01Flexible Budget Categories
Categories are used to define income and expenses in budget software and are the foundation on which you will build your budget. The software you're considering should let you change categories by editing to change the name, deleting or adding your own categories. Avoid budget software that locks you into a default set of income and expense categories and doesn't let you make changes.
In the software, you'll assign categories to transactions you make throughout the month, and it's important that you select the correct categories to define your spending so the budget report is accurate. You should be able to split transactions into subcategories if you want more detailed reports.
02Income and Expense Changes Month-to-Month
Everyone has some fluctuating expenses, like heating bills that are higher in the winter, and or income that changes from month to month.
If you need to work with fluctuating income, you'll want budget software doesn't force you to enter the same monthly amount for income. For expense that change often, you can allocate the average expense amount over a year by dividing the total of all expected payment for one year by 12. Just be sure to set aside unspent funds in the months where spending is lighter to cover months when bills are higher.
Another good option for handling income or expenses that change from month to month is to use envelope budget software, discussed next.
03Try Envelope Budgeting
Envelope budgeting is a great way to work with fluctuating expenses. Software that works on this principle rolls unused funds in spending categories forward to the next month. Envelope budget software will also automatically distribute paychecks among the budget categories to reflect how you plan to spend your money.
The budget software you choose should have some simple reports that show you how well you're following your budget on a monthly, quarterly and annual basis. If you plan to watch your spending very closely, be sure the software offers weekly reports or a real-time dashboard where you get at-a-glance reports on key budget categories. Basic reports show the budgeted amount, actual spending and the difference between the two, and you should be able to change the time frame for this report. The software will likely have other, more detailed reports as well. If you want to print budget reports, look for the ability to do so. Some online software only offers onscreen reports.
05Financial Information Security
Data encryption is a must if you enter account numbers or other identifying information into the budget software or if you download transactions instead of entering them by hand. Read the privacy or security statement for online budget software.
- Security is not an issue when you set up accounts with generic names like Checking or Master Card and without account numbers or personal information. Even if your data were hacked, there would be no way to steal your identity or your account numbers.
- Passwords: If desktop budget software doesn't require a password for access, set up your computer with a password when it starts up. Online budget software always requires a password (don't use online financial software without a password!).
06Keep Your Data
Most budgeting software will let you export your data to a CSV file that can easily be read by spreadsheet software like Excel. This feature is particularly important if you use software that allows you to track transactions in various financial accounts. If you decide in the future to use another budget or personal finance software, or you want to analyze spending in a spreadsheet, having your data in CSV, QIF or another format will save hours of data entry.
07Setting Up Should Be Easy
This may be surprising, but having an especially easy way of setting up a budget in this software isn't really as important as the other features mentioned above are. This is because once the budget is established, you won't work with it except to perhaps tweak it by changing budgeted amounts or a spending category here and there.
Of course, you don't want budgeting software that is difficult to set up, either, and the task really shouldn't be a hassle. The best way to determine how easy budget software is to use is to download a free trial, which is usually offered.
If you want to experiment with budgeting scenarios, be sure that what-if scenarios or saving an existing budget while editing a copy is supported. If you want to have more than one budget, for example, a personal budget and a budget for a small business, the software must support multiple budgets.
I've rounded up good budget software options that are easy to use and have enough features to keep your spending on track now and into the future. My 10 Budgeting Software and Online Apps has options for Mac and Windows computers, and online budgeting apps.
Tips for Choosing Budget Software
Use budget software to make setting up and managing a personal budget easier. This software makes budgeting faster and more accurate because income and expense transactions are entered for each of your financial accounts, then the software tells you over time how much was spent in each spending category. You'll get warnings if you're close to going over your budget, too.