Budget. It's an old-fashioned word that has come back into favor these days, the latest item everyone needs. Everyone's suddenly aware that their paycheck -- if they still have one -- cannot be stretched to buy everything they see and want. In fact, many budgets cannot even be stretched to cover the basic necessities.
When faced with the new economic realities you have two choices: bury your head in the sand and just keep writing checks and charging purchases until the money runs out. Or take a close and accurate look at what's coming in, and where it's going out!
That close look is called a "budget." A budget is like a roadmap or online directions from Mapquest or your car's route guidance system. You wouldn't drive blindly, without directions, simply hoping to get to your destination. In that same sense, a budget is designed to give you both a starting point
guidance to help you get where you want to go.
So let's take a look at the two basic steps to making a budget -- and some tools and products that can make the job much easier.
Step 1: Where are you now?
The first step is actually writing down what you own and what you owe. This may be the most difficult step, but all it requires is a sheet of paper with a line drawn down the middle. Now sit down at the kitchen table, pile up your bills and take a closer look.
Take a sheet of paper and draw a line down the middle. Make two columns, one for the total amount you owe and the interest rate on the debt. Next to that make another column for the minimum monthly payment on everything you owe, including your monthly mortgage payment.
Add up all those required monthly payments. Now you know where you stand. And now you can start to make your budget, trying to stretch your income to cover those required payments, plus food, utilities, gasoline and other necessary expenses.
Step 2: Making a plan:
So far, all of your work has been done on paper. And you can continue making a paper budget, using some of the very helpful guides that are available. My favorite is "The Budget Kit: The Common Cents Money Management Workbook" by Judy Lawrence. It's available inexpensively on
or in bookstores.
But if you have access to a computer, there are several free online budgeting tools. Quicken started the online banking and tracking craze years ago with its software programs. Now, like others, they've graduated to the Internet. You can go to Quicken's
and sign up, creating your own secure password. Then using this secure site, you'll register the PIN and password to all your online accounts, from checking to credit cards to mortgage payments.
Every time you sign in, you'll get the latest balances on all your accounts. But this is more than a money-tracking service; it is also a simple budgeting tool that allows you to set up a spending plan, and instantly, graphically see how close you are to your category budget goals.
The program is so "smart" that it also reminds you of upcoming regular monthly bills, so you aren't tempted to touch your cash balances. If you pay your rent or electric bill or car loan around the first of the month, it will remind you that the bill is soon coming due, and that you should reserve your cash to pay that bill.
Among the most popular free services for online tracking of personal finances is
, with more than 1 million users. It's simple to securely register all your online banking and credit card accounts, as well as mortgage and student loans, as well as your 401(k), IRA and other investments.
Based on your previous spending patterns,
helps you create a budget. It even sends text or email alerts when you're getting close to your budget category limits or credit card limits.
Mint.com just launched Financial Fitness, a new feature that takes the site from information to action, creating a step-by-step plan for each user. It becomes an online financial adviser, expanding its advice beyond just tracking spending to encourage planning in various categories. The program awards "points" for following its advice, such as increasing your savings. Those points don't buy you anything, but they do serve as a psychic reward for good financial behavior.
Other online budgeting sites such as
offer social networking so you can see how others in your age are doing with their spending plans, and commiserate with each other over your financial difficulties.
is partly owned by TheStreet.com.
The most important thing in making a budget is not the tool or product you choose. The key ingredient is your own self-discipline in actually using the program on a regular basis until the concept of focused spending becomes a habit. That's the only way to gain control over your money. And that's The Savage Truth.
Terry Savage is an expert on personal finance and also appears as a commentator on national television on issues related to investing and the financial markets. Savage's personal finance column in the Chicago Sun-Times is nationally syndicated. She was the first woman trader on the Chicago Board Options Exchange and is a registered investment adviser for stocks and futures. Savage currently serves as a director of the Chicago Mercantile Exchange Corp.