The budget toolbox: 13 tools for building a better budget

Sara's been reading personal finance blogs for a while now, and she's ready to set up a budget. She's come to us for help. She writes:

I would like to start listing my spending totals into a spreadsheet budget along with setting goals for ‘bigger things' (trips, winter tires etc). Do you have a budget template that works for you, or could you please recommend a few tips on getting started?

A budget can be an excellent tool not only for planning your spending, but also for planning your saving. Over the past 2½ years, I've shared a variety of budgets and budgeting tools — here are some of my favorite.

3 Budget Frameworks

A budget doesn't have to be complicated. In fact, readers have recommended three very simple budgets to me in the past. Most people will need more detail than these provide, but each provides a framework on which to build something more personal. (Notice that each of these allocates 20% to savings. If you can pick that habit up early, you'll be way ahead of the game.)

In The Only Investment Guide You'll Ever Need, Andrew Tobias offers the following simple yet effective budget:

  1. Destroy all your credit cards.
  2. Invest 20% of all that you earn. Never touch it.
  3. Live on the remaining 80%, no matter what.

Although Tobias is being glib, this is actually an excellent system. If you can develop the discipline to follow just these three steps, you can become rich.

In All Your Worth: The Ultimate Lifetime Money Plan, the authors argue that in order to succeed financially, you must keep three broad areas of your finances “in balance”. They say to divide your net income (after-tax income) as follows:

  • Allocate 50% to Needs (which the authors call Must-Haves). Needs include housing, transportation, groceries, insurance, and clothes you really need.
  • Spend 30% on Wants. Wants include cable television, clothing beyond the basics, restaurant meals, concert tickets, comic books, knitting supplies, etc.
  • Set aside 20% for Savings, including debt repayment.

This budget is designed so that you can save a lot and have fun. To achieve this, the authors encourage you to reduce your Needs. In fact, reducing Needs is the cornerstone of their advice.

At MSN Money, Richard Jenkins offers his 60% solution. He suggests your budget should divide monthly gross (pre-tax) income like this:

  • 60% to Committed Expenses such as taxes, clothing, basic living expenses, insurance, charity (including tithe), and regular bills (including things like cable).
  • 10% to Retirement.
  • 10% to Irregular Expenses such as vacations, major repair bills, new appliances, etc.
  • 10% to Long-Term Savings/Debt — money set aside for car purchases, home renovations, or to pay down substantial debt loads.
  • 10% for Fun Money to be used for dining out, hobbies, indulgences, etc.

Jenkins believes that the best way to relieve money pressure is to reduce Committed Expenses: cut the cable TV, spend less on clothing, reduce your housing expense, etc.

4 Budget Spreadsheets

Once you've picked a framework on which to build, there are a host of budget spreadsheets to choose from. My top recommendation is the PearBudget spreadsheet, a detailed, polished work of Excel art. If this doesn't meet your needs, move on to another option.

One of those options is the free and simple budget planner that Jeff M. shared with Get Rich Slowly readers last February. It's available in two formats:

  • Microsoft Excel (70kb) — right-click and choose “Save as…” to download. This file should also work with Open Office.
  • Google Docs — select “File -> Copy spreadsheet…” to save to your account.

Jeff's spreadsheet is designed solely to keep you on a budget you've already set, not to help you create a budget. Budgets vary from person-to-person. Create one that works for you, and use this planner to track your progress. If you need help developing a budget, try this Google Docs budget estimator from GRS-reader Justin M.

Finally, GRS forum administrator Stephen Popick shared his homegrown budget workbook last year. This highly customizable spreadsheet has tabs for your budget and your spouse's budget.

(If you're looking for other financial tools, It's Your Money offers an additional 33 personal-finance spreadsheets for a variety of uses, from budgeting to fuel tracking to CD laddering.)

3 Web-Based Budget Tools

Naturally, there are web-based tools for budgeting, too. Here are three excellent choices:

  • The afore-mentioned PearBudget comes in a web version that receives rave reviews.
  • NeoBudget is an online budget manager that uses the envelope method to help you track your spending habits and stick to a budget.
  • Finally, You Need a Budget offers a robust feature set, and is probably most appropriate for advanced budgeters.

