What budgeting system is best for you?

MADISON, Wis. (11/26/08)--Budgeting is the last priority of a procrastinator.

Everyone knows--because of the experts' constant reminders--how important it is to track personal expenses, conserve income, and save the difference. Yet many people don't. The annual "America's Financial IQ" report from Consumer Action and Capital One consistently shows that one out of three U.S. consumers do not use a budget regularly.

"Creating a personal or family budget is usually near the bottom of people's to-do lists no matter how guilty we feel about it," says Philip Heckman, Credit Union National Association's director of youth and young adult programs. "Not everyone can marry a meticulous accountant. We need an incentive, a reward for doing the right thing. It helps to use a budget as a way to find the money to enjoy a favorite activity or treat without guilt."

It's also useful to look for the most painless system for managing personal finances. Here's what to consider when looking for the method that works best for you:

Budget manually. Budgeting by hand has worked since the invention of paper and pencil. A manual budget is cheap, infinitely adaptable, accessible whenever you have a few minutes, and lends itself easily to involving your spouse or children. Manual budgeting can generate a lot of clutter, however, and you'll need to organize and file your worksheets carefully. Your public library has dozens of budgeting guidebooks to assist you.

Budget electronically. Computerizing a task can make it more bearable, as well as ensure that you don't overlook important details.

Whether you choose stand-alone software or an online service, evaluate these areas:

Security. Software programs that store your financial data on your home computer behind a firewall are more secure than online programs that hold your data on a central server. Online budgeting can be safe with proper encryption and password protection, so read the vendor's security statement carefully. Avoid accessing your online account from a public or shared computer or using a public-access wireless connection.

Functionality. Ideally, budgeting software should be designed well enough to allow you to learn it as you go. Icons, labels, and navigation should be logical. You should be able to update information, such as account balances, with few steps. You should be able to analyze your data in several ways. And you should be able to modify worksheets and reports to match your lifestyle.

Expense. The cost of online budgeting ranges from free to a fee of a few dollars a month. One-time software charges range up to $40 or so. Cheaper usually means fewer features and less flexibility. And more expensive doesn't necessarily indicate easier or more effective.

But remember, choosing a particular budgeting method or tool is less important than finding the discipline to use it. Ultimately the best personal finance management system for you is the one that's most likely--for whatever reason--to become a habit.

courtesy of cuna.org