A recent Gallup poll determined that only 32% of American households prepare a detailed monthly budget plan. When working with our Financial Planning clients on budgeting, we often find that they are not able to provide us with their total annual spending expense figure because they simply do not track their expenditures. Having a monthly budget plan in place allows you to analyze spending habits and determine where money is going.
You can get even further clarification by classifying expenses as either discretionary or non-discretionary. Non-discretionary expenses are those you have limited control over and can expect to pay on a recurring basis — mortgage, school tuition, utilities, vehicle loans, etc. Discretionary expenses are expenses that you have direct control over — dining out, entertainment, clothing, etc. Segregating these different expenses in your budget will help determine areas of spending where reductions can be made if necessary.
Creating a budget plan is the simplest way to determine if you are living within or beyond your means, but many people do not know where to begin.
Sample Budgeting Tools
There are several computer tools available to help with budgeting; you can read online reviews detailing their pros and cons. Though we aren’t necessarily endorsing any of these, here are a few budgeting tools to help you get started:
- Quicken (www.quicken.intuit.com)
Quicken organizes all your financial information together in one place. The software downloads all your transactions from your accounts and categorizes them into major spending categories (home, groceries, dining out, fuel, etc.). Quicken is able to create a budget for users based on spending history, and users are able to further refine those categories. The price for the Quicken Starter Edition 2013 software is about $40. - Mint.com (www.mint.com)
Mint.com is a free web-based personal financial management service that allows users to track account balances and create a budget. Mint.com shares similar features to Quicken. It downloads transaction history from all of the user’s financial accounts and is able to create a baseline budget. - Excel spreadsheet
You can create an Excel spreadsheet to closely monitor your expenses and create a budget based on the reality of your actual expenses. The internet can provide assistance: download budgeting templates by searching “budget template.”
We have created an Excel spreadsheet for our Financial Planning clients that gives us an overall financial picture of their income and expenses. Our spreadsheet lists general categories such as vehicle/transportation, personal expenses, entertainment, etc. Additionally, we have created sub-categories that allow a more in-depth analysis of living expenses. For example, within our vehicle/transportation category, we list sub-categories like fuel, loan payments, parking, insurance, etc. We continually work with our clients to make sure we have updated information on their actual expenses when we build their overall financial plan.
Tracking and updating your budget is an on-going process. By having a baseline monthly budget plan in place, modifications to expense categories can be made as priorities and conditions change. For more information regarding Bell’s budgeting process and services, please feel free to contact us.