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Tracking Expenses.

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The first step in making a budget is to see where you are spending your money. When you track expenses regularly, you might be surprised at where you spend your money. I spend my money differently than you. A set budget doesn’t work for everyone. You need to have the flexibility if you want to make it work.

I have an excel spreadsheet to track expenses and balance my checkbook regularly. But, I decided to try the free apps on my iPad and see which one I liked best. Here’s a review of the pros and cons to each app that I tried.

Checkbook. This is my favorite and the one I’m currently using. Pros: it is easy to set up categories, fun pictures for categories which makes it easy to see at a glance, easy to add transactions, recurring payments. Cons: if you put in the wrong date, it can be very difficult to find the transaction. Also, I don’t like that you need to go into the detail of the transaction to enter it but you can’t mark it as cleared until you’re on the main screen. This one has a lot of manual entry.

Mint: Pros: Most of the work is done for you once you set up your accounts. It will track your expenses. I like the reports. I like the e-mails when I reach a goal. And, I like the credit report tracking. Cons: I like to look through each category and make sure that my expenses are in the right categories. For instance, I buy my gas at Costco but I like to keep the amount separate from what I spend inside the store. So, I need to go into Mint and move transactions around. You also can’t put in the transactions before they clear your bank. You can put in a budget for each area and then once it clears the bank, it will take the money out of that bucket for the month. For some people, that might be a pro. I haven’t used it enough in that way.

Every time I get paid, I spend the money by entering transactions into Checkbook that day. I use my accounts more like the envelope system. But, I don’t like to carry cash or pay with cash all the time. So, by entering the transactions when I get paid, and spending all my money, I know where all of my money is going for the week because I get paid every week. I give myself $40 a week to eat out. This includes fast food, lunches, and date night. When the money is gone, I don’t spend anymore money on eating out that week. If I have some left over from the previous week, it gets added into this week’s amount.

Tracking expenses is an important part of setting up and maintaining a budget that works for you. You probably looked at my $40 a week to eat out and thought that’s way too much or that’s way too little. You get to decide what that number is for you and then stick to it.

If you can’t stick to the budget in an area, you need to look at which budget you can make smaller so that you have more room in this budget. If you can’t stick to the budget, what good is it doing you? Reevaluate your budgets on a regular basis.

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5 Reasons a Budget Will Help You.

According to a 2013 Gallup Poll, only 1 in 3 Americans prepare a detailed written or computerized budget. It further states that most of the people preparing budgets have a college degree or make more than $75,000 a year. People with lower income need to budget even more.

Some people say, I track all of my money in Mint so I don’t need to set a budget. While apps are great to track your expenses, you need to make sure that you set reasonable limits for yourself and stick to them.

My goal is not to have all of your debt paid off in a small amount of time. I just want to get you started on the path toward financial freedom. I consider financial freedom as good debt management, a secure savings and emergency fund.

  1. Financial freedom comes as you aren’t living paycheck-to-paycheck and you know where all of your money is going before you receive it. If your expenses are exceeding your income even by a little each month, you will never have financial freedom.
  2. Evaluating each month. Each month, you should be looking at your expenses. If one area continues to exceed your budget, do you want to increase that budget and decrease another area? Or is there a way you can decrease the expenses in that area? Either option works fine, but you can’t keep exceeding expenses and expect to get out of your old cycle.
  3. Large, irregular expenses. You always know which areas you can adjust. When Christmas is coming or a birthday, generally you need to lessen some expenses in another area to get ready. If you follow a budget, it is easy to see where you can adjust.
  4. Emergencies. We all have emergencies come up. We’ve been trying to save for a new furnace for over a year. But, little things keep breaking around the house, too. So, we are always grateful for our emergency fund. When something happens, if we don’t have enough money to cover it, we can usually figure out a way to make up for it in the next month or two because we follow our budget.
  5. Retirement. It is always important to be saving for retirement. Many strict budget programs don’t want you to save for retirement until all of your debt is paid off. Three main reasons not to do that:
    1. Time value of money. Yes, you are likely paying more in interest than you can receive as a return on investment. However, the sooner you start saving for your retirement the more money you will have. Even if you start small, and try to increase as you go along, your money will grow.
    2. Taxes. Saving for retirement can have tax savings now or in the future. If you wait and try to put away too much each year after your debt is paid off, you could lose some tax benefit due to the caps on contributions yearly.
    3. Employer Matching. Many companies offer employer matching on 401(k) plans. This is like free money. So, not utilizing this matching program every year and in every paycheck is like giving money back to the company.

Budgeting and planning gives you the financial freedom later in life. But, it can also be helpful in many areas right now. As stated above, I don’t usually worry too much when things come up. Money doesn’t keep me up at night because I know exactly where my money goes and that I have enough whenever something comes up.