I believe a budgeting system is crucial to properly managing your money.  Without such a system, you have no plan for using your money wisely and no insight into where your money is going.  You lack financial control.

Establishing some sort of budgeting system is a very basic necessity of personal finance.  I’ve been steadily using a budget now for several years and it has saved my life financially speaking.

All budgeting systems have the same key purposes

There are a ton of different and effective ways to budget your money.  The specific budgeting system that you choose is based solely on your personal preference.

The system should fit your needs and be easy for you to understand.  If it’s not, then I suggest you try something new because they all accomplish the major purposes we need.

The key is to find a budgeting system that you can stick with over the long-haul.  This is the most critical and basic success principle in personal finance.

The specific system doesn’t matter.  What matters is that you create a budget and use it!

My experience with a couple of budgeting systems

I originally set my budget up using Mvelopes Personal.  It was a great online system that worked perfectly for me at first.  However, after about a year, my credit union changed something on their end and Mvelopes could no longer download my transactions. 

I worked with their technical support, but we could never come up with a solution short of entering the transactions manually.  This was just too time consuming. 

As a result, I posted an article asking for suggestions for a new personal finance system.  I received many good recommendations, but ultimately I switched to using YNAB Pro.

YNAB was a fantastic choice for me.  I can import my transactions very easily and all is well again.  YNAB totally fits the way that I want to budget my money.

Here’s the point I’m trying to make.  If your budgeting system makes you want to stop budgeting, then you need a new system!  Find what works for you.

People use everything from spreadsheets to paper to online systems to traditional software.  Again, I recommend you use whatever you’re comfortable with because they all accomplish the same key purposes.

The seven key purposes of budgeting systems

The value and importance of a budgeting system is the purposes it fills.  These purposes are crucial to being successful with money.

Here are the key purposes of budgeting systems:

1.  Planning

A budgeting system provides a place for you to create a spending plan.  You can assign every dollar a job in advance to ensure you get the most out of your money.  Budgets aren’t intended to restrict your spending.  They are meant to guide it and to ensure you meet your financial objectives.

2.  Control

A budget provides a way for you to track your actual spending so you can verify you are following your plan.  This gives you the tool necessary to make corrections.  Most people are amazed at how much they spend in certain categories once they start monitoring it with their budgeting system.  Control is an essential element of a good budgeting system.

3.  Organization

It is hard to win at anything if you aren’t organized.  This is especially true with money.  You’ve got to get your act together to make the cash you earn work for you.  In addition, a budgeting system makes it easier for you at year-end to gather up what you need to do your taxes, etc.  It serves as a perfect record-keeping system!

4.  Communication

A lot of marriages end because of money woes.  A budgeting system gives you a platform to communicate effectively about money.  Everyone can see exactly how much cash you have and where it is being spent.  This helps to keep all parties on the same page and working toward the same goal.

5.  Opportunities

A budget clarifies exactly what assets you have available to capitalize on opportunities as they arise.  You’ll know immediately if you can afford that new television that just went on sale or if you have the money to buy a new house.  You can spend yourself into a deep pit that is very difficult to escape if you don’t budget your money.

6.  Frees Up Time

A budgeting system actually makes it easier and less time-consuming to manage your money.  You have everything you need to know right at your fingertips.  Time is one thing that you can’t make more of so why waste it fumbling around with your finances?

7.  Uncovers Lost Money

Budgets will help you identify money that is being wasted and lost.  You will almost certainly identify ways to recover lost dollars with your budget.  You will trim unnecessary expenses and re-purpose your money to serve you better.  This is a very exciting reason to implement a budgeting system!

A budgeting system will give you power over your finances

Budgeting systems serve some very important purposes.  They enable you to have insight, control and efficiency when dealing with your money.  The value I get from my budget far exceeds any downsides.  It is an indispensable tool in personal finance management!

What value do you see in using a budgeting system?

Photo by nDevilTV

Change is always difficult and living on a budget is definitely a big change especially when you are used to spending whatever you want, whenever you want like I was.  It wasn’t easy for me to stick with my budget at first, but I learned that budgeting is mostly about attitude.

