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(Hemera Technologies/(c) Hemera Technologies)

Smart Cookies

Show those expenses who's boss Add to ...

Jesse Mecham says he takes offence when people speak ill of budgeting. “It irks me when they talk about the dreaded ‘B-word’. There’s nothing dreadful about it.”

Mr. Mecham, creator of YouNeedABudget.com (YNAB) and author of a book with the same title, says that a budget should be the foundation of every financial decision we make and is a liberating financial tool.

Most of us would likely describe budgeting as something other than liberating, like restrictive or monotonous, but he has a point: If we’re in debt or having a hard time increasing our savings, then tracking our finances is the fastest way to a financial fix.

We have a lot of options when it comes to tracking our money online. I’ve tried the Excel spreadsheet, tested out Quicken, and more recently, Mint.com. Mint is a fantastic site for obtaining a big-picture view of your finances, and it’s free. YNAB falls into the online tracking category, but it is solely dedicated to helping us create and stick to our budgets. The theory behind the site’s origins comes from Mr. Mecham’s personal struggles tracking spending when he was a young married student with a baby on the way. As a result he created four budgeting principles that form the basis of the site.

The mission behind YNAB is to help others stop living paycheque-to-paycheque. Generally, we look ahead to what we think will be coming in and plan our month accordingly. On this site, it’s impossible to do that. You can only allocate funds if you currently have them in your bank account. After syncing up your accounts, you can’t budget for a $3,000 month if you only have $2,600 sitting in your bank account. Using last month’s income to support this month’s expenses is back-to-basics money managing. If you don’t have the cash, you’re not getting the item.

The second principle of the site is to “Give Every Dollar a Job.” This is something we all need to consider, especially those of us who want to be more mindful of where our money is going. It’s a zero-based budgeting system where we earmark every dollar sitting in our accounts for something, whether it be rent, taxes, groceries or vacations. We make a conscious choice as to where our money is going. The site will also prompt you to start rainy-day savings categories, another foundational principle, for the predictable upcoming expenses, such as Christmas, and the not-so-predictable expenses, such as a leaky roof.

The final principle “roll with the punches,” corrects the months we are over or under on our estimations. The site’s software automatically takes any unspent money from a monthly category and rolls it into the next month’s balance. If you overspend in a category then by default the site reduces the amount you have in that category for next month. If you budget $200 for meals and this month you spend $240, then next month you have $160. It’s a simple way to keep your spending in check.

Moving to an online system is the easiest way to track finances. If you prefer the “money jar” system, made popular by TV host Gail Vaz-Oxlade, and choose to put a set amount of cash in a number of labelled jars and only stick to the allotted cash for the month, or a simple Excel sheet, then do what works for you. If you haven’t found your ideal system, then check out a free trial at YNAB or explore a site like Mint.com and start tracking your money. If you’re in debt or looking to boost your savings, then budgets are essential. You have to know that what is going out is less than what is coming in, and the best way to do this is to track your flow of money.

Angela Self is one of the founders of the Smart Cookies money group. Read her weekly column on managing debt and saving money at the Globe's personal finance site.

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