Choosing a Budgeting System That's Right for You

 

Over the last several years, I’ve had the opportunity to try out a
number of different budgeting systems, both for personal use and because
readers have asked me to try them out.


All of these options have the same goal: get control over your money.
Where they vary is in their execution. Some allow you to directly
import information from your banks, while others do not. Many utilize
your computer, but a few do not. Some work on Windows, some for Mac,
some on mobile devices, and some work on all three (and Linux, too).
Some are free, while others cost money.


And, in the end, some options just work better than others.


I’m often asked to recommend a single budgeting solution – and I will get around to that at the end of this article – but the truth is that there is no single budgeting solution that works best for everyone. Everyone has different needs.


So, what I thought I would do is walk through some of the big
questions I would ask myself when trying to decide on a budgeting
solution and give some recommendations depending on what your answer is.
I’ve boiled things down to three key questions to ask yourself when
selecting one.

Do You Trust Online Services with Your Bank and Credit Card Login Information?

In an effort to make things easier to use, many companies provide
budgeting software that synchronizes with many of your financial
accounts – your savings, your checking, your credit cards, your other
debts, and your investments. These pieces of software will
automatically pull in all of those transactions for you so that you can
see all of that info in one place.


This is incredibly convenient, but it does come with a price of
sorts. You have to turn over your account information. Most of these
companies have an incredibly strong security policy, which makes them
about as trustworthy as possible online, but you’ll have to make up your
own mind as to whether it’s worth it.

My Pick: Personal Capital

Many people might have expected me to choose Mint here. While I
think that Mint is a great piece of software, I feel like Personal
Capital takes it to the next level.


So, what’s Personal Capital. Personal Capital is a smartphone and
web application that pulls together all of your account information and
presents it in a single view for you to analyze. You can build a
budget, see how your spending actually matches that budget, and make
adjustments in your own life accordingly.


That sounds exactly like many other packages, so what sets Personal
Capital apart? For me, it was how it handles investment and retirement
planning. The software does a great job of helping you figure out your
full investment picture far better than the other options I’ve tried.


Of course, as with any free service, the makers of the software need
some method of making money. In Personal Capital’s case, their
investment analytics provide a lot of encouragement to sign up with
Personal Capital Advisors. I have no real opinion on their services as I
never signed up, but I haven’t found a compelling reason to move away
from Vanguard.


Still, I’ve found that Personal Capital does the best
all-around job of managing my finances and budget among tools that rely
on sharing personal finance information.

Alternative: Mint

Mint is easily the most popular tool in this space and it does an
amazing job of organizing your finances. In terms of strict budgeting,
it does at least as good of a job as Personal Capital.


So what holds me back from making this my main recommendation? Their
big method for earning money is that the software presents you with
“offers” from other financial services, like banks and credit cards,
which means that I’m presented with more things I don’t care about with
Mint compared to other software options. Also, I’ve had a worse
experience with making my accounts sync with Mint than with Personal
Capital. During my trial run with Personal Capital, I don’t recall a
single problem with account syncing.


Mint is probably a better all-around solution for people who
have few investments and mostly just want to focus on keeping track of
their expenses and income, given, of course, that you’re fine with sharing your account information with them.

The Search Continues…

My answer to this question of trusting online services with my account info is no, I don’t trust online services with my login information.
It’s not that I doubt their security – I fully believe that all of the
services above use stellar security. It’s simply that such services
offer a single entry point to all of my financial accounts and that
makes me extremely nervous no matter where that data is being kept. That data can be kept on the most secure server in the world and I wouldn’t like it.


For me, at least, if I’m going to share significant personal data, I
need to be getting something quite valuable in return, and in a world
where there are lots of budgeting software solutions that do not require
that type of information sharing, I’m just not getting enough value for
me. Yes, I understand that my personal data is “already out there,”
but that doesn’t mean it’s perfectly fine to share my info with yet
another service.


Not only that, I prefer to manually enter my expenses and income.
Why? It keeps me mindful of all of that information. If I just
automatically import it, I lose touch with each individual expense.
Yes, sometimes I miss an expense or two, but I reconcile things with my
account statements at the end of each month – again, it’s a way to keep
me mindful.


So, how secure do you want your system to be?

Would You Prefer Your Budgeting System to Be Completely Off the Computer?

Some people simply don’t want to trust any of their
financial data to their computer. Given the many security issues that
are associated with online computer use, this can be a justifiable
stance to take.


