie-in to your financial accounts at all, very useful.

  25. Coupon-Nut says:

    One way I have found to save money is to go to the different websites for coupons, rebates etc.
    I just found http://www.internetdrugcoupons.com/ and saved on Lipitor and Nexium, I highly recommend using the net for savings, I just printed 2 coupons for $2 off Liveactive cheese and hear they will make them almost free at Wal-mart. Wal-Mart does accept computer printed coupons, I carry this with me everywhere. http://walmartstores.com/7655.aspx . I send for free samples because many times they have great coupons http://walmart.triaddigital.com/Free-Samples.aspx . I also go to http://www.bigbigforums.com for grocery shopping deals, matching coupons with sales and/or rebates and links to free samples. I use my CVS card when I purchase prescriptions and every quarter I have CVS bucks to buy shampoo, soap etc. I also learned which stores have $4 prescriptions, Wal-Mart, County Market etc and see if what I need will be even cheaper there then at my pharmacy. Spending a little time online has really helped my budgeting. I also use http://www.Ebates.com when I shop online and get a check at least once a year, using my Citi card I also rack up the rebate dollars, but to make it worth it you need to pay off the balance every month. Trent have you thought about doing an article about all the money saving sites on the web?

  26. MJ says:

    Hi,
    I am married and find that it is hard to get my better half to commit to a budget. I pay for all the bills, and he pays for a car payment. How do you get your spouse to want to help out in budgeting?

  27. JB says:

    I highly recommend the best budgeting software I have ever used (I’ve used Quicken and various spreadsheets over the past 25 years). It’s called You Need a Budget (youneedabudget.com). Dave Ramsey recommends it.

    The philosophy is simple and includes creating a buffer of one month’s living expenses so that you always have a cushion (this doesn’t include emergency savings/investments)in the bank.

    The software is far less expensive and MUCH easier to use than Quicken. Since I have been using it, I have the clearest/cleanest picture of my budget that I’ve ever had.

    Check it out! You will be glad you did:)

  28. Donna says:

    Hi Trent,

    Love your blog and read it daily. Full disclosure: I work at Mint.com, the free online money management service.

    Completely agree with you that it’s critical to understand what your spending as a first step toward spending less than you earn…and starting to save. But disagree that you need to do all the manual paperwork you suggest to get to that understanding. In my experience, the work involved actually prevents most people from following your good advice. I joined Mint, part of a 20 year career in personal financial services, largely because it solved the problem of helping people understand their money quickly, easily and automatically. Mint, and other choices, offer an alternative to collecting and analyzing physical receipts for months. For some, online personal finance tools will be a better solution, enabling folks who wouldn’t otherwise build and maintain a solid budget to get that done for the first time.

    If that means more Americans are able to better live within their means and start saving for retirement, we’re all better off.

  29. Meg says:

    I have never really tried to create a budget, I just use my credit card (paid off every month if not more often) for the majority of purchases and look at my spending report frequently. I know what my basic expenditures are, what is fluff and unecessary, and what is for savings. I have fairly good spending habits and it works for me (probably because it is just me). I still save my recipts just in case.

  30. NP says:

    Meg, I’m a credit card person too, and it’s helpful that they categorize expenditures for me. I am alarmed how much we spend on fuel and eating out, but I guess that’s life in the fast lane.

  31. JReed says:

    You can play with the numbers and philosophy and hopes and goals all you want but the fact of the matter is until you realize how much of your money is ALREADY SPENT out of each paycheck, you won’t have a realistic idea of exactly how much money you actually can make a decision about. This isn’t top down budgeting, it is bottom up. Many of your expenses are already set just for you to exist legally. I’m not tallying up latte receipts, I’m dividing up car registration fees, rent, insurances, prescription co pays,utilities etc. Unless you realize what it costs you just to wake up every Monday morning, you won’t be able to understand how little money you do have to play with, eat out with, buy magazines with etc.
    This isn’t a theory, it is a simple fact.

