The First Step to Wealth and Financial Success

Step 1: Controlling Day-to-Day Finances with a Budget

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Personal financial planning is an ongoing process, one that consists of three general activities:

  1. Controlling your day-to-day finances to enable you to do the things that bring you satisfaction and enjoyment.
  2. Choosing and following a course toward long-term financial goals such as buying a house, sending your kids to college, or retiring comfortably.
  3. Building a financial safety net to prevent financial disasters caused by catastrophic illnesses or other personal tragedies.

    This article will address how to achieve the first of these goals: controlling your day-to-day financial affairs, which is a subject that inevitably brings us to a discussion of budgeting.

    Why Should I Budget?

    Controlling your financial affairs requires a creating a budget. For many people, the word "budget" has a negative connotation. Instead of thinking of a budget as figurative financial handcuffs, think of it as a means to achieve financial success.

    Whether you make thousands of dollars a year or hundreds of thousands of dollars a year, a budget is the first and most important step you can take towards putting your money to work for you instead of being controlled by it and forever falling short of your financial goals.

    To those of you who think you know where your money goes without keeping detailed records, I issue you this challenge: keep track of every cent you spend for one month. I promise you'll be surprised and perhaps shocked by how much some of your "small" expenditures actually add up to be.

    You might even want to try out the 30-day cash challenge!

    Budgeting and tracking your expenses gives you a strong sense of where your money goes and can help you reach your financial goals, whether they include saving for a down payment on a house, starting a college fund for your kids, buying a new car, planning for retirement, paying off the credit cards, or saving for that trip to Aruba.

    Since financial matters are one of the leading causes of marital discord and divorce, getting a handle on your spending, implementing a budget, and saving for the future can also have the added bonus of positive effects on your relationship with your spouse or partner.

    Should I Use a Budget Software Program?

    You don't need to invest in fancy software in order to create a budget. In fact, you can use a good old pen and paper with a basic budget worksheet to get started. But a good software program can make the job easier. Being able to view graphs and reports from the comfort of your home computer can also serve as additional motivation for entering and tracking all that data.

    Many banks are now offering free online banking, which can make tracking some spending much easier. You may even be able to simply login to your online banking account and download the checks that have cleared your account and any debit card transactions, perhaps even directly into your personal finance software. Then you can indicate an expense category for each within the software.

    Using your paper budget or budget software, you can do a basic comparison of budget versus actual expenses by category. You may also choose to enter more detailed information such as investments, assets, and liabilities and print personal financial statements showing your net income and net worth.

    Two of the most popular personal finance software programs for checkbook and expense tracking are Quicken and MoneyDance.

    Today, there are even free online programs available to help create your budget and easily track spending, and many offer other helpful personal finance functionalities. These programs can be securely synced with your bank accounts, debit and credit cards, loans, and other investment accounts in order to track all of your balances and expenditures in real time. One of the most popular is Mint.com. Mint offers an easy to use budgeting tool that automatically and securely syncs with your accounts, but also offers other services like bill pay and credit score tracking.

     

    In the end, whether you use sophisticated personal finance software or a couple of pieces of paper and a pencil, the important thing is that you get on the road to financial freedom by starting a budget.

    You'll begin to see how the dollars add up... 

    HabitYearly Cost
    Daily Cup of Coffee$547/yr
    2 Packs of Cigarettes/Day$2555 - $3285/yr
    1 Hardback & 3 Paperback Books/Mo.$690/yr
    Lunch Take-out 5 days/wk @ $5-$10/day$1300 - $2600/yr
    3 Drinks at a Bar/Wk.$936 - $1092/yr
    3 Six-packs of Beer/Wk.$624 - $936/yr