If you have been following this column the past two months, you may have been motivated to give online budgeting a try. If so, that's great!
If not, I hope you're at least using some type of budget — the envelope system, a written budget, an Excel spreadsheet, or budget software. As stewards of God's resources, a budget is an essential tool for consciously, proactively managing those resources.
After many years of using a paper and pencil system, and later Quicken software, I switched to the online tool Mint.com a few years ago. The fact that it's online provides easy access to our household budget, and by securely connecting to our bank and credit cards, most of our transactions are recorded automatically.
Analyzing and managing cash flow
For those who don't use a budget, finding the motivation to begin can be a challenge. Budgets simply have a bad reputation. People tend to think of them the same way they think of diets, even using the same terminology: "Poor Joe and Sue, they're on a budget." In fact, I once commissioned a study where non-budgeters and budgeters were asked to describe a budget. Non-budgeters used words like "restrictive" and "constraining." By contrast, budgeters felt "in charge" of their money and said, "A budget keeps me in a position of knowledge and control."
For those willing to take it on faith that a budget is not the ball and chain they may imagine it to be, the next challenge is actively using a budget to analyze and manage cash flow. It's one thing to set up a budget, which involves determining how to allocate income across the outflow categories of giving, saving, investing, and spending. It's another to actually use the information provided by a budget day-in and day-out.
You see, there are two key budgeting activities: 1) setting up a plan for your intended cash flow, and then 2) monitoring and managing your actual cash flow. Almost everyone who attempts to use a budget finds setting it up to be easier than monitoring and managing it in real time.
But it is only by monitoring how your actual spending is lining up with your intended spending that you can truly manage your spending. And that's where online budgeting tools really shine. With an online budget, it takes only a few minutes to see how much you've spent on groceries (or any other category) before making a shopping list and heading to the store. You can even check from the parking lot (or the grocery aisle!) with a smartphone app.
Knowing that you've used up more than half of your monthly allocation in a certain category before the month is half over can help motivate you to be more proactive in managing that category for the rest of the month. By the same token, knowing you're under budget may free you to pick up a treat you otherwise may not have bought.
It's helpful to check in with your budget on a daily basis. I log in to Mint each morning.
In the Overview tab, I can see any alerts about upcoming bill due dates, unusual spending in certain categories based on an automated comparison against normal spending, and more.
In the Transactions tab, I can see if recent transactions are categorized properly. You can set up Mint to always categorize purchases from certain stores in certain ways. In the Transactions tab, click on a specific transaction and then click on "Edit Details." You'll be able to check a box indicating you'd always like transactions fitting a particular description to be categorized a particular way. Otherwise, Mint will choose what seems to be the most logical category, which may or may not be the category you would choose.
In the Budgets tab, I can see at a glance how our actual spending compares with our intended spending.
I also find it helpful to review our budget at the end of each month. If you're married, do this review together. If you overspent in any categories, determine why that happened and what, if any, changes need to be made. It could be that it was an unusual month and the category will even out in the months ahead. Or, you may need to be more committed to truly managing that category. Identify some changes you could make to stay within budget in the future.
It could also be that the amount you budgeted in that category was simply unrealistic. You might need to allow for more spending in that category, which, of course, means you'll have to spend less in another category.
As with all budget tools, Mint isn't perfect. In particular, its investment tracking capabilities are inadequate. However, Mint is an effective and relatively simple tool for tracking and helping you manage cash flow.