Before credit cards and loans were easy to get, the act of budgeting consisted of spending your weekly income, in cash, until it was gone. Those who were more diligent put their cash into envelopes labelled for different categories of spending, such as rent, groceries, entertainment, savings, retirement, transportation, and medical. Once an envelope was emptied, then any further spending in that category was prohibited.
Today, most people charge everything to their credit card with the best points plan and they hope to pay most of if off when they get their paycheck. Playing with debt is always a dangerous strategy, particularly if you do not have financial literacy basics, such as budgeting. The good news is that there have never been more tools available to track your spending and create a budget.
While you can still manually track your spending with envelopes or paper and pencil, there are many free software solutions to choose among. The first decision is whether you want a smartphone app, online website, or desktop software. Many vendors offer several versions of their tracking service: a basic one that is free, and then, depending upon your needs, different deluxe versions that have a monthly or annual fee. In addition, many banks and credit cards offer summaries of your transactions that you can download into a spreadsheet and sort. You can find many options by searching for “free budgeting” or “free money management.”
If you do not track your spending it is similar to driving a car around blindfolded – sooner or later you will have an avoidable accident. Whichever methods you choose to track your spending, it is something that must be done. This is the very first step in managing your money: knowing how much is coming in and knowing where it is going out. This is necessary for day-to-day cash flow planning and a longer-term overview of your financial life.