Thoughts about how to stick with budget living

There are some important things to keep in mind during those first several months of budgeting.  Mainly, your budget has to survive in order for it to help you achieve success.  Here are some of my thoughts about living on a budget.

1.  Don’t get frustrated when your budget doesn’t go as planned

A budget is just a plan.  It has to adapt to real life circumstances.  I used to hate it when things came up in a month that totally blew my spending plan.  I’d have everything laid out perfectly for the month and then wham!  Something I forgot or something unplanned would come up and I’d have to change several allocations to make things work.

At first, this really frustrated and discouraged me.  Sometimes it made me want to give up, but over time, I’ve come to realize that this is just the way budgeting works.  I learned to be more flexible.  I go into the month with a plan, but I adjust without worrying about it so much.  I recall that the most important budget goal is to spend less than I earn.  It is not for my budget to go as planned.

2.  Be realistic with your monthly spending allocations

Another source of frustration for me was running out of money in an important spending category before the end of the month.  This made me feel like I was always blowing the budget.  After awhile, I realized that if I kept going over every month in a category even though I was doing my best to control my spending, then I wasn’t being realistic with my allocation in that category.

Evaluate your budget allocations carefully.  If something isn’t working, then don’t keep doing it the same way.  Change your allocations.  Give more money to groceries if that’s where you keep going over.  There are always adjustments that can be made.  It often takes several months to fine tune your allocations.  I still tweak my budget almost every month.

3.  Just do it and don’t give up!

With budgeting, it can often feel like you are taking two steps forward and one step back.  However, you have to realize that this is still one step forward.  You are making progress it is just slower than what you would prefer. 

One thing that my wife did in the early days of our budget that helped me was to create some graphs of how our debt was going down while our savings was going up.  I’m a visual person and looking at those graphs helped me to see that we really were making progress.  It might help you too!

Budgeting works if you maintain the right attitude about it

Getting started with budget living is tough.  It takes the right attitude and determination.  However, the pay off is worth it.  Budgeting helped me and my wife to pay off our debts in less than two years.  In today’s economy, it is really nice being debt-free and having some cash in the bank!

What things do you do to avoid frustration and stick with your budget?

Photo by AMagill

Fortunately, Jason from Live To Budget, has put together a very nice eBook with articles from several well respected personal finance blogs.

Spend Less Than You Earn eBook

There are several very nice things about this eBook worth noting:

• It is 100% free!
• You can download it and read it at your leisure offline.
• It contains wonderful advice from multiple authors.
• It will help you get control of your money.
• Two of my articles are included in it!

What more could you ask for?!?  I hope you’ll take a minute to download the eBook and peruse it at your leisure.

Click here to download the Spend Less Than You Earn free eBook!

I want to assure you that there is absolutely no gimmick or obligation involved in downloading this eBook.  It is simply a way for several bloggers to cross-promote our personal finance blogs.

The eBook is in PDF format.  You may need Adobe Reader to open the file.

What you will find inside of Spend Less Than You Earn

Here’s a sneak peek at some of the titles that you’ll find in the eBook in the order in which they appear:

• 10 Tips For Reducing the Power Bill @Lightening
• How to Reach your Financial Goal @My Debt Free Goal
• 10 Surprising Side Effects to Money Management @Simple Mom
• The ABCs of Frugality: 26 Key Frugal Concepts @Almost Frugal
• Start a Grocery Budget Limbo @Live To Budget
• What Everyone Should Know About Personal Finance @Blunt Money
• Now is a Good Time to be Living on a Budget @My Super-Charged Life
• Best Personal Finance Idea of the Year @Credit Withdrawal
• How Credit Card Companies Apply Your Payments @Mrs Micah
• How To Budget With Irregular Income @Being Frugal

I hope you enjoy the eBook!  I’d love to hear what you think about it.  Please leave me a comment below and let me know your thoughts!

