Build a Better Budget

By Tara Swords

Many people cringe when they think about making a budget. In fact, Nicole Romito, a certified financial planner, says that when it comes to budgeting, ignorance often is bliss.

"People think 'If it's not written on paper, then I can't be really spending more than I earn,'" Romito says. "Pair this with the fact that budgeting has a negative connotation. People assume they will have to deprive themselves if they set up a budget."

But you don't need to be a seasoned money manager to get your household budget in order. There are tools already loaded on your computer -- or waiting to be discovered online -- that can help get a handle on your personal finances.

1.  Track your spending in basic spreadsheets
You can't get to where you want to go if you don't know where you are now, right? A budget spreadsheet can help. If the word "spreadsheet" sounds daunting, don't worry. The best tool might already be on your computer: Microsoft Excel or any other basic spreadsheet software program.

First, think about your monthly spending in categories: housing costs, groceries, utilities, or entertainment, for example. Romito says the best way to start is to gather bank and credit card statements and your checkbook register. If you use online banking, most sites will let you export your monthly bank statement in a spreadsheet format to use as the basis for your new budget spreadsheet.

With an Excel spreadsheet, you can then track cash flow by your categories. Set up the document so that your categories appear across the top row of the spreadsheet. You can record the dollar amounts of your expenditures down the page. Here's the time-saving part: The program can automatically add up the entries in each of your categories. To learn how to set up this feature, select Help from your program's main menu (in Excel, try Help > Search Help > Getting Started).

Another option is to use pre-made templates. Check out Microsoft's template site. In the search box, type "budgeting." You'll find many budget templates that are rated by users (five stars is the best).

2.  Invest in personal finance software
To budget and track your spending at a more detailed level, Romito says personal finance software might be the way to go. She suggests using a software program, such as Quicken or Microsoft Money, which costs around $20 for basic versions, and around $80 for versions with special features such as managing home business finances. Or you can download the basic versions for a free 60-day trial of Quicken and a free 90-day trial of Microsoft Money to test them out for ease of use. 

In comparison to a simple spreadsheet, Quicken or Microsoft Money have built-in reports, such as color-coded charts that compare monthly spending or graphs that can track progress toward a savings goal. Both programs have helpful wizards that can walk you through the entire setup process. To get started in Quicken, for instance, go to Planning > Budget  > and select Start Amounts for Budget.

With these programs, you can create a budget with pre-set categories like Income, Home or Auto to easily log transactions. But, Romito says, "You will have to do some editing to the categories and transactions to get it to work with your personal situation."

So if your regular expenses include doggy day care and haircuts, you can make each its own category. Or you can create a Kid Activities category and track expenditures on sports or music lessons against your budget of $1,000 a year for that category. Your categories appear in a pull-down menu in your budget so you can tag each transaction (such as Utilities or Vacation Savings), allowing the program to automatically calculate how much you're really spending or saving against your set budget. Viewing your budget by yearly totals will help you plan for next year.

For a time-saving shortcut, these programs also allow you to import data from your online banking and credit card statements so you don't have to manually input every withdrawal or deposit. Bank web sites make it clear if they are compatible with Quicken or Microsoft Money. For example, Bank of America lets customers download banking statements and manually import them into these programs without a charge. And for an extra charge from your bank, you can often pay bills through the programs, too (which means your expenditures are tracked in your budget the second the cash leaves your account). As a bonus, these programs help with tax planning as well -- expenditures that are tax deductible can be easily tagged.

3. Use free online tools
Not ready to commit to a spreadsheet or software program? Or do you want to create a simple savings budget for a single goal? Online tools can help you get there.

For example, BankRate, offers calculators to help figure monthly payments for a specific loan amount, or to find out how long it will take to pay off credit card balances. Kiplinger has calculators that reveal how much it will cost to raise a child, save for college, become a millionaire over time, or how much of an emergency stash you need. If you already have a brokerage or retirement account with a site such as Fidelity or Charles Schwab, they also offer advice about how to carve out room for investing within a personal budget.

Would you rather track your budget on paper? At the Foundation for Credit Education, check out the downloadable budget worksheets. The site's debt-to-income ratio calculator helps determine whether your debt is in a safe range and how to lower it.

No matter how you create a budget, experts say the important thing is to just do it to rack up the long-term rewards of knowing where your money is going. "Find a system that matches your style," says Cate Williams, vice president of financial literacy at Money Management International. "If you like charts and graphs and that sort of thing, find software that does that for you. If that's going to keep you accountable and checking how you're doing on your budget, great."