  32. gr8whyte says:

    @ NED (comment #15) : I think savers budget by looking at their paychecks first instead of their bills. Savers want positive cash flow — spending no more and preferably less than what they earn — to be sure to end up with some savings out of every paycheck. Knowing how large my paycheck is to start with and how much my necessities are allows me to limit my discretionary spending and never overspend as a result (touch wood), save a little every paycheck and never have to worry about bills. JReed’s suggested budgeting method makes sense to me.

  33. Kelli Myers says:

    Budgeting is very important both to stay away from debts and to save money. I have started budgeting my monthly finances very strictly as i have a plan to take a loan for new car. If I can continue with this for some more time i hope i will be owning the car very soon.Kelli

  34. Mol says:

    Question, if you allready have debt, do you include that in your outgoing money?

  35. M says:

    Using clearcheckbook is a real easy way of making a budget. I just put my receipts in clearcheckbook probably twice a week, assign it a category, and it can tell you how much you are spending in each category and give you an average for multiple months. For me it’s much better than taking all of my receipts and sorting them into piles.
    It’s free: http://www.clearcheckbook.com

  36. You know this is some great advice and I would agree works well. I think that tallying up the receipts daily might spread the work into shorter pieces that would be more manageable.

    One thing that I would recommend is to get a small notepad (2.5″ x 4.5″ or so) and simply write down what you spent periodically during the day. Keep the receipts and compare them to your notes. You’ll get a more accurate picture of your spending habits.

  37. Bert says:

    I use my debit card exclusively. My electronic receipts are often posted to my Bank of America account before I get home. Using the free “My Portfolio” feature, Bank of America puts most, if not all, of my receipts in the proper budget catagories automatically. Many reports are aavailable that lets me know how I’m doing in any month. This makes 95% of my budget and expense tracking a “hands-off” matter. I mostly just check to see how I’m doing on my budget instead of slinging paper receipts and messing with spreadsheets. When constructing a budget, BOA even pulls all my receipts in each catagory for the last 6-months to show me what my spending has been so I can make good decisions on how much to budget.

  38. JReed says:

    Mol; Yes…debt payments are part of your fixed expense; you don’t have a choice about whether you make the payment or not. Additional principle money (put towards your highest interest rate loans first) is a variable expense that should be a priority right behind or parallel to emergency fund build up.
    To me, building a budget based on alot of receipts that show what you spent before you decided to reform your ways can be enlightening; sort of like looking at all you ate for 6 months before you went on a diet. The shocking truth of what part of your paycheck is truly available for discretionary spending is revealed by this paycheck budget method. Until then, you are fooling yourself by living beyond your means… right into the debt hole.

  39. Cyde Weys says:

    Haha, that’s funny how Internet is not a “required utility” but gas is. Frankly, in this modern age, I think it’s the other way around. The Internet is absolutely essential to many of the things I do. When I lived at a rental house in my last year of college, the heater broke for two weeks during the winter. It got cold, but I survived. Now if the Internet had been out for two weeks, I wouldn’t have put up with it. And since the stove there was electric, gas was more of an optional utility to me than Internet was.

    I think it’s just because the Internet is still relatively new that we can get away with calling it optional. Just remember though, electricity, running water, gas, and sewer were all once new and optional too, but now they are essential. I think the Internet has already crossed that threshold, and within a decade, there will be very few left who will disagree.

  40. Jim says:

    I am a psychologist who works with people with severe mental illness. One of my patients right now is struggling with excessive spending and your method is so perfect because it is simple and do-able. I’m going to teach it to him AND try it myself too! Thank you so much. PS: Found you on lifehacker.

  41. Just Simple says:

    One of the best way is to make sure the balance is always zero at the end of the month, after subtracting income with expenses.

  42. Holly says:

    We have just started to commit to a budget and the first thing I did was audit all our “subscription” types of expenses. Admittedly, we had been pretty lax about controlling our money but I found almost $100 in monthly outflow going to services, websites and publications we weren’t even reading/using. For people who may not yet feel they need a budget I would at least recommend a periodic audit like this. It will save us almost $1200 this year.

  43. The Thrifty Shopper says:

    This is exactly what people should be doing – making notes and keeping track of their spending every month – how else can you keep on top of your spending and live within your means!? Don’t forget that being thrifty is all about being clever with your money NOT being tight!

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