Setting a monthly spending budget can be a cumbersome and dreadful task. Most of us are constantly on the go. We don't have time to sit down and put pencil to paper on what we spent throughout the month let alone throughout the day.
What you need to do is first download the spending tracker app on your phone. The app is completely free and allows you to track your own spending by category. Note: I am not receiving any compensation for recommending the app.
Here is how you set up your budget in five minutes.
1) Determine your spending categories.
Take a minute to jot down on a piece of paper all of your spending categories for the month. For example, my spending categories include rent, car payment, eating out, shopping, fuel, entertainment, travel, and groceries.
2) Calculate or ballpark your spending in each category.
The best start to determine what your budget should be for each spending category is to use your actual spending. You can adjust the budget after you've been using it for a few months. If you have rent or a car payment, those are typically fixed amounts, so jot those down. Look through your monthly credit card statements to get an idea of how much you are spending eating out, on gas, going out, and buying groceries. Keep this information saved on an excel spreadsheet or written down somewhere. You'll need this to see how well you track against that budget after each month. After you've allocated what you typically spend to each category, you are ready to move on to the next step.
3) Enter your total budgeted expense to your spending tracking app.
Add up all of your spending categories and take the total to put into the spending app. To do this go to "Settings" on the bottom right corner of your app and select "Budget Mode". Then type in your total budgeted expense amount.
4) Enter into your app each cash or credit transaction.
The key is to enter each spending/income transaction right as you are aware of it. That way you won't forget. Pop open your app and select either +Expense or +Income. Enter in the amount you spend. You can even add notes to what the purchase relates to. Remember to put in the spending category as well.
5) At the end of each month, compare how you did against your budget and adjust accordingly.
You'll want to see how well you track against your budget you set at the beginning of this exercise. If you feel like you can shave off money more from the initial budget or would like to save more aggressively, you can adjust your budget accordingly. For example, let's say you want to save for your next vacation or a new car. You've budgeted $400 a month to eating out. Try and eat in or save leftovers from a previous meal for your next meal. If you do that, you may be able to bring that budget down to $300 a month. Good luck and keep me updated on your progress!
Consider the alternatives.
If you use a credit card, Mint.com will automatically pull from your credit card details and then bucket your costs by category. Of course you'll have to enter in your credit card login information and sync it up within Mint.com. Alternatively, credit card companies such as Capital One will do the same and let you export the information into excel. The problem with that is their algorithms are not foolproof. Often times, your restaurant expenses get categorized as entertainment costs and vice versa. If you need to re-categorize your expenses again, why should you even bother with Mint.com or the credit card statements? Also, how likely is it that you are going to remember to enter in your expenses two days from when they were occurred.