I've never used any of these products. If you have tried one (or more), leave feedback to let us know your impressions.

A Few Words of Advice

Last March, Joshua explained why he believes budgeting is the most important thing you can do with your money, and offered hints on how to get started. More recently, Trent at The Simple Dollar shared his 10 tips for a successful budget:

  1. Know why you are budgeting. Don't do it just because you think you should — do it to help yourself spend less than you earn.
  2. Have a specific, concrete long-term goal in mind. Remember: the road to wealth is paved with goals.
  3. Know how much you actually make.
  4. Have accurate data for both your monthly spending and your irregular spending. You can get this data by learning to track your spending.
  5. Choose checking and savings accounts that include useful budgeting tools by default. ING Direct, for example, makes it easy to open multiple accounts.
  6. Use a simple budgeting tool that you're able to understand. “Start with pencil and paper if you have to,” Trent says. (Any of the tools I listed above would be a good choice.)
  7. Be realistic. Don't start by promising yourself to be a super saver. Take small steps, and work up from there.
  8. Get support from at least one other person.
  9. Set some short-term goals that will be easy to achieve if you stay on budget. These will give you a psychological boost so that you're more likely to stick to the program.
  10. Don't be afraid to adjust your budget (even radically). Be flexible. Your goal is to find a system that works for you.

Trent's advice is great. I'd add that, if possible, you should base your budget on yearly expenses. The Journal of Consumer Research found that people are more accurate when constructing an annual budget than a monthly budget.

Reader Hints and Tips

All of these tools are excellent resources to help Sara start budgeting. I think her best bet, however, is to pick the brains of Get Rich Slowly readers. You are real people with real lives who have implemented real budgets. You're not some personal finance writer pushing a theoretical model to sell books.

If you keep a budget (or have in the past), what's the best way to get started? What works? What doesn't? What should Sara do to ensure ongoing budgeting success?

More about...Budgeting

Become A Money Boss And Join 15,000 Others

Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)

Yes! Sign up and get your free gift
Become A Money Boss And Join 15,000 Others
guest
55 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Miranda
Miranda
12 years ago

Wow. Thanks for this comprehensive list. I’m already seeing some ways that I can tweak my own budget to be more effective and work better for me. I especially like the idea of knowing how much I make. As a freelancer, the amount varies from month to month a little bit, and sometimes I only have a vague idea of what is coming in. I need to better account for it, and come up with a monthly average.

Liz
Liz
12 years ago

I used a rough budget for years to track in coming and out going. For the last four months I have used an excel spread sheet. It has taken the four months to tweek the budget to where it realisticly reflects where our money goes. Now our budget is set up to accurately track where our money goes and how we are progressing on our savings goals. The first three months were very helpful to see exactly where we spent money.

Curt
Curt
12 years ago

Excellent article. Thanks for all the options. I have found that starting a budgeting is perhaps the hardest task, and having so many options can sometimes be overwhelming. I say if you are just starting your first budget, then start with three columns on a napkin. That’s right, I said napkin. Budgeting is as much about communicate as it is about money. So, start by finding three things that you can agree with your spouse about and write them on a napkin and hang in on the frig. As time goes on, you can add columns and eventually have your… Read more »

Isabel
Isabel
12 years ago

I don’t budget. I am not organized enough to make sure that a certain percentage of my money goes to X, another percentage to Y, etc. But I am, by nature, a saver. So my “budget” is: spend as little as possible (within reason) and save everything else. I wouldn’t call it a budget; it’s more of a mindset, or a habit. Before I had a kid, I was saving about 40% of my gross income. Now it’s probably more like 15 or maybe 20. I also have to take issue with the fact that everyone MUST have a specific… Read more »

Greg
Greg
12 years ago

I’ve used Ace Money Lite for a few years now and it works really well for me (and is free). But I’m wanting to move my budgetting to an online tool of somesort so I don’t have to worry about loosing my data, hopefully something that links directly to my bank accounts and bills so I can automate even more. Any suggestions? I’m curious too… none of those methods mentioned anything about X% you should donate. I know when you are trying to get rich, giving money away seems counter-intuitive, but I’ve found making that a priority helps me realize… Read more »

brent
brent
12 years ago

maybe this is a dumb question, but are you generally supposed to save 20% of your NET pay or your GROSS pay? what do people usually shoot for? thanks.

margaret
margaret
12 years ago

When they say 20% of your income do they mean before or after taxes? I’ve never understood that.

on preview: what brent said!

