Budgeting can be very frustrating because you can waste a lot of time managing your budget without ever actually analyzing your budget!  If you’re spending all of your time collecting and categorizing data, you might never get to the true purpose of budgeting, which is to save money.

The most important aspect of budgeting isn’t necessarily sticking to it (although that is important), the real purpose is to feel in control of your money and gain understanding about where it goes.  In fact, you can’t create a realistic budget unless you first know what is happening; until you have several months of spending data, it’s pointless to try.

For anyone who has struggled with budgeting in the past, I recommend Mint, which is free personal finance software.  Mint is a great tool for helping you track your spending as well as track other areas of your finances.  And for the person who doesn’t enjoy budgeting, it’s easy to use for expense tracking without getting distracted by a lot of the other bells and whistles.

Here is my 5-point plan to start Mint simply:

  1. Only Connect Spending Accounts.  In Mint, you are able to connect virtually any account you have—in addition to bank accounts, you can set up investment accounts, mortgages, student loans, and more.  But this is a distraction.  If you’re using Mint to track spending, only connect your checking accounts and charge accounts.  This way, you will concentrate only on spending data when you log in.
  2. Delete The Budgets.  You know what your monthly rent is, so you don’t need a budget to track that.  And most people don’t “overspend” on things like gas, electricity and utilities, so why would you need a budget for it?  You really just want to know what you’re spending in a given area, which you can always find in the Trends tab.  So delete the budgets until you have a couple of months’ of data, and then you can add back budgets for the things you want accountability for, like Eating Out and Shopping.
  3. Always Use Rules.  Mint has fantastic auto categorization, but you’ll still need to get in there once every couple of weeks to categorize stuff it doesn’t recognize.  When you do this, make sure that every time you categorize you also click the “Rule” check box that tells Mint to always categorize future purchases from that vendor the same way.
  4. Leave ATM Withdrawals Alone.  People always wonder if they should try to categorize their ATM cash.  Unless you discover that ATM withdrawals are excessive, I recommend just leaving it how Mint categorizes it, which is as ATM Withdrawal.  If you know you just spend on one category, you might end up easily categorizing it, but leaving it “as is” is the simple way to go.
  5. No Split Categorization.  I think if you are trying to apply multiple categories to one transaction—like a trip to Target or Costco—you’re trying too hard.  Choose one category, like Home Supplies, and stick to that.  The issue is never that you’re over your Shampoo budget; it’s that you went to Target 4 times in a month!  Split categorization doesn’t give you more clarity in that situation.

If you adhere to these five rules, you’ll have plenty of time to review the Trends tab in Mint to gain more clarity over your spending; and then you’ll be able to act strategically to positively affect your cash flow.

(Photo credit: Accounting via Shutterstock)

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