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Budgeting Like a Pro – Tools I use Everyday

As a bankruptcy lawyer I deal with people whose financial situations have sometimes gotten drastically out of control. It’s seldom one terrible decision that bankrupts someone, though. More frequently, it’s a gradual decline that takes place due to a lack of proper management of your finances. This is actually good news, because it means that recovering your finances, (or developing them to begin with) can be done by simply implementing some good practices and using freely available tools. The following are some tools and tips that will help you budget like a pro.

Check out our recommended budgeting tools:

Mint is a great cloud based budgeting system.  You sync up all of your active accounts and it automatically downloads your transactions.  The software is always learning and will auto categorize your expenses.  You teach it once and it forever remembers.

Another great aspect is you can create a budget and it auto updates your budget based on your transactions.  There is no easier way to track your spending than

Multiple Savings Accounts with Nicknames

A powerful way to help you save is too automate the process.  I recommend opening up a savings account at a bank you don’t use for checking.  For me, I use the capital one 360 accounts.  They are free and you can setup as many accounts as you want.  I have multiple savings accounts for the following categories:

  • Christmas (I transfer a monthly amount to account for my Christmas spending – see this blogpost.)
  • Home Maintenance (I transfer a monthly amount every pay period to account for home repairs and/or renovations I want to make).
  • Vehicle Maintenance (I transfer a set amount monthly to cover maintenance such as new tires, repairs, etc.)
  • Vacation (I like to plan my vacations in advance so each year I budget how much I think I am going to spend and setup a monthly savings plan to account for what my vacation is going to cost).
  • General Savings (This is my general savings/emergency account).

The key is to setup the transfers so they happen automatically without you having to do anything.  I setup transfers based on my pay periods and have the money transferred to savings before I even see it in my checking account.  If you don’t automate the savings then you will eventually stop doing it.

Track your Spending

You cannot get a realistic budget created if you don’t know how you have been spending your money.  I cannot tell you how many times I have worked with clients who come up with numbers that have no basis in reality.  This is because they think they are only spending 600 on food, when really they spend 1000/month.  If you are already using, your job is easy and is done for you.  If you have not setup then you need to allocate about 2 hours to get a snapshot of your expenses.

It’s always best to get 6 months but 3 months will do.

  • Print your bank statements/credit card statements and any account statements for accounts where you spend money for the last 6 months
  • Identify a list of your budget categories, here is what I have.
    • Home
    • Utilities
    • Auto and Transport (car payment, insurance, gasoline, repairs, toll tag)
    • Student Loan
    • Entertainment
    • Food and Dining
    • Health and Fitness
    • Personal Care (haircuts, nails, etc.)
    • Pet Care
    • Shopping
    • Savings
    • Uncategorized

You may have different categories but they should be somewhat similar to the above.  When going through your bank statements identify each transaction and add it up, at the end of the month you should have a snap shot for what you are spending.  Once you do it for each of the (6 or 3 months), you can then average each category to see what you are actually spending.

Weekly Close-out (5 Minutes)

Every Sunday I review my spending and my budget.  I identify any categories/areas where I am getting close and I make sure that my spending the next week takes that into account.  For instance, if I am over on my shopping budget, I will keep that in mind and not shop.

Monthly Close-out (15 Minutes)

I review my budget for the month and identify each category that I went over and each category that I went under.   It looks something like this:

       Under:            Over:

Auto               Utilities

Home             Food

Shopping       Personal Care

Total: $500    Total: $457

I will then focus on doing better in my over categories the following month.  This 15 minutes allows me to really focus on my problem areas and make slight improvements going forward.  So when I do my weekly close-out the following week, I will pay special attention to my over categories.

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