A New Year, A New Budgeting Tool

Selecting a Budgeting Tool

Budgeting is the key to successfully managing your finances. It should be a fluid process that changes as your life changes, and that can be communicated in real time with your spouse or accountability partner if you are single. The right budgeting tools will help you guide your spending throughout the month so you never come up short or get yourself in over your head in debt.

Since budgeting is so personal, there are many budgeting tools to consider. Here are the pros and cons of the top budgeting systems and what you should consider.

Envelope System aka Cash Stuffing

The envelope system uses envelopes as categories for spending. This is sometimes called Cash Stuffing by Gen Z and Millennials since it all starts with placing your budgeted amount of cash in each category’s envelope.  When you spend the cash in your envelope for a specific category, you are done spending in that category for the month.

For example, you will have an envelope for utilities, groceries, insurance, eating out, etc. You must manually budget an amount for each category and try to stick to that amount monthly.

This system updates in real time as you put cash in and pull cash out.  Pro-Tip:  As you spend cash, save your receipts and write down purchases on the respective envelope.  This provides some perspective on spending and avoids the unknown pile of cash spending pitfalls.  This is an ultra-low-cost budgeting method.  Moreover, you can easily swap money between categories should you overspend in one category and underspend in another.  Review envelope balances weekly.  The ultimate in hard reality; is when there is no more cash, no more spending

Spreadsheet Budgets

Spreadsheet budgets can be as informal as creating a Google Sheets spreadsheet based on your income and expenses, or you can find preformatted budgets online, typically for no charge, and they can be a good starting point for defining your own household budget.

A spreadsheet may feel a little more organized because everything is on the computer, and if you store it in the cloud, you and your spouse can update one another.  Pro-Tip:  Update your spreadsheet and share it weekly to adjust across categories as needed.  The downside of this method is the additional time needed to update.  Additionally, because spreadsheet budgets can be homemade and somewhat personal, they are not as effective as prebuilt budgets with rules or guidelines to keep you on track.

Budgeting Apps

A quick search in the app store and you will find many budgeting apps, some for free and others for a fee. For example, Every Dollar has a free version but the Every Dollar premium version connects to bank accounts and credit cards for automated spending tracking. The cost is $80/year. This is a great budgeting tool! Another highly rated budgeting app is Rocket Money which has both a free and premium version.  

If you are tech-savvy, love everything electronic, and want your budget updated automatically and in real-time, budgeting apps are the best way to go. You must permit the app to access your bank account, which can be scary, but there is less room for error or overlooking information.  Pro-Tip:  Paying for the app capability to update in real-time saves you time versus manually entering/tracking transactions.  Could be a good trade-off.  Also, easier to share on smartphones!

 Budgeting Software

Budgeting software is a great way to budget, but the downside is they can cost more. For example, Quicken is $4 – $8 a month, or $48 – $96 a year for the basic plan, and even more for more complex plans.

The downside is the programs can be complicated, but the positive is that they are very thorough, covering every aspect of budgeting, bill management, investments, and even rental property. As a result, it is easy for your household to be on the same page and you can change your budget as needed throughout the month.

Final Thoughts

Selecting the right budgeting tool is important. However, it is a personal decision that might require some trial and error. If you do not know what you want or what will work, start with the free options and work your way up to paid options when you have a better idea of what works for your household.  Remember two key points 1) Pick a tool considering the ease of updating information through the month 2) Pick a tool that can be shared easily.  Communication is critically important when it comes to budgeting and monitoring spending.  With a monthly budget plan, your household can win with money and achieve your goals month by month, step by step.

I enjoy working with households to establish budget systems that work for them.  Let’s set up a cOMPLIMENTaRY SESSION (Click on link) using Calendly to discuss your financial goals and how personal finance coaching could help.