Understatementjones
Understatementjones
12 years ago

Can I point out that using 50% or 60% as rules of thumb for “Needs” inherently makes no sense? Every time I get a raise, I have to dig up new “needs” to have. The reality is, when I get a law degree I will make about twice as much as I do now. Yet I will have essentially the same “needs” – maybe I’ll have to spend a little more on clothing and other costs of the profession – but nowhere near twice as much. It seems to me the only appropriate way to budget is to pay your… Read more »

Kim
Kim
12 years ago

I love, love, LOVE “You Need a Budget” (www.youneedabudget.com). It’s more than a budget program- it’s a way of financial life/thinking. The 4 Rules have made sense out of my chaos for the first time. I have ADD, so keeping track and keeping organized is difficult, but this program has made it much easier. I wish I’d had it a couple years ago when I was really struggling with the idea of budgeting/planning spending. The program also dovetails nicely with a number of financial philosophies. It’s very much in keeping with JD’s mantra, “do what works for you”. The support… Read more »

FranticWoman
FranticWoman
12 years ago

“If you keep a budget (or have in the past), what’s the best way to get started? What works? What doesn’t? What should Sara do to ensure ongoing budgeting success?” Don’t associate budgeting with being on a TIGHT budget if you don’t have to. I always looked at it that way – “being on a budget” as being rigid with money (and cheap) and why I avoided one so long. It is about meeting goals, as has been discussed. What works for you is individual. Categories and thresholds are different for everyone. Include monthly bills and the sporadic ones. List… Read more »

Menace
Menace
12 years ago

I agree to some extent with Isabel. I use big index cards and a pencil, writing down all my monthly expenses, my income, etc. With a pencil, I can adjust monthly if needed. On the back, I put big goals, like save $5,000/year for an emergency fund (and how much each month I need to save to do that), pay off credit card, save for trip to Italy, etc. It’s super cheap, non-techie (I hardly know how to set up an excel spreadsheet), and I keep it easily accessible so I can reference it when I look at my online… Read more »

Kate
Kate
12 years ago

I started by creating a spreadsheet to track all of my monthly spending. After a few months, I felt like I could build a more accurate budget. I’ve been able to actual figure how much should be devoted to different categories of my spending. And as I add my spending into the spreadsheet, it automatically tallies how I’m doing towards my budget goal in that category. What I’ve found is that the more practice that I have working with it, the more tweaking and customizing I do and the more energized I get checking it.

MM
MM
12 years ago

I just got started with You Need a Budget and am loving the visibility into current needs (mortgage, food, transportation costs) and future needs (savings for new tires, major emergency fund, annual insurance premiums). This work for Sara’s needs – because you give your current dollars jobs that occur in the future – those annual costs (like insurance premiums) or antipated costs (like replacing almost-bald tires or taking a vacation in 6 months). The amounts accumulate over the course of several months’ budgeting, so they are available when you need them. AND you can see the progress toward your goal/objective.… Read more »

TosaJen
TosaJen
12 years ago

I think it’s best to attack money management from both ends: budgeting and tracking. We budget only to estimate what to commit for for big expenses based on our “worst case” incomes*: housing, cars, utilities, clothing, ongoing educational and recreational expenses, travel, etc. Those items typically require a commitment of a certain amount of money on a regular basis over time, and are typically difficult to change quickly. Once the big expenses have been set, we go into the mode of tracking every penny spent, and adjust our spending in the more flexible categories that are not where we want… Read more »

Fan
Fan
12 years ago

Are these percentages before or after taxes?

For example, in Canada, increasing your retirement savings in RRSPs will increase your after tax income.