Of course, people were budgeting and organizing their finances long
before everyone had a computer on their desk. There are a lot of tools
and great ideas for offline budgeting that work quite well. I’ve tried
several, but two stand out for me.

My Pick: Envelope System

The envelope system is simply brilliant because it takes the idea of
budgeting out of a table of numbers and makes it very tangible. It
works extremely well for people who prefer to operate in cash for many
of their expenses, though it can work well with checks, too.


Here’s how it works. You have a series of envelopes upon which
you’ve written a particular money expense and an approximate dollar
amount. So, for example, you might have a “Food – $75″ envelope and a
“Rent – $150″ envelope.


This generally works best if you base it on each paycheck. So, for
example, let’s say you get paid each week. Out of a given week’s pay,
you’d need to cover a quarter of your rent, a quarter of your electric
bill, a week’s worth of food, and so on.


Out of your paycheck, you put an amount into each envelope equal to
the dollar amount on the front. There are lots of ways to do this – you
can use cash, you can use checks, or you can use paper slips. When I
tried it, I used paper slips for most of the expenses and cash for some
of them.


So, what I would do is take my paycheck – let’s say it was $500 –
and, from that, I’d put the written amount into each envelope. $75 in
the rent envelope. $40 in the electricity envelope. $60 in the food
envelope. You get the idea. For the monthly bills, like rent, I’d just
put in a slip of paper indicating the amount (like a IOU – you don’t
actually have to use the paper slips, but it’s helpful). For
the other envelopes, like food and entertainment, I’d just withdraw the
total amount from my bank account. I would never withdraw from my account other than that.


Then, when I went grocery shopping, I’d limit myself to whatever was
in the “food” envelope. When I wanted entertainment, I’d limit myself
to whatever was in the “entertainment” envelope. At the end of the
month, I would have enough left in checking to pay my rent and my
electric bill and so on.


This system works really well and it makes everything very tangible. If you want to tackle offline budgeting, this is a great system.

Alternative: Traditional Paper Budgeting

Over the course of modern history, most people who have operated a
monthly budget have done so by filling out a table by hand. You can
find many of these online that you can easily print off for your own use – here’s a great example.


A table-based paper budget is basically just a list of monthly income
and monthly expenses. Each month, you calculate what you actually
earned and spent and reconcile it with your budget. If you managed to
stay within your budget, great! If you’re struggling in certain
categories, you’ll see that pretty quickly, too.


I consider this system a little more abstract than the envelope
system. If you run out of money in a category in an envelope system,
you know it instantly – your envelope is empty. In a paper-based
system, you might not know immediately that you filled up a particular
category. If you stay on top of things and keep the budget updated and
keep on top of your spending, this isn’t a problem.


Using a table like this works perfectly fine, but it does take time.
This is a task that a personal computer was practically designed to aid
with. However, as a tool, a table-based budget is a tried-and-true solution.
It will work. It has worked for many, many people over the last
couple hundred years. It just requires focus and an attention to
detail.

The Search Continues…

For me, I don’t have a need to have a completely offline budgeting system.
I’m not afraid to have the numbers themselves on my computer; it’s
account numbers and login information that really worries me.


The envelope system is great, but I’ve found that there’s computer
software that does a great job of simulating the same thing with a lot
of other features involved. We’ll get to that in a minute.


The next question to ponder is the question of “free.”

Is “Free” a Make-Or-Break Factor When It Comes to Budgeting Solutions?

For some people, sharing account info online is a non-starter, but
they’re also not in a position to pay for budgeting software. They want
a free computer-based solution where they don’t have to share their
account information.


This describes the situation I was in when I first started turning my financial situation around. I was adamant about avoiding paying more than I had to for anything. I became a connoisseur of the free.


For these folks, I have three recommendations.

My Pick: PearBudget

The first money management software that I tried after starting my
financial turnaround was the now-defunct Microsoft Money which came with
my old computer. I wasn’t particularly happy with it, so I started
searching around for another solution – and I found PearBudget, which I
used for quite a while.


PearBudget is a spreadsheet with a bunch of automated elements
written in. It works in spreadsheet programs like Microsoft Excel (if
you have it) or the free OpenOffice
(if you don’t). It takes an ordinary spreadsheet and pushes it about
as close as possible to a full personal finance software suite, plus
it’s still easy to use.


