Can you hit your financial goals without budgeting your spending each month? What about if you're tracking every penny you spend, but not setting aside certain amounts for each category?
For the past year or so, we've been tracking all of our purchases to find how much we are totalling at the end of the month, but not planning out how much we will spend for groceries, entertainment, and other expenses that fluctuate month-by-month.
But would it be better to establish budgets for the expenses that change every month?
This month, we're trying it. (We used to do this when we first started saving money, but stopped after a while).
The past few months have been a bit expensive — our out-gos have been higher than our incomes. But since we treat savings as expenses, we're basically moving money from our cushion into savings.
Our paycheck to paycheck mentality makes our checking account levels relatively low, but this forces us to really watch what we spend.
What do you think: If you're automatically set to save money, is tracking your spending as good as budgeting?
The number of Web sites and online applications available for you to manage your money and improve your finances keeps growing all the time.
CNNMoney.com has put together a slideshow of 7 technologies for optimizing your budget.
These are targeted at small businesses, but are certainly applicable to many home users.
The only one of these I can highly recommend is Yodlee, which I've been using for over a year.
Have you used any of these services? What do you think of them?
Let us know in a comment.
Personal finance is about 95 percent mental and 5 percent physical. Once you've put the right system into place, you just have to block out all the noise and plow ahead.
So as much as you may have been led to believe otherwise, the biggest thing blocking your success is you.
You are your biggest investment — and sometimes you make the wrong decisions. That's simply human nature.
Bankrate has a great story about 7 'psycho' money traps and how to beat them, highlighting how we cause ourselves problems.
Their seven mental money traps:
1. The lure of 'free'
2. The 'anchor-price' persuasion
3. The instant-gratification attraction
4. The dollars-to-donuts decoy
5. The separate-buckets blunder
6. The 'sacred-fund' slip-up
7. The lost-money fallacy
These are all great examples of how we naturally make poor financial decisions. You're not the only person who's ever made these mistakes. But you can easily overcome them.
If you want to ensure that you aren't blocking your own financial success, automate the processes.
Want to save for a new car? Set it and forget it.
Working hard to time the stock market? Automate your investments and you'll benefit from dollar-cost averaging.
When you take the 5 percent action required, you've set yourself up for financial success. Turn around your bad habits and start to feel comfortable with your decisions.
Online banking and the Internet can do a lot to improve your money management shortcomings, but they can't do it all.
No one's going to stop you from buying that videogame you don't really need.
No one's going to stop you from living beyond your means (except maybe the bank, and you don't want to go there).
No one's going to stop you from being lazy and putting off the process to your financial freedom.
You've got to be the one who steps in and makes smart decisions. The tools are all there, but you need to make it happen.
The last day of the month is almost always my favorite day. Seriously.
It's the day that I get to calculate how well we did with our finances for that month and, most of the time, see how much we have left over to move around into our various savings accounts.
I know. Totally geeky, right? But it's true. I even started calculating our expenses a couple days early this week, adding up categories I knew we wouldn't add to (like rent and phone payments) just to see where we'd come out.
The best part about adding up the totals is that it automatically includes money saved for our housing fund and for retirement. So when our expenses are totaled, we've already socked away 25% of what we've "spent" — and that doesn't even include my 401(k).
So when we have "extra" money at the end of the month, it's exciting to know that we saved even more money beyond our autopilot contributions. Deciding where to stash that money is the most exciting game we get to play all month (well, besides Bananagrams).
This month, our spending (including the 25% auto-savings) totaled only about 89% of our take-home pay, so we've got a nice 11% difference to use.
It's a great feeling to have. That's why I love the end of the month.
Are you giving yourself something to look forward to for next month?
Can the wisdom of the crowds decide how to manage you finances better than you can? I'd love to find out.
Imagine a person who left all of their financial decisions up to "the crowd." From budgeting to investing to spending, their entire financial situation was determined by others.
A number of social finance sites, like Wesabe, have popped up. But they're more about comparing your spending to other people.
What would happen? Could the crowd successfully manage someone's finances?