Joyful Abode: Domesticity by Trial and Error
Joyful Abode: Domesticity by Trial and Error
12 years ago

My budget is so simple. I did it in a word document (The neater version of the large index card above, since my handwriting sucks). Retirement savings aren’t on my paper. They come out before anything else, so I can ignore them. I think right now we’re doing 15% but we’re about to raise it to about 22%. Then I have all of my bills listed. Rent, cell phones (we don’t have a landline), internet, netflix (we don’t have cable… netflix is cheaper), gas, insurance, house savings, emergency savings/savings for big stuff ($10,000 in that account is for emergencies only.… Read more »

Emily H.
Emily H.
12 years ago

I guess I’m from the Andrew Tobias school of budgeting: save x% out of every paycheck, try to leave enough ‘float’ in my checking account to get through any minor emergencies or unexpected expenses (this is separate from my emergency fund) and don’t sweat the details.

I spend pretty much the same amount week in and week out, and I check up on my checking account twice a week or so to make sure I’m not wildly off. I’m not trying to squeeze every possible penny out of my budget, but it works for me so far.

Jason
Jason
12 years ago

I checked out the Pearbudget spreadsheet and it looks great, but for simplicity’s sake I keep every item in my budget the same from month-to-month. It’s gotten to the point where I don’t even need to fill out my budget anymore, I know what I’ve spent where and know what I need to work on.

If you prefer simplicity I would suggest creating a budget, tracking every dime you spend for a few months and tweaking that budget as you go along. After a few months you should have a realistic budget set, and stick to it.

J.D.
J.D.
12 years ago

RE: Gross or NET?

For the 60% solution, at least, the budget is explicitly based on GROSS pay. I’m certain that the Andrew Tobias budget is, as well. Let me dig into All Your Worth to see if it’s made explicit…

All Your Worth is explicitly after taxes. I’ll edit the post to make it more clear.

J.D.
J.D.
12 years ago

Also, I should note that, for the most part, Kris has been operating on the Andrew Tobias budget for years. She does use credit cards, but she pays them off every month. She saves 25% of her gross income. Spurred in party by watching her success, that’s my goal, too.

Early Retirement Extreme
Early Retirement Extreme
12 years ago

Saving close to 85% of NET income. No budgets. Just a continuous effort to optimize the efficiency of our spending rather than setting out nominal amounts that must be spent according to some book.

Jason
Jason
12 years ago

I noticed you didn’t mention any of the finacial software (quicken, money,etc). Why not?

I’ve been using Quicken for about a decade now, but I’ve never really been happy with the buget part of the program. The transfers between accounts make it hard to come up with accurate expenses. I’ve finally found something that works ok, but I always thought it could be better/easier. Is that the general consensus (hence no recommendations here) or has anyone have better success than me?

Melissa
Melissa
12 years ago

Echoing Katie and MM, I have been using You Need a Budget for about 9 months and find the budgeting philosophy–in addition to tracking expenditures–really useful. I’m not sure how YNAB compares to other programs because it’s the only one I’ve used, but the customer support is fantastic.

And @Greg, the YNAB pre-set categories for budgeting include charitable giving (you can change those, of course). But it was nice to see a program that views giving money away as a healthy part of a budget.

Ross
Ross
12 years ago

The one thing I notice is that none of these budgets allow any money for donations.Setting aside any religious connotations just think would this country could be like if every American donated even 5% to their favorite charity. I think the average now is something like 2%.

Kim
Kim
12 years ago

We love Richard Jenkins’ 60% solution! It’s the only way to do it, IMO.

The virtues are that: 1)it’s not complicated, 2) it’s informative in a way a traditional budget is not, 3) it has a built-in pay yourself first feature, and 4) it’s easy to establish.

mythago
mythago
12 years ago

Ross, I think you could put that under “needs” 🙂

I really dislike the advice to tear up credit cards – unless you are somebody who compulsively spends. They are good for building up a credit rating and for emergencies; I would rather pull out a credit card then tap savings if, say, a relative fell ill and I had to buy a cross-country plane ticket tomorrow.

Joyful Abode: Domesticity by Trial and Error
Joyful Abode: Domesticity by Trial and Error
12 years ago

I also use mint.com to track my spending.

They now have a built in budget feature that will email you updates about how well you’re sticking to it (or not).

kergoth
kergoth
12 years ago

As others have said, YouNeedABudget isn’t a web based tool. It’s a framework (4 rules, see the web site), and either a spreadsheet or a windows application to facilitate living by the rules. I love it. Completely changed the way I manage my finances, and for the first time in my life, I’m completely prepared for the future events I know about, like Christmas and car insurance.

