Nowadays, there are countless apps, websites and programs that make managing money as easy as spending it. Choosing the right fit depends on which tools you need and how much time you can devote to budgeting. Here are a few key considerations when deciding on the best option for you.
1. Hands-on systems
“I encourage my clients to try the partial envelope system for a few weeks because it feels more real,” says Catherine Hawley, CFP®, an independent financial advisor in Monterey, Calif. With an envelope system, you cash a portion of your paycheck and fill envelopes with the amount you can spend in a given category such as groceries, clothing or entertainment.
“With the traditional envelope system, all spending categories have an envelope,” Hawley says. “I don’t employ that with clients. I find it works well for discretionary categories such as ‘meals out.’” Make purchases from these envelopes and return the change to them. When you run out of money, stop spending in that category until your next payday.
Another low-tech option is to record every dollar you spend in a notebook. Regardless of which method you choose, try to gain a clear understanding of where your money is going.
“When you understand your spending habits, you have more control over them,” Hawley says.
2. Computer-based systems
If you’re already managing your finances with a budget and want more built-in functionality, budget-tracking software may be for you. Excel spreadsheets are a good choice for people who like the simplicity of pen and paper but prefer an electronic tool. “Spreadsheets save you time by crunching some of the numbers for you,” Hawley says. Free budget spreadsheets are widely available online, and you can customize them to suit your needs. However, most spreadsheets won’t let you run reports, and “the greatest benefit of keeping a budget is to see your spending habits over time,” Hawley says.
“If you want reports, you’ll need dedicated budget software like Quicken or You Need a Budget (YNAB) or an online budget tool like Mint.com,” says Matt Bell, associate editor at Sound Mind Investing, a financial newsletter, and author of the book Money and Marriage. “Especially with the introduction of online tools, budgeting has become easier than ever—even enjoyable.” The tools even allow you to scan and store receipts electronically for a paperless office.
3. Mobile systems
There are some disadvantages to storing all of your financial information on your home computer, however. Security is one concern, but so is accessibility. If you’re the kind of person who wants to see your checking account balance in the supermarket parking lot, you may prefer a mobile app like Mint, which connects directly to all of your financial accounts and tracks and categorizes your spending on a daily basis. And if your cash flow plan includes a complex investment portfolio, Personal Capital may work better. The application integrates the tracking of both your spending and earnings while also calculating your investment fees. “The best budget system is the one you will actually use,” Bell says. With a mobile app, you can enter information or make adjustments on the go to stay on track, rather than trying to find the time to sit down in front of a computer.
No aspect of your financial plan is fixed, and your budget shouldn’t be either. “Going on a budget is emotionally difficult for many people. Don’t worry if you don’t get it right the first time,” Hawley says. Starting with a simple system and acquiring more sophisticated tools as you go along can keep the process simple and manageable.