I often think about how I would adjust my budgeting priorities should I lose my job or find myself in some other ultra-tight financial situation.  I believe that by acting quickly and decisively, I could significantly increase my chance of success.

A budget is a plan that should align one’s spending with our priorities.  In a crisis, I would use mine to batten down the hatches and ration my money to my top priorities.

Budgeting priorities when money is tight

The global economic crisis is tough on everyone right now.  The cost of living is up and a lot of people are losing their jobs.  When money is tight it is more important than ever that we set our budgeting priorities correctly.  I would start with the basics and go from there.

Here is how I would prioritize my money in a budgeting crisis:

1.  Groceries are at the top of the budget

We all have to eat to survive.  In a pinch, I would make food my top priority.  However, I would be sure that I was buying only staples.  My diet would not be anything fancy.  No restaurants and no T-bone steaks. 

In a personal financial crisis, my food might not be that enjoyable, but it would give me and my family what I needed to keep from going hungry.  I would buy things like macaroni, beans, rice, and potatoes.  I would avoid frozen dinners, soda, chips, desserts and other junk food that is too expensive.

2.  Paying the mortgage or rent

Once you are fed, then you need a place to live.  I own a home, so my next priority would be my mortgage payment.  I have too much invested to let my home fall to foreclosure. 

If I did anticipate falling behind on my mortgage, I would be proactive.  I would go to the bank and work something out ahead of time.  From what I hear, this will lead to a much better result.

The mortgage company may not scream as loud as some of the other creditors we owe, but I would still pay them first.  Harassment should not define our priorities.  I would definitely make keeping a roof over my head one of my top priorities.

3.  Transportation to and from work

When things are tight, we must earn as much income as possible.  Therefore, I would need some form of transportation to get to the first job I could find.

Fortunately, I don’t owe on my vehicles, but if I did I might have to let one or more cars go if the payment was large.  But before I did, I would figure out a transportation alternative.

Riding the bus might not be convenient, but it is better than letting my house get taken by the bank.  I would throw my pride out the window!  Crises are survived by making hard choices!  Choosing public transportation is an option I would seriously consider.

I might also think about walking, riding a bike or scooter, or carpooling as ways to save money while still getting where I needed to go.

4.  Utility bills

I would cut off everything except what I absolutely needed to survive.  I would do this as soon as possible!  Things like cable TV and cell phones are luxuries not necessities.  Ditching them would be some of my first steps.

I would then prioritize the remaining utilities in the order in which I would need them to survive.  As an example, here is how I might prioritize the utilities from highest to lowest:

• water and sewer service
• electricity
• natural gas
• telephone

Obviously, it would be uncomfortable to do without any of these, but if I can’t pay the bill, then I would have to let something go.  I want to control the situation as much as possible, so I would prioritize.  I would also take drastic steps to reduce my utility bills.

5.  Essential clothing

In a crisis, I would make sure my kids had what they needed to stay warm.  I don’t think clothes would be an issue for us unless the crisis lasted for six or more months, but kids do grow so I would need to consider clothing eventually.

I would not concern myself with fashion.  For me, this would be a time where function would rule.  I would shop for clothing at secondhand stores and even look for hand-me-downs from extended family members.

Clothing is important, but most of us can probably make do for a long time without needing to buy much.

6.  Credit cards would be the last to get paid

I am debt-free, but if I owed on credit cards or unsecured consumer loans, then these would be the last things that I would pay.  I might get a lot of harassing phone calls, but I’d just have to ignore them.

From what I understand, it would take these companies a long time before they actually sued me.  Therefore, I would put them off as long as possible.  I would hope that my situation would change before the worst occurred.

Setting the right budgeting priorities are key to surviving

I would want to make the right choices early to minimize the impact of a financial crisis on my family’s livelihood.  Some might think that my approach is radical, but I don’t think so.  Taking decisive action would put me in the best position to weather the storm for as long as possible with the minimum negative impact.  Failing to act is what leads many to bankruptcy and foreclosure.

Is there anything I missed in my crisis budget priorities?