This would be something really compelling to follow — whether it's a blog or a podcast or whatever. And it's my gift to you — absolutely free to use.
One of the biggest reasons you should put your finances on autopilot is for the sheer comfort of it.
When your bills are getting paid automatically, your savings is being fed without you touching it, and your paycheck is going straight into your checking account, you don't have to worry about them. It's the biggest weight off of your shoulders.
You don't need to find the time to head to the ATM. You automatically pay yourself first. You don't have to worry about the post office losing your check in the mail.
The only bill I still pay by check is my credit card, and every other day I forget exactly when it's due and, therefore, when I need to send it in. It's weighing down on me.
The less you have to worry about, the better off you are. Don't let your finances overwhelm you.
Automate today and feel more comfortable.
I don't keep a lot of money in my checking account, which we use to pay all of our bills. Why would we? It's a non-interest bearing account from Bank of America that literally only gets used to funnel money in and out.
Money is either coming in via direct deposit, getting automatically sent to pay our bills, or going out to our retirement or housing funds by itself. Since this keeps us on a paycheck-to-paycheck mentality, we like to have a little extra money available: a financial cushion.
Beyond having an emergency fund (which is in a separate, high-yield online savings account), the financial cushion keeps us from worrying that, somehow, a bunch of our transfers will happen on the same day and leave us empty (or worse, overdrafted).
Funny about Money describes his paycheck-to-paycheck safety net of about $500, which will cover his short-term emergency this month.
For us, the financial cushion is a little bit higher — around $600 — mainly because so many of our transactions are automated. For the most part, the transactions happen on the same days every month, but I don't trust our service companies (Sprint, Comcast, etc.) to keep to that schedule.
So, should there be a blue moon and a bunch of transactions automatically happen within a day or two of each other, we're covered.
Do you have a financial cushion? If so, how much?
One of the bigger "disagreements" in the personal finance blogosphere is whether or not it's better to pay for everything with cash, use a debit card, or rack up rewards on your credit card (if you pay your balance off each month).
My personal spending habits are to use my debit card for everything. If I purchase something with my debit card, I know that I can see the transaction online, which carries over to my Yodlee monthly spending reports. I rarely carry cash because I rarely go the ATM (or maybe it's the other way around).
Others say that you should only use cash — specifically, what you have in your wallet. Once you see it leaving, you realize you don't have it any more.
The discrepancy in advice doesn't necessarily mean that some folks are wrong and some folks are right — everyone is working toward the same goal: spend less than you earn.
When you spend less than you earn, you're only buying things with money you actually have. That's "cash" in hand, whether it comes on paper or from your debit card.
Your preference — using cash or debit — depends on your ability to manage your spending. You need to figure out what works best for you.
The only wrong answer is spending beyond your means.
Within the last year, there has been a proliferation of interactive money management sites. If you don't know how they work, they basically categorize your income and spending so that you can better track your finances.
Depending on the service, you enter in your own data or can have it scraped from online banking sites you already are signed up with. Kind of like what one would see in Money or Quicken, but online, and often they give advice based upon your data.
For instance, if they see you have a high-interest credit card, they might suggest one with a lower rate. As of now, they all seem to be free of charge.
Some examples: Wesabe, Mint, Buxfer, Geezeo, Billeo, Quizzle. I know I've seen even more. I can't recommend or offer too much individual comment on any of these because I haven't used them enough and, frankly, I don't feel like going through the set up for each one.
I really don't know how anyone decides which ones(s) to use.
The ancestor of this technology seems to be the account aggregators, such as Yodlee. With the explosion of so-called Web 2.0, they've evolved into something more. It's inevitable there will be a shakedown sometime soon, with some collapsing, some merging, maybe some charging, and some being bought by banks or online banking providers.
Until that happens, I plan to sit on the sidelines.
Is anyone using any service like this yet? If so, how has it (or not) helped you?
Tom Valenti is a marketer and project manager who currently works for a financial institution in New Jersey. For more info, visit him at http://tomvalenti.com.