Get It Done: Disaster-Proof Your Finances

Keeping a well-organized budget is a lot like flossing your teeth. You know you should do it, and you have the best of intentions, but you just never seem to get it done.

There's a reason for that when it comes to budgeting: Keeping tabs on all of your income and expenses can be a lot of work. If it already takes you a long time to balance your checkbook each month, imagine how much longer you would spend assessing each of your purchases.

Software products and electronic banking and finance have made tracking expenses a lot easier than it used to be. Before technology changed the way people do business, tracking expenses required keeping piles of receipts and reconciling them regularly. Now, with software programs like Quicken and tracking websites like, your computer can do much of the work for you.

If you have Internet access to your bank accounts and credit cards, then you can generally download your transactions directly to your computer. Based on the information merchants provide, the downloaded transactions may even include the category of expense for particular items. The reports these programs generate can give you a good idea of where you stand and identify the areas where you can improve.

However, these programs are only as good as the information they receive. Few people have simplified their finances to the point that they use a credit or debit card for every purchase they make. Often, it's the small cash items you're tempted to dismiss that add up to a significant drain on your finances. Because those cash purchases don't show up on any bank or credit card statement, your budget software won't provide accurate reports -- unless you enter those expenses manually.

Because a firm understanding of your income and expenses is the No. 1 step in forming a personal financial plan, it's best to have as much detailed information as possible. But if you've tried without success to track your expenses, here are a few tips that may help you on the road to financial self-knowledge.

Going all-cash
The simplest way to budget is to use cash for all your financial transactions. You can do this in several ways. One way is to cash your paychecks and then keep cash on hand -- but having a large amount of cash around isn't the most secure way to handle things. Another way is to deposit your paychecks and make regular withdrawals of cash that will last a few days to a week at a time.

You may find that no matter how hard you try, it's impossible to use only cash. Many banks require customers to make mortgage payments by automatic withdrawal from a bank account. Utilities and other companies that bill on a regular cycle have pushed customers to move to automatic billing because it saves time and expense for both the utility company and the customers. Although automatic deductions require some separate tracking, moving the bulk of your transactions to cash will still make clearer to you how you stand.

At the end of each month, look at how much cash you have left, if any. This will tell you whether your expenses match your income. Although this method doesn't give you detailed information about exactly where your money is going, it does catch all the small cash transactions that sometimes escape tracking programs.

The envelope method
A variant of the cash method, the envelope method involves a bit more planning. You cash your paycheck as in the cash method, but then divide the cash into categories. For instance, if you get paid $3,000 each month, you might put $1,000 in an envelope representing your rent or mortgage payment, $250 for groceries, $200 for gas, $300 for utilities, and so on. You can divide your money into as many categories as you care to track.

This method gives you more information about how you spend your money. If your grocery envelope has money at the end of the month but your eating-out envelope runs out early, then you know that you're not eating at home as much as you had planned. Also, depending on how many envelopes you have, the method can really point out areas that represent holes in your finances.

The hybrid method
These methods work even if you don't have any tracking software. However, in conjunction with such software, these methods can help close the information gap that software programs usually encounter.

For example, your software may tell you that you earn an average of $500 per month more than you are spending on tracked categories. But a quick look shows that your checking account hasn't gone up by $500 each month. It's likely that the difference is reflected in the cash transactions that you aren't picking up on the software. By using either the cash or envelope method for that $500, you can get a more accurate picture of where that extra money is going, thereby giving you a more complete picture of your overall expenses.

Budgeting may seem like a large time commitment. Yet that investment of effort can provide huge returns in the form of cost savings and a reduction or elimination of unnecessary expenses. A good budget can help you identify how much money you have available to save and invest, as well as give you an idea of how much leeway you have if an emergency arises. With these simple methods, even the busiest people can find out how they stand.

Read/Post Comments (8) | Recommend This Article (62)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 06, 2008, at 3:53 PM, janiesuper wrote:

    i use mint. there are a few bugs in it where it doesnt add things as quickly as you would like, but it has gotten better in the 3 months ive used it. its free and its much easier to use than quicken, which i bought, but hardly touch.

  • Report this Comment On November 08, 2008, at 11:49 AM, GlobeResearcher wrote:

    Been using MS Money for years. I'm no MSFT fan, but gotta give the devil his due. It's less nerdy, more straightforward than Quicken, keeps all my cash, investment, loan, and other accounts accurate, up to date, integrated, and visible. Good planners, too: lifetime, debt reduction, tax, etc.

  • Report this Comment On December 07, 2008, at 11:13 AM, FinancialWizNOT wrote:

    I have been budgeting for years. I use a simple monthly spreadsheet to show Payables w/ columns for Estimates and Actuals and Income including carryover from one month to the next. I also list those bills that come due less that monthly, plugging these into the appropriate month. These spreadsheets can be prepared ahead to estimate the entire year. If I knew how to attach it, I could even send a copy of my spreadsheet.

    And for those who do not use a computer, get with it! I am 70 and cannot live w/o my computer.

  • Report this Comment On December 15, 2008, at 12:17 AM, Timetested wrote:

    Simplicity, first a journal then a budget of accounts. Old yet new, for us old timers. Now, do we have examples to use a templates? Or, do we just go to a store, and buy them?

  • Report this Comment On July 01, 2010, at 1:42 PM, creditgirl30 wrote:

    Budgeting is really important, but sometimes it doesn't always work. You balance your expenses versus income at the end of the month, and you find out that your expenses are much higher than your income. After that, there are a couple steps you can follow.

    To read more, look at this article.

  • Report this Comment On December 07, 2010, at 5:04 PM, Mikey86 wrote:

    The best budgeting software that I have found is YNAB (You Need A Budget) After reading the reviews on Amazon I decided to give it a try. It is a zero based envelope system that focuses on living off of LAST months income. I couldn't be more happy with it. Just started using the companion iPhone app and it syncs perfectly with the desktop version. The built in check register works in conjunction with the budget and works very well. Very user friendly and the developers listen to and respond to the end users for future updates and development. If you are looking to get on a budget, check out

  • Report this Comment On December 30, 2012, at 2:34 AM, antecume wrote:

    Here it is a personal budgeting tool I found recently and which proved to be useful to me:

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