Other articles that might be useful:
Back To Basics- 79+ Brilliant Budgeting Resources You’ll Love
Now Is A Good Time To Be Living On A Budget
How To Avoid Buying Things You Do Not Need!

Photo by aturkus

It is our responsibility as parents to teach our children to make smart choices.  We need to teach them from an early age to look through the advertising to see the truth about products.  Our children need our help learning these lessons.

How we can help our children become smart shoppers

I am convinced that it is possible to guide our children to become smart shoppers.  I think we need to start early and let them know our thoughts on financial matters.  Here are my suggestions:

1.  Set a good example with personal finances

Our children learn a lot more from our actions than they do from our words.  They watch every move we make.  It is crucial that we set a good example.  How are your finances?  Do you overspend?  Is this the path you want your children to follow?

The holiday season is an excellent time to talk to your children about the limits you have set for spending.  Let them participate in the process of selecting gifts that meet the budget.  If they see you doing this now, they are much more likely to carry it forward when they are adults.

2.  Walk them through the mental process of evaluating products

Teaching your children to discern the true features and value of advertised products is crucial.  They need to learn that not every toy is as fun at home as it appears on TV. 

One way we do this is by asking leading questions.  When a toy is shown on a commercial that our daughter comments positively about, we often ask a question that leads her to see a weakness she wouldn’t have otherwise noticed.

We also remind our girls of similar toys that now lay buried in their closets somewhere.  Helping children to think more critically is an important part of teaching them to be more intelligent consumers.

3.  Let them make some mistakes while the consequences are low

It is better that our children learn now through some mistakes to be smarter shoppers.  The consequences of buying a bum toy is low compared to the consequences they might suffer later from buying a lemon car.  Learning through mistakes now will teach them discernment that is invaluable for adults.

We need to provide guidance to our kids, but we also need to give them the opportunity to learn from some mistakes while the consequences aren’t too painful.  The lessons they learn from spending a few dollars on a toy that doesn’t last is one that will stick with them.

4.  Give them some fiscal responsibility early

I believe that kids need the opportunity to start managing and learning about money as early as possible.  A child that is 3 or 4 can start to understand the value of a dollar.  Start feeding their minds when they are still little sponges!

I believe that they kids need to earn their money.  I think it helps them to understand how the world works.  We don’t give our children an allowance.  If they want some money, then they have to work to earn it.  This is how it works in the real world and it is how it works in our home.

The tasks don’t have to be hard for a very young child, but they are completely capable of picking up some toys, getting dressed, and helping with other tasks.

5.  Think out loud about your purchases

I like to let my children hear my thought processes when making a purchasing decision.  My wife and I think out loud by verbalizing our decision-making process.  Sometimes we even involve the kids in helping to make the choice.

To me, this is training for their young minds.  So far, it seems to work.  I hear my oldest daughter echo back some of the same thinking when she is trying to decide on making a purchase.  It is great to see that she already gets it!

Smart shoppers are not born, they are trained!

Train your kids to be a smart shopper and it will serve them well their entire lives.  I believe it will not only help them in their personal finances, but will also help them be good stewards over business finances as well.  The sooner our kids learn good money habits, the better they will do for themselves.  Isn’t this what good parenting is all about?

What do you do to teach your kids to be smart shoppers?

Become a continual learner.  Check out these Audio Books Titles!

Photo by JaeYong, BAE

5 tips to keep your personal budget flexible and alive

Flexibility is one of the keys to maintaining a healthy budget.  Here are some ideas for keeping your budgeting efforts flexible to keep them alive!

1.  Create a custom budget each month

Your budget or spending plan should be customized for each period.  Sure certain expenses stay the same every month, but some things fluctuate or only occur once in awhile.  Your monthly budget needs to be a living document.  It needs to evolve as life does.

Make sure you take a little time at the beginning of each month to make a list of expected expenses that will occur in the upcoming thirty days.  Also, revaluate the amount you are budgeting in each of your spending categories.  You may need to increase or decrease certain things to more closely match your estimated expenditures.

