Personal Money Management

Now, more than ever in our generation, we need to take control of our money as much as possible. There are ways to manage your money without spending hundreds of dollars on a financial planner. Using your computer, you can easily track your income and spending. And with the right software, you can easily reconcile your checking account and create a budget. You can even plan a debt payment schedule to get you out of debt faster using any spreadsheet program like Microsoft Excel.

Track Every Cent

You will have to put some effort into your money management. You will need to make a budget and track every cent you make or spend. You may find that tracking your spending helps you to start a budget. Record all of your spending by category for one or two months. Some examples of categories could be Groceries, Gas, Household, and Medical. Include any utility or debt payment bills. Then total up the categories to see where you spend your money. Decide which areas can or should be cut back and make sure you can live within your income. For better results, make sure you can live on less than your income. Then you can use the left-over money to save and to pay down debt.

There are money management software applications on the market, such as Quicken and Microsoft Money. While they do cost a bit up front, they can help keep you from overdraft and late payment penalties. Find a program that fits your needs. These programs work, on a basic level, as electronic check registers. You set up your accounts and track deposits and debits. Some of these programs even have portable companion programs, such as Pocket Quicken for Palm devices. You can record transactions on your mobile phone or PDA and synchronize it back to the main program on your computer.

Note: Do not rely on your bank balance to tell you how much money you have. Your bank statement only tells you of transaction that have cleared. Some stores and gas stations do not even submit payments for a few days. If you record your transactions as they are spent or on a regular basis, you will have a more accurate idea of your available money.

So get receipts for any transaction you can. Keep them until you record them in your software, and write down any transactions that you cannot get a receipt for. Be exact and don't estimate. You may find your paper check register that comes with your checkbook is handy for this. It's better to write down a transaction than to lose track of it.

Do not neglect debit card and online purchases. Some people have an easier time spending with cards because they don't feel the money leaving their wallets. Track your money and you will know how much you have and how much you can spend when you swipe your card.

Create a Budget

Once you have seen where you spend and have decided how much you want to spend on each category, create your budget. It does not have to be perfect from the start. Use your estimates at first and then evaluate how well you were able to stick to it. Was your spending to blame for the overage or was the budget not realistic for your situation? If the budget needs to change, change it. If your spending needs to change, take better care and try again.

Quicken and Money do allow you to budget within their software. Be aware, though that these budgets are constrained. You can usually only budget by month or quarter. If you are paid biweekly, you may find it more helpful to use a two-week budget. Don't feel you have to use Quicken or Money. You can do your budget in a spreadsheet or even paper. Spreadsheets have an advantage over paper in that they do the math for you. You input the proper functions and they total up the money.

Aim for a $0 budget. That means that all of your income is allocated to a spending category or a savings account.

Create a Customized Budget

Here are some suggestions for setting up your budget in a spreadsheet program. Use one column for category groups, such as Savings, Monthly Bills, Regular Spending, and Occasional Spending. Use the second column to list each individual account or category in each of those groups. The third column is for the budget. Plan how much you will spend in each of those categories.

The next column is used to allocate money to specific categories once you receive income. This is like putting all your money, as cash, into envelopes so that you have to stay within your budget. If you are about to buy more groceries than you have in your Groceries envelope, you have to take money from another envelope, maybe Gas, to balance it. Allocation just allows this to be done on the computer with your money still in a bank.

The last column is then for what you actually spend. As you record a transaction in Quicken or Money, record it also in your budget. The last column then, should show how much allocated money remains to be spent. So that column should represent column 4 (allocation) - column 5 (spending).

At the top and/or bottom of the worksheet, total your income and spending. These totals should include budget income minus budget spending, so you can see if you're over- or under-budgeting. Then total your actual income minus how much you've allocated. Thirdly, total your actual income minus actual spending.

Save Money

Budget money for your savings accounts. You may even want to consider opening up several savings accounts. You can use them to save for specific goals. For example, you may have an emergency savings (always recommended), vacation savings, property tax savings (highly advised), and income tax savings (if you think you will not get a refund).

Having separate accounts allows you to have separate goals and deadlines. You may need to save $700 by December for property taxes, whereas your emergency savings will be more open-ended. You can then budget the amount of money you want to put into each and monitor their balances.

Consider opening internet savings accounts to keep you away from some of those accounts. Because you transfer funds electronically, the money can take a few days to go either direction. So you can't grab money from your property tax savings just because you've gone over your budget. Internet savings accounts do generally have slightly higher interest rates than your local bank.

Use bank savings accounts for money you want to save but also need to access more easily. For example, if you are saving a little money each week because you know you're going to need new brakes on your car, use your bank. Take money (as budgeted) from your checking account and instantly transfer it to savings. Then when your brakes go out, or you have saved enough, you can instantly transfer it back and use it.

Use "extra" money to help you save. This can be reimbursements from a health savings program or refunds from Walmart. Health savings programs take money from your paycheck pre-tax, so you don't feel the loss as much as if you paid from your bank account. So when you are reimbursed, it feels like extra income you didn't plan to receive. Refunds are money spent that you get back. You may need to reallocate them in the same or another category or you can use them to save. Sell something on eBay or have a garage sale. Put the money you make into savings.

Reserve Money for Harder Times

Consider a reserve account. If you know you will have a season of lower income in the future, save ahead for it with a reserve account. Use a bank savings account so that you have quick access to the money. Then save for it as much as you can before that lower income period begins. Once you are in that lower income period, budget accordingly. That may mean lowering certain categories. You may find, though, that you can't cut enough without negating groceries or gas or a bill. Use the reserve as a buffer. Don't use reserve money unless you actually need it so that it can hopefully last until your income picks up in the future. You may find you want to carry on the reserve even then, depositing money into it when you feel you have more income than expenditures. Then it can help when things go the other way.

Pay Off Your Debt

You may find that a consolidation loan can help you pay off your debts faster. Be careful though and pick a reputable lender. You don't have to use a consolidation loan to pay off your debt though. You can use debt stacking, also known as debt snowballing. You pay extra on one debt until it is gone, and then take the payment for that one and add it to the regular payment for the next until it is gone. And so on, until all debts are paid.

You may need to do some math to find out how you want to order your debts. Money and Quicken can help but may not have the same priorities or knowledge as you. For example, Quicken knows that one debt has 0% interest. It may not know that that is a promotional rate that will go up to 10% in 6 months. You may want to prioritize on that account to take advantage of the lower rate while you can, or you may want to concentrate first on smaller debts before bigger ones. Find out which way works best for you by testing different options. You might even be surprised which order works best. A no-interest for 32 months balance might seem like a debt that can wait while you pay off your interest-bearing credit card. But it might be that paying of that no-interest debt first pays the credit card faster.

It will take some work, but a spreadsheet can help you decide which order works best and let you track your progress as you pay off your debt. Put each debt in a different worksheet. Then put in their monthly payments and interest. The equation for that should be Balance x (Interest divided by 12). You can then see how long each debt will take to pay off with just your regular payments. Now decide how much extra you can budget for debt payment above your regular payments. Add that to your first debt each month. It should pay off faster. Note the month and year it pays off, and stack its payment and extra payment to the next debt beginning on the next month, so that it pays off faster.

After you've done this for all your debts and seen when you can be debt-free, try a different order by saving the spreadsheet under a different name. It allows you to test without having to redo your original all over again if it turns out to be the best. Find the order that works best for you and you can see the light at the end of the tunnel. Just think how much more money you'd have to spend or save if you didn't have to pay payments on all those debts!