Free and easy tools linked at the bottom for you to improve your budgeting habits.

The problem:

Losing money - where does it go?

Managing personal finances and budgeting is difficult for many people. Though someone may very well be able to make a plan for how they want to spend their money, they find themselves loosing track and in many cases, give up on the budget entirely. It can also be really difficult to determine how much to allot for certain things because there are things that come up which were never planned for, or they may just not know enough about their spending habits to determine a good amount to allot for that category.

This was my story for years. I tried a lot of methods to maintain a knowledge of where my money was going and controlling it so I could get the most out of it. It was only when my fiancee (then, we are now happily married) told me of a system that her sister’s family uses that I really found a method which clicked. It’s called “Backward Budgeting.”

The concept:

The concept is simple enough: Pretend that you only get paid on the first of every month. I have found in many cases that people plan their budget based on what they’re going to make. The concept of Backward Budgeting is that you plan your budget based on what you’ve already made. This makes it a lot easier to plan and stick to your budget. It also creates a month-long cushion for you in case you’re the one who’s living paycheck to paycheck and you lose your income for a month.

Another problem is allocating money to the right places. A good way to accomplish this is illustrated in Dave Ramsey’s Envelope System. Basically, the philosophy is: Allocate a fixed amount of money, and don’t budge from that amount. You can change it for next month, but this month let it be and suffer a bit if you have to. This has proven to be very good for my wife and me.

Financial Freedom Just Ahead

The System:

The big question is how do you track it? Especially with the plastic payments (or even online payments) we use these days. You can’t really accomplish Dave’s Envelope System with a credit card. After many hours of work, I have developed a system that is incredibly effective, efficient, scalable, and user friendly. It’s based on Backward Budgeting and the Envelope System.

How it works:

There are two sides to your expenditures:

1. Fixed Costs
• Rent
• Utilities
• Insurance
• Cell Phone
• Etc.
2. Variable Costs
• Groceries
• Dates
• Entertainment
• Shopping
• Etc.

So, the budgeting system I’ve developed addresses one after the other. You begin by getting an allotment of all the money you made last month. You can add the balance of the funds you had from last month or you can put that amount in savings. The allotment you have for this month is then used to allot amounts for your fixed costs. What is left over is divided among your variable categories. The system also tracks your bank accounts, making it very easy to reconcile your expenditures with your online bank accounts. With all of these features also comes alert features and color coding which you can determine as well.

Links to the budget and sample images:

The budget is on a Google Doc. You can access it at the following links and then copy it to your own account by selecting “File–>Make a Copy.” You can then start making changes to apply the budget to yourself. (Click the images below for a preview of what the budget looks like).

Budget for couples with separate accounts: Click here

A Budget Template that works - for couples

Budget for individuals: Click here

A Budget Template that works - for individuals