Everyone hates budgeting, but it's a necessary evil. I've tried many strategies for simplifying the process and putting together spending plans I can actually stick to. Here's something I've learned: When building any sort of budget, remember these rules.
Get Tracking. These web tools will help ease your budgeting pain. PearBudget is a simple budgeting and expense-tracking tool that costs $4.95 per month. Or, try the free downloadable spreadsheet version. NeoBudget is an online service for "envelope" accounting. There's a free version, but for $4 per month, you get more power. You Need a Budget isn't free: The desktop version costs (a potentially budget-breaking) $60. But those who use it swear by it. If you need top-of-the-line help, this is your best bet.
Forget perfection. A budget is simply a target. Your spending likely won't be perfect the first month (or the second, or the third). If you can't get your money into perfect balance, get it as close as you can. Make adjustments as needed.
Don't sweat the small stuff. Yes, you should clip coupons and shop at sales. But it's the big stuff that really counts. Be smart when you buy a house or a car, and you'll have more room in your budget for fun.
Make plans based on reality, not on your idealized life. Don't base your budget on wishful thinking. Sure, you still may get that pay raise or bonus, but wait until it's actually in hand before accounting for it.
Keep it simple. If your system of budgeting is a chore, you'll never follow through. Track by only as much detail as you need. Even if you are able to keep your spending in check, overly complex budgets will fail, because they require too much effort to maintain.
That last rule may be the most important. In their book All Your Worth: The Ultimate Lifetime Money Plan, mother-daughter team Elizabeth Warren and Amelia Warren Tyagi propose a simple budget with only three categories: must-haves, savings and wants. Their Balanced Money Formula suggests dividing net (after-tax) income like this:
• 50 percent (or less) for needs. These are the things you must spend on in order to live in the modern world, such as housing, utilities, healthcare, transportation, insurance and basic groceries and clothing.
• 20 percent (or more) for savings. This includes retirement accounts, emergency savings and other investments. For the purposes of this budget, debt repayment also counts as savings.
• 30 percent for wants. Essentially, this is everything else: cell phones, entertainment, haircuts, pet supplies, travel and food or clothing that's beyond the basics.
Your goal should be to trim your needs and boost your savings until they're both at sustainable levels. Do this, and you have permission to spend the rest of your money on wants--and spending on fun stuff is even more fun when you know you can afford it.
When I discovered this basic formula, I felt liberated. The simplicity freed me from having to track dozens of categories. And the plan is easily customizable; as time went on, I broke out a few subcategories I wanted to track, like vacation spending and dining out.
And that's key to finding a spending plan that works for you. These ideas are merely a starting point. You need to tailor them to create a budget that suits your life.