Nicole
Nicole
12 years ago

I love my budget. I have been using the Pearbudget excel spreadsheet for almost two years. I enter information on an almost daily basis so that I see how much I am spending as I go and can adjust as the month goes by to keep within my budget limits. For example, if on day 15 of the month my dining out budget is already blown, I know I have to eat in for the rest of the month. Before I had a budget, it was easy for me to overspend without realizing it. I tried the pearbudget on-line version… Read more »

Jordan
Jordan
12 years ago

I like my budget everything is split up for charity, savings and investing, business and school, spending money and I live on a little over 35% of my income.

Of my business money I allocate that as well. Tithe, business savings and investing, advertising, frivolous business splurge and the rest for business needs.

Neil
Neil
12 years ago

Thanks for the great resources. I’ve always had a rough budget worked out in my head, and save roughly 20% of my income before expenses. Like some of the others I’ve used the professional products and just found they didn’t do exactly what I was looking for to really get the exact numbers down.

One quick look at Pearbudget and I’m sold. It will be interesting to see if I’m as close to my target as I think I am.

Renaissance Trophy Wife
Renaissance Trophy Wife
12 years ago

I second JoyfulAbode– Mint.com is definitely my favorite financial management tool. Tons of features, auto updating, flexible budgets…

My post on it is here: renaissancetrophywife.wordpress.com/2008/09/12/minty-fresh/

Croc
Croc
12 years ago

J.D., when Tobias writes that you should invest 20% of your income and never touch it, does that mean never-ever-never or just-until-you-are-rich-never. Essentially my question is whether you ever get to use the returns on your income or if it is just to pad your net worth and bank statements until your inheritors get it?

I guess you could use 80% of the return on your original 20% investment and then re-invest 20% of the return into your investment. That would be a very nice feedback loop wouldn’t it?

Julie
Julie
12 years ago

I think that the envelope system, as such, has become somewhat outdated in this age of debit cards, credit cards, checks, online shopping, etc. I challenge you to find any person who pays for things only with cash. Heck, I try to keep things mostly cash, but I do online charity donations, use my debit card for purchases that are too expensive for cash in my pocket, and so forth. I would hate to think that I’ve got hundreds of dollars at home, in cash, once I’ve taken out my “spending money” from my paycheck to put in envelopes. I… Read more »

BrianF
BrianF
12 years ago

@Jason #22: I’ve had the same frustration with Quicken/Money. From a “spend every dollar on paper” perspective, a transfer of $150 to an Auto Expense Fund is $150 spent on auto expenses. However, the odds are that your spending is more irregular. Hence, the budget doesn’t help in tracking your actual spending. My solution is to use the fund balance as a mini-budget. My primary budget has the $150 transfer recorded as $150 for auto expenses. If there is no money in the account, I don’t spend it. This keeps me within the overall budget. If, for some reason, an… Read more »

amy
amy
12 years ago

I’ve been using YNAB for a year now and it
works very well. Easy to use, and very
motivating. There is a category for donations/tithe as well. We also use
envelopes for groceries, gas, household,
and entertainment as well as a little “blow”
money. Savings goes directly into ING and
we have set up “sinking” funds for taxes,
car expenses, house insurance, etc. Using
this software has helped us save up a six
month emergency fund!

Katie
Katie
12 years ago

Be flexible with your budget. I have been tweaking mine for two years, and it keeps getting better and more accurate. I use my own spreadsheet, and I started out tracking every expense item into categories. We were trying to figure out where our money was going, especially the category of eating out. Now that we have resolved those issues, my “tracking” is less exact. I have a separate spreadsheet for my savings account where I keep categories like travel, property taxes, car, future investment, etc. This helps me know what that chunk of money is sitting there for and… Read more »

Moneymonk
Moneymonk
12 years ago

I personally do a 70/30

I save 30% and force myself to live on the 70

30-

10 tithe/charity

10 savings

10 retirement

It will change shortly

Mother Necessity
Mother Necessity
12 years ago

I keep dallying with a budget, but I find the most useful way to spend my time is to track my expenses. I do this on Quicken, and it allows me to compare my spending by month, year, prior year period, etc. I have an official budget written up that I keep in the back of my mind, but I find it makes more sense for me to track my expenses; I can then quickly assess how I’m spending my money each month, and if any areas need adjusting.