Not only that, PearBudget is perfect for tinkerers. If you know
spreadsheets – and I certainly do, as I had to use them professionally
at various points – you can tinker with almost everything in PearBudget.


PearBudget is simply the best free solution for budgeting that I’ve found that doesn’t require account info sharing. It’s that simple. The only drawback is that it requires some familiarity with spreadsheet programs to use it.

Alternative: Gnucash

PearBudget tends toward the minimal. It’s not overly complex; it’s a spreadsheet, after all.


Gnucash, on the other hand, is probably the most complex software on
this list. It actually can be used as small business software, though
it certainly gets the job done for personal finance.


It just does everything. You can make budgets. You can enter your
investment info. You can make all kinds of projections for the future.


Even better, it’s open-source software, which means that the source
code has been refined by a lot of programmers. It really does work
well.


The only drawback is that it’s a bit complicated to use. It’s like a Swiss army knife of personal finance software tools.


If you want a single package that manages your personal finances and your small business or side gig, go with Gnucash. It has a learning curve, but it’s incredibly powerful.

The Search Continues…

My answer to this is no, free is not a make-or-break factor when it comes to budgeting solutions. I appreciate the simplicity of PearBudget and the power of Gnucash, but neither one really hits the sweet spot that I want.

So What’s Left?

What about packages that don’t require you to share your data online
and aren’t trying to sell you on other financial products? This is the
category from which I chose a product; I’m willing to pay a little for a
robust tool that keeps others out of my business (as much as possible).

My Pick: You Need a Budget

You Need a Budget is the budgeting software I actually use. It stands out from the rest of the options for several additional reasons.


The big one? You Need a Budget is focused on a clear budgeting philosophy.
Rather than just sitting there and generating reports for you, YNAB is
all about helping you adhere to four “rules” of personal finance:


Rule One: Give Every Dollar a Job

Rule Two: Save for a Rainy Day

Rule Three: Roll With the Punches

Rule Four: Live on Last Month’s Income


The philosophy makes a ton of sense and the software is almost
perfectly designed to guide you toward it. More than any other piece of
software on this list, YNAB is budget-centric. It
just organically builds a budget that really works for you. Other
software lets you create a budget, but it’s less tied to the realities
of your life.


YNAB requires you to enter your expenses manually. It has a mobile
version which lets you enter those expenses on the fly (which I do). I
use Dropbox to
share a save file between my desktop version and my mobile version so
that when I open up either one, I have all of the current information
from the other version.


I use You Need a Budget for my own expenses.
It’s the only software package on this list that I currently use.
That’s the highest possible praise I can give it. If you want to give
it a shot, there’s a 34 day free trial.

Alternative: Quicken for Windows

Quicken is the “old standby” of personal finance packages. It’s a
desktop package that allows you to choose between downloading
transactions from your bank or entering them manually. From that data,
you can assemble a budget and make personal financial forecasts. It’s
simply a solid, stable product that’s been around for many, many years.
There’s also a mobile version (if you’ve chosen to link Quicken to your
bank accounts) that allows you to label your transactions on the fly.


The biggest difference between Quicken (and iBank, which I’ll discuss
below) and You Need a Budget is that You Need a Budget takes a
“budget-first” approach. Quicken is probably better at purely tracking
income and expenses, but You Need a Budget shines (for me) because it’s
built to encourage you to live by a budget. If you just want to track expenses and income, go with Quicken and not You Need a Budget.

Alternative: iBank for Mac

If you want to try Quicken but have a Mac, skip Quicken. Their Mac
version isn’t very good. Instead, try iBank, which is pretty much what
Quicken should be on the Mac. It matches the Windows version almost
feature for feature and, like the other options here, offers a slick
mobile version if you wish to use it that allows you to enter
transactions and synchronize them easily. If you just want to track expenses and income on a Mac, go with iBank.

Final Thoughts

As you can see, there is no “best” software for your personal finance
needs. You Need a Budget happens to match my own needs the best, but
you may find yourself with different answers to the questions above
which will lead you to different packages that will work best for your
situation.


None of the packages listed here are bad choices – they’re all good choices. I’ve intentionally not
mentioned several packages I consider poor options (as well as packages
I’ve never tried). It simply comes down to the fact that different
software solutions will work different for different people.


A budgeting system can change your financial life. It’s certainly changed mine. Good luck.

- The Simple Dollar