Using budget software can make setting up and managing a personal budget easier, faster and more accurate because it automatically pulls income and expense transactions from each of your financial accounts. Over time, the software gives you insight into your spending habits, broken down by spending category. You can also enable warnings if you're close to going over your budget.
When choosing a budget software tool, ensure that it meets your specific needs. Consider these features to look for as you weigh your options.
Flexible Budget Categories
Categories help define income and expenses in budget software. They form the foundation on which you will build your budget. The software you're considering should let you change categories by editing the name, deleting irrelevant categories, and adding your own. 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. It's important to take these category assignments seriously. The more accurate the budget report, the more useful it'll be. You should be able to split transactions into subcategories if you want more detailed reports.
Adaptable Income and Expense Limits
Everyone has some sort of fluctuating expenses. Heating bills are usually higher in the winter. A person's exact monthly income may rise or fall based on the industry's busy season. If you need to work with fluctuating income, you'll want budget software that doesn't force you to enter the same monthly amount for income.
A good option for handling income or expenses that change monthly is to use envelope budget software. Envelope budgeting was created to deal 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.
Simple Budget Reports
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 closely watch your spending, ensure 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. You should be able to change the time frame for this report.
It's important to find software with a simple budget report, but you may occasionally want more detailed reports, and a good budget software should offer that option. If you want to print budget reports, look for that option as well, since some software only offers onscreen reports.
Financial Information Security
Data encryption is a must if you link accounts to the budget software. The only type of software that doesn't do this is the software that requires you to enter transactions by hand. Read the privacy or security statement for budget software to learn more about how your information is being accessed, and whether it's protected with encryption.
Security is not an issue when you set up accounts with generic names like "Checking" or "MasterCard." These generic accounts won't have access to your account numbers or personal information, so even if your budget software account gets hacked, there would be no way to steal your identity. The downside is that these generic accounts aren't as convenient since they don't have the credentials to automatically download transaction data.
Passwords may not be required for some desktop budget software. If the software you're using doesn't require a password for access, set up password protection for your computer. Your computer should ask for your password when it starts up and after it goes to sleep. Online budget software should always require a password. Don't use online financial software without a password!
Ability to Export 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 think you might not use the software for the long-term. If you decide to switch to another budget or personal finance software, having your data in CSV, QIF, or another format will save hours of data entry.
While less common for casual budgeters, spreadsheets can be an important tool for people who are serious about financial analysis. If that describes you, you'll want to pay extra close attention to a software's export options.
You may find this surprising, but an easy setup isn't as important as the other features mentioned above. Once the budget is established, you shouldn't have to work on it except for minor tweaks here and there. Even if the initial setup is a bit cumbersome, it probably won't affect your long-term experience with the software.
However, an overly confusing onboarding process could force you to make mistakes, which could then create issues down the road. The best way to determine the user-friendliness of budget software is to make use of any free trial offers available. If you find yourself not fully understanding the software setup, it could be time to switch to another app.
Not sure where to start? Consider one of our favorite personal finance apps.