2.  Don’t be afraid to make mid-month budget adjustments

Continually reevaluate your plan as you proceed through the month.  If necessary, move money from one category to another to make your budget reflect real life.  Our budgets are just plans.  They are not written in stone. 

One budgeting goal is to avoid overspending.  It is important that we are firm in our resolve toward this end, but we need not be rigid about the amount spent in each category.  Move money around to make things work.

Of course, you don’t want to rob your grocery category to make an impulse purchase, but if your electric bill runs a little high, you might need to take some away from your eating out category to cover it.

3.  Create new budget categories when needed

If you have an expense that seems to keep catching you off guard, then create a specific category for it.  I had to do this for children’s activities.  We kept spending money to allow our daughters to participate in extracurricular activities, but we didn’t have money set aside for it.  I kept having to take it out of another category.

This unplanned expense often left us short in another area.  Be sure to capture these expenses and create a category for them.  I’ll even create the category mid-month so that I don’t forget to budget money for it the next month.

4.  Set money aside for personal spending

We all want to feel like we have some individual control over how we spend our resources.  What is important to one person, especially in marriage, may not be a priority for the other.  I think the best way to handle this is by allowing each person a certain amount to spend each month.

Assign each spouse an amount each month that is their money to blow however they want.  It may not be much when you are running your debt snowball, but at least it is something.  The feeling of control will go a long ways toward keeping your budget alive.

5.  Discuss and agree on the monthly budget up front

If you are married, go over the budget with your spouse before the month begins.  Be sure that you are both in agreement and committed to the plan.  This will help avoid sticky situations as the month plays out.

A budget that is created and ratified by only one spouse will feel rigid and restrictive to the other member of the marriage.  You have to work as a team for the budget to succeed over time.  Participation in the process is the best way to achieve buy-in.

A flexible budget is a budget we can live with today and tomorrow

We want our budgeting efforts to succeed.  A great way to keep them alive is to remain flexible.  A plan must change as the situation changes for it to remain viable.  A rigid budget will only create frustration and resentment.  It is of the utmost importance for us to avoid these pitfalls as we budget our money.

What do you do to keep your budget flexible?

Photo by jhull

Making a few financial sacrifices is kind of like ripping off a band-aid.  Sure, it hurts a little just for a second, but then the pain goes away and you realize your boo-boo is all better. 

Is it time for you to make some changes to your finances?

Someone once said, “The definition of insanity is doing the same thing over and over again and expecting different results.” 

Are you guilty of this behavior in your personal finances?

If what you have been doing up to this point isn’t working, then it is time to try something new.  It is time to get radical!

Take a look at your finances and net worth (assets minus liabilities).  Are you gaining or losing ground?

Many people have a decent income, but still seem to barely be able to keep their heads above water financially.

If this is you, then the only way to start getting ahead is by creating margin.  You have to get your spending down below what you earn.  How do you do this?  By making some cuts.

10 Ways to frugal up your finances in a hurry.

Okay, so you are ready to make some sacrifices, right?  You have made a serious decision to get your spending under control so you can have money left over to create an emergency fund and pay off some bills, but you aren’t sure where to start. 

Well, let me give you a few ideas.  Once you get started, you’ll find all kind of places to reduce spending and save money.

Keep in mind that not one of these by itself is going to be the solution you are seeking.  It is the savings from making several cuts that when added together will give you the traction you need. 

You will be amazed at how even $100-$200 of monthly margin will get the ball rolling on your personal finance bailout plan.

I want to let you know that this isn’t just a list that I’m making up.  I have personally taken these steps myself.  As a result, in less than two years, my wife and I paid off about $28,000 in debt and started seeing our net worth increase substantially!

Here’s what we did:

1.  Give up cable or satellite television.

I can hear the screams from here.  I figured that I’d lead off the list with one that will make many people squirm.  I’m testing your resolve here.  There are numerous excuses for why you need the extra channels, but none of them hold water.  Call today and have the cable or satellite company cut off or at least significantly reduce your service.  It might save you $25 to $75 per month!

