One of the key elements to successfully implementing a budget is being able to track your transactions. There are several ways to go about doing this and I wanted to go over the Pros and Cons of each of them:
Paper and Pencil - The easiest and cheapest to implement but requires the most amount of work. You’ll need to retain all of your receipts, categorize all of you transactions and manually tabulate results.
Pros
- Easy to use
- The perception of having a greater stake in your finances
- Very little cost
Cons
- Tough to track
- Requires a lot of manual calculation
- Difficult to back up
- No automated reports
Spread sheet programs - There are several pieces of software you can use: Microsoft excel, Open Office Calc, or Google Docs. If you set this up correctly a lot of the calculations can be tabulated automatically but you still have to enter your transactions manually (for the most part). There are however some pretty interactive spreadsheet templates you can download that make this process a bit easier such as Pear Budget’s Excel template.
Pros
- When set up correctly much of the calculations can be automated
- Readily accessible as most PC’s have excel (if you carry the file with you on a USB key) or if you us Google Docs which can be accessed via an internet connection
- For the most part this solution is free since Google Docs and Open Office Calc are free
- Digital format allows for easy data backup
Cons
- Still requires lots of manual input
Personal Finance Software - Some of the most popular software is MS Money and Quicken (a free alternative is GNUCash). There is an initial learning curve to the software that is much steeper than spreadsheets. If you don’t set up your accounts correctly than you may still need to collect receipts and enter a lot of the information manually. There is also a plethora of reporting options that makes your financial history easily accessible.
Pros
- Most financial institutions support the file formats for downloading transactions to these applications
- Once set up most of the calculations are automatic
- Ability to quickly generate reports based on various criteria
- Digital format allows for easy data backup
Cons
- Costs money
- Can be complicated especially when you are initially learning how to categorize your transactions
- Still requires some manual intervention to download transactions and properly categorize them (In the US the software can access your accounts for some additional automation)
- May not be easily accessible everywhere as most computers may not have the software installed.
Websites - There are websites out there that provide budget functionality like Pear Budget which currently cost $3 a month to track your budget and requires a lot of manual input. We’ll focus more on the feature rich site www.mint.com since it’s currently free. It has a lot of the functionality of Personal Finance software plus new features are always being implemented like phone alerts.
Pros
- Your budget data can be easily accessible from any computer with an internet connection
- Once set up most of the calculations are automatic
- Ability to quickly generate reports for various criteria
- Provider backs up data (hopefully)
- Transactions are automatically gathered and budgets are updated
- New features are always being developed
Cons
- May take some time to learn how to use correctly
- May not be free forever
- Privacy and security are a big concern!!!
What do I use?
I personally use MS money. Once I sorted out how all the transactions should be grouped and represented in the software so that various categories balanced everything got a lot easier to manage. Tracking cash became difficult but getting a joint credit card helped resolve that. I usually download my transactions once a week and most of the stores I shop at on a regular basis sort themselves automatically. I find that if I wait longer than a week then I forget what some of the transactions were at new stores that I’ve never shopped at before. Overall I’ve been happy with it’s ability to track all of our expenses. On a few instances I manage to sort out some financial discrepancies by running many of the available reports. Its still not as automated as I would like but its the right solution for me.
What are other people using to track their budgets? What do you like/dislike?
-mfd-
P.S. My article Making a Budget that Works was listed on the Carnival of Personal Finance 195th Edition over at Stocktradingtogo.com and my article The Cost of Being Sick was listed on Money Hacks Carnival #55 over at MoneyNing . Thank you!
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