frugalcoconut
frugalcoconut
12 years ago

I have always been more interested in forecasting FUTURE spending/saving than anything else. I rarely see a web-based service to assist with this; however, I came across Calendar Budget (www.calendarbudget.com) and was highly impressed with how it aligned with my needs. The only major thing I would change about it is the fact that it doesn’t add up all of your bank accounts… it is great at showing your running forecasted balance for any given point in time within an individual account but there should really be another tab that sums everything up for a grand running total. I am… Read more »

Sarah
Sarah
12 years ago

I have always used my own spreadsheet but I am now going to incorporate the simple rules from The Richest Man in Babylon. Running your own business makes budgeting much harder especially the pay yourself first bit but I am going to give it a go!

Funny about Money
Funny about Money
12 years ago

I also have found Quicken’s budgeting function frustrating. I use an Excel spreadsheet instead, to track the part of my monthly paycheck allocated to discretionary spending. Savings and enough to cover inescapable costs (such as utilities, taxes, etc.) come out of each paycheck with automatic transfers to separate checking and savings accounts, where most are disbursed with automatic payments. So in effect I really only have to “budget” spending on things like groceries and clothing.

Mike
Mike
12 years ago

Long-time reader, but this my first posting, because I had to comment about YNAB. I have been using YNAB for 2 years ever since I got fed up with Quicken’s budget software and looked for alternatives.
It started as an excel spreadsheet and has turned into a desktop app. It is a great product with passionate users and developers. It has really helped my wife and I achieve our financial goals. Try it out.

Tosin Matti
Tosin Matti
12 years ago

Thanks again for the great article on budgeting.I enjoyed reading the comments on this subject and I learned alot from the other readers. I’m going to check out YNAB.

Angel Cuala
Angel Cuala
12 years ago

This is another great list of advise here. However, I think it is easier to say than do.

The first problem a person would have in saving some money for the future is when the income is not really sufficient for the daily expenses.

Paris
Paris
12 years ago

This was really helpful. I’ve been in a bit of a panic about not being able to save enough due to paying down student loans (the current balance is 150% of my annual salary). Yet once I factored in my employer’s contribution to retirement savings (on top of my base salary), I realized that my budget lands pretty squarely within the guidelines of the two plans listed above. Thanks! I hate credit cards, but keep one strictly for car rentals (don’t own a car) because most include the basic insurance for which the rental company charges excessively. Despite my extravagence… Read more »

Julie
Julie
12 years ago

This is a great list of tips! I think one point I would stress is really using the internet to its fullest to bring savings. I work for ShoreBank, where we have taken that on – currently we’re offering a 3.5% high yield savings account (check this site for more info: http://shorebankdirect.sbk.com/) which we’re able to make available at such a high rate because the accounts are opened and managed online (though if you are looking for more traditional banking, we have that too). So – I’d add this tip: look for companies like ShoreBank that are saving money online… Read more »

Jason
Jason
12 years ago

The best advice I can give anyone trying to hold to a budget is to give yourself an allowance.

Either withdraw your allowance in cash on a specific day every week, or have a second checking account and set up an automatic transfer every week.

I use the second option.

Jason B
Jason B
12 years ago

After reading some Consumer Reports blogs, particularly about vacuum cleaners, I came across a comment about “staying within your budget” when you’re trying to decide what vacuum to buy.

My question is… how do you budget for occasional necessary expenses? There was a post recently about thinking in annual terms instead of monthly, and that really helps with automotive maintenance. But if you’re only buying a vacuum every 5 or 10 years, how do you know how much is a good amount to spend? Where does it fit in your budget? It’s not groceries!

Eric Poulin
Eric Poulin
12 years ago

frugalcoconut – If you want to leave some comments on the CalendarBudget Contact Us link – I’d like to hear more about how you’d like to see all your accounts totaled. CalendarBudget’s multi-account feature was originally designed like this, but we changed after the implementation was confusing to our users. Let me know.

shares