2.  Stop eating out all the time.

Restaurants are expensive!  Have you added up what you are spending each month on eating out?  When my wife and I did this, we were shocked!  This was a tough area for us to cut back in because it was something we seriously enjoyed.  Therefore, we didn’t stop eating out all together, but we did cut way, way back.  We budgeted a certain amount each month and when that money was gone, we ate at home.  Again, this could easily save you $50 to $100 per month or more!

3.  Cut telephone costs.

Look for ways to lower your monthly cost on your home phone and your cell phone.  My wife decided to move to a pre-paid mobile phone which saved us most of her monthly cell phone expense.  We also negotiated with our long-distance company to get a lower rate.  I have also heard of people eliminating their home phone altogether to save money.  These efforts could save you $40 to $60 per month.

4.  Go to the library and stop buying books.

I love to read and prior to getting control of my finances I bought books regularly.  However, to save money I decided to reacquaint myself with my local library.  I now check out books, music CDs, and DVDs regularly.  I can search and reserve books on the library’s website.  They then ship the books I desire to the library of my choice for pick-up.  It is all very convenient and never costs me a dime!  This saves me at least $20 per month.

5.  Adjust the thermostat for savings.

You can save a significant amount on your monthly electric and gas bill by adjusting the thermostat by a few degrees.  In the summer, we turn the thermostat up during the day and wear shorts around the house when we are home.  In the winter, we turn down the heat at night and throw an extra blanket on the bed.  You can even automate this with a programmable thermostat.  This saved us $20 to $30 per month.

6.  Stop going to the mall.

Going to the mall is not entertainment!  We used to go when we were bored.  Of course, we usually ended up spending money while we were there.  If you need clothes, then shop sales or go to stores that offer name-brands at a discount.  You can save a ton on these items if you are a smart shopper.  Dave Ramsey says, “Never pay retail!”  We probably save $15 to $30 per month by staying away from the mall.

7.  Cut your spending on groceries.

Buy the basics at the grocery store.  You will save a tidy sum by buying staples and cooking at home.  Search the Internet for cheap and easy recipe ideas.  Cut some coupons and shop at discount grocery stores instead of the full-service chains.  Eat simple, healthy meals that are nutritious without costing a fortune.  By cutting back on groceries, we saved $40 to $50 per month.

8.  Sell off some of your toys.

Many hobbies end up costing a lot of money.  I love recreational activities, but there is season in life for everything.  It might be time to scale way back on some of the toys in order to get some financial freedom.  We sold a boat, Seadoo, and hot tub to cut back on our expenses.  It not only saved us some monthly payments, but it also eliminated storage and maintenance costs.  This saved us $60 to $90 per month.

9.  Scale back this year’s vacation.

I love adventure!  So, the thought of a staycation or even cutting back severely on our vacation plans seemed sacrilegious to me.  However, we did it and it wasn’t that bad.  We set a budget and then worked hard to plan a trip that stayed within the boundaries we set.  It worked out beautifully and turned out to be very enjoyable.  It is absolutely possible to have a good time without busting the bank.

10.  Get competitive quotes on your insurance.

Visit or contact an independent insurance agent to get competitive quotes to save money on your auto, homeowner’s and term life insurance.  Now is a great time to get better rates on insurance.  If you haven’t compared what you are paying recently, then I highly encourage you to do this now.  It saved us $50 to $60 per month.

Are you ready to stop whining and frugal up?

If we continue spending our money in the same manner as we always have, then we are going to get the same results we’ve always gotten.  Make sense?  By following the advice above, you can conservatively cut about $300 off of your monthly expenses!

If you want to do better with money, then stop whining and wasting precious time!  A proverb states, “The best time to plant a tree was twenty years ago.  The second best time is now.”  Today, you have the power to make positive changes in your personal finances that will help you achieve greater success tomorrow.

What’s the alternative?  Would you rather continue living with the stress, anxiety and pressure of trying to make ends meet?  I didn’t think so!

What other ideas do you have for frugaling up your finances?

Photo by africankelli