Financial software and planning tools, including many on the Internet, make managing your money—including record keeping a snap. Financial software offers many benefits. Laborious calculations are sharply reduced, banking transactions can be performed with automatic updating of financial records, the balance sheet and cash-flow statements are automatically updated when transactions occur, and your financial plans can be developed.
Quicken and Microsoft Money are the two most popular userfriendly brands of personal finance software. Both provide complete financial planning systems. Several other programs focus primarily on income tax preparation, including TurboTax, which works with your day-to-day financial software to help you do your taxes. Many companies have financial planning tools and calculators on their websites, including CNNmoney.com, Fool.com, Kiplinger.com, USAToday.com, and Yahoo.com.
Record Keeping In the process of budgeting, record keeping is the process of recording the sources and amounts of dollars earned and spent. Recording the estimated and actual amounts for both income and expenditures helps you monitor your money flow. Keeping track of income and expenses is the only way to collect sufficient information to evaluate how close you are to achieving your financial objectives. For those who keep records on paper, Figure 3.6 shows four samples of self-prepared record-keeping formats that vary in complexity. Most people record earnings and expenditures when they occur. When writing in the “activity” and “remarks” columns in your record, be descriptive because you may need the information later.
Adding Up Actual Income and Expenditures After the budgeting period has ended—usually at the beginning of a new month—you need to add up the actual income received and expenditures made during that period. You can perform this calculation on a form for each budget classification, as shown in parts (a) and (b) of Figure 3.6 or on a form with all income and expenditure classifications, as in parts (c) and (d) of Figure 3.6. Such calculations indicate where you may have overspent within your budget categories. If you are new at budgeting, do not be too concerned about overspending; it occurs in some classifications almost always, only to be balanced by underspending in other categories. Use such information to refine your budget estimates in the future. In three or four months, you will be able to estimate your expenses much more accurately. The Garman/Forgue website provides budgeting software as well as numerous other templates, calculators, and worksheets that you can use in your own personal financial planning.
What to Do with Budgeted Money Left Over at
the End of the Month At the end of the budgeting time period, some budget classifications may still have a positive balance. For example, perhaps you estimated the electric bill at $100, but it was only $80. You may then ask, “What do I do with the $20 surplus?” You also may ask, “What happens to budget classifications that were overspent?” People handle the net surplus (the amount remaining after all budget classification deficits are subtracted from those with surpluses) in any of the following ways:
• Carry the surpluses forward
• Put into a revolving savings fund
• Build a cash reserve by depositing in a savings account
• Pay down credit card debt
• Put toward a mortgage or other loan
• Invest in a retirement account
• Spend like “mad money”
Quicken and Microsoft Money are the two most popular userfriendly brands of personal finance software. Both provide complete financial planning systems. Several other programs focus primarily on income tax preparation, including TurboTax, which works with your day-to-day financial software to help you do your taxes. Many companies have financial planning tools and calculators on their websites, including CNNmoney.com, Fool.com, Kiplinger.com, USAToday.com, and Yahoo.com.
Record Keeping In the process of budgeting, record keeping is the process of recording the sources and amounts of dollars earned and spent. Recording the estimated and actual amounts for both income and expenditures helps you monitor your money flow. Keeping track of income and expenses is the only way to collect sufficient information to evaluate how close you are to achieving your financial objectives. For those who keep records on paper, Figure 3.6 shows four samples of self-prepared record-keeping formats that vary in complexity. Most people record earnings and expenditures when they occur. When writing in the “activity” and “remarks” columns in your record, be descriptive because you may need the information later.
Adding Up Actual Income and Expenditures After the budgeting period has ended—usually at the beginning of a new month—you need to add up the actual income received and expenditures made during that period. You can perform this calculation on a form for each budget classification, as shown in parts (a) and (b) of Figure 3.6 or on a form with all income and expenditure classifications, as in parts (c) and (d) of Figure 3.6. Such calculations indicate where you may have overspent within your budget categories. If you are new at budgeting, do not be too concerned about overspending; it occurs in some classifications almost always, only to be balanced by underspending in other categories. Use such information to refine your budget estimates in the future. In three or four months, you will be able to estimate your expenses much more accurately. The Garman/Forgue website provides budgeting software as well as numerous other templates, calculators, and worksheets that you can use in your own personal financial planning.
What to Do with Budgeted Money Left Over at
the End of the Month At the end of the budgeting time period, some budget classifications may still have a positive balance. For example, perhaps you estimated the electric bill at $100, but it was only $80. You may then ask, “What do I do with the $20 surplus?” You also may ask, “What happens to budget classifications that were overspent?” People handle the net surplus (the amount remaining after all budget classification deficits are subtracted from those with surpluses) in any of the following ways:
• Carry the surpluses forward
• Put into a revolving savings fund
• Build a cash reserve by depositing in a savings account
• Pay down credit card debt
• Put toward a mortgage or other loan
• Invest in a retirement account
• Spend like “mad money”
The budgeting form in part (d) of Figure 3.6 allows for carrying balances forward to the next period. Some people carry forward deficits, with the hope that having less available in a budgeted classification the following month will motivate them to keep expenditures low. Because variable expense estimates are usually averages, it is best not to change the estimate based on a variation that occurs over just one or two months. If estimates are too high or low for a longer period, you will want to make adjustments. Using financial software for budgeting takes the drudgery out of making and using a spending plan. And it gets to be easy after a few months. Budgeting can help you succeed financially.
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