Starting Your Budget

In a previous post, we talked about the importance of understanding the philosophy behind your budget. A good budget does not relegate you to a lifetime of tracking every penny moving in and out of your bank account. Rather, a good budget actually gives you the freedom to live your life because you’ve already handled the financial side of things.

That all sounds good, but how do you get there? Well, it’s not going to happen all at once. It’s going to take some time, but there are definite steps you can take to get there. The goal is to start out simply and build as you go.

Today I want to talk about taking the very first step: tracking your spending.

The goal

Ok, so I said that the goal of budgeting is not a lifetime of tracking every penny, and then I tell you that the first step is to track your spending? HYPOCRITE!!!! Well, kind of. It’s true that you have to spend some time watching where your money’s going. But remember, this is just the first step. It’s not the end. But you need an understanding of where you currently are before you can figure out how to make improvements. And tracking your spending is the first step in that direction.

Keep in the mind that the goal here is not to change anything about your behaviors. That part can come later. The goal now is just to get started on the process of watching where your money’s going. Focus only on that aspect of it. Keeping things simple will make it easier to follow through.

Making it easy

If you pay for most things electronically, such as with credit cards, debit cards or online banking, this process can actually be pretty simple. My recommendation would be to set up an account on mint.com. You can link all your bank accounts and credit cards and it will automatically pull in your purchases. That way you don’t have to go through all the trouble of entering everything yourself.

If cash is your main method of paying for things, your task will be a little more difficult. I would still recommend using something like mint.com because of all the other tools it offers. It will just take some extra effort to get your purchases in there.

For cash payments, you’ll want to carry a small notebook and pen around with you. Whenever you make a purchase, quickly and immediately write down the date, the amount, and what budget category it falls into (gorceries, gas, etc.). Doing this immediately is key. Otherwise it will likely be forgotten. You can also keep receipts if that’s helpful.

Whether you’re mostly cash or mostly electronic, pick a standard time to log into your mint account once per week. Pick a time you know you can do it each week, and only do it once. Trying to do more often will only make it more burdensome without being more effective.

When you log in, the first thing you should do is enter any cash purchases you made during the week. This can be done from the “Transactions” tab using the “Add a Transaction” button. Then go through your transactions for the past week and put them into the appropriate category. Mint automatically assigns a category to each transaction and most of these won’t need to be changed, so this process should only take 5-10 minutes. Then that’s it! Your done for the week.

Keep the habit

Getting into the habit of checking my spending was one of the most important steps for me personally. Just spending the 15-20 minutes per week to categorize my spending made me much more conscious of my behavior and where my money was going. That made all the future steps much easier.

Focus on the simple habit of tracking now. Put all of your energy into that single task. Don’t worry about analyzing anything yet. We’ll get there soon, but right now you want to start small. Simplicity is your friend.