I’ve tried a variety of software types, and I have yet to find one that meets our needs perfectly.  Since we’re also pinching pennies (in order to get out of debt), I’m completely against paying for software, so there are a lot of software types I haven’t tried.  Here’s a few I have looked at, and my thoughts on them:

Quicken

We’ve used Quicken in the past. Though it’s the top result under “budgeting software,” in my mind this is really a checkbook register. Yes, you can print reports and see where you’re spending your money, but it doesn’t really help you actually create a budget. It’s still helpful, just not the ideal budgeting solution.

Mint.com

This one leans more towards budgeting than Quicken does, but it’s main function is still to help you see where your money is going.  It’s got a very streamlined interface, and you can connect all of your accounts to get a big picture of your family’s finances.  You can also set savings goals and see how well you are doing on reaching them.  One drawback here is privacy – you’re giving them all of your account information.  Though they tout “bank-level security,” it’s still going to make a lot of people nervous.  I’m not a dedicated user.

PearBudget.com

This one actually is budgeting software (well, technically, it’s a budgeting website). When you first visit the website, all you have to do is enter your expenses and income and it will create a temporary budget for you. In order to access the budget fully (including adding expenses and modifying your temporary budget), you have to subscribe. I couldn’t find any solid numbers for the subscription – their front page only says, “Under $5 per month.” As I said earlier, I’m too cheap to pay for it, so I can’t tell you how well this works.

Dave Ramsey’s Software

Though I don’t agree with Dave on everything, he does have some awesome spreadsheets and budgeting information available.  In fact, we’re currently using a modified version of his budgeting spreadsheet. It’s not perfect (which is why I’m always looking for something new), but it’s the best we’ve found so far. This is another one you have to pay for ($25), though. We’ve had it for years (since before our “spending freeze”), but I don’t think I would spend money on it if I didn’t have it already.

Rather than continue through all three million results, I’ll leave you with one more.  This is another one that helps you track spending, not decide how to budget your money, but this is one that our family currently uses:

EEBA

If you’re familiar at all with Dave Ramsey, you’ve heard him talk about the envelope system.  He recommends you take out cash for your budget categories and divide the money into envelopes. If you have $100 in your “clothing” category, you know you have $100 you can spend that month. When the envelope is empty, you stop spending.

We’ve used this method with various degrees of success in our family.  We like the idea, but the practicality of withdrawing cash, carrying it around, dividing it between spouses just got too complicated for us and we stopped using it.  This website has solved that problem for us.

Once we’ve finalized our monthly budget, I put the numbers into the “envelopes” on the EEBA website. It will track how much money we have budgeted that month, and we enter each transaction when we spend money and categorize which account it came from, so we always know how much money is left in that “account.” My favorite thing: there’s an app. Since my husband and I both have iPhones, we use the app to input our transactions.  This way, if he spends money at the grocery store, I know about it. Both of us know exactly how much money is left in each category.

So far, creating our own budget and using this app to keep track of our spending is turning out to be the best way for us to stay on the same page.

Is there any software that you can’t live without? What tools do you use to budget and track your spending?

The amount of information out there on budgeting is overwhelming. There are lots of trite and obvious articles out there (like this one) that give such groundbreaking (and condescending) advice as “Incurring debt is easy but getting out of debt is not.” or “Reducing the luxuries will always be the best place to start for you to make some real savings with the least impact on your lifestyle.”

I’ve even read articles recently discouraging people from budgeting because, “You know you should budget, but you also know you’re not really going to do it.”

I vehemently disagree with this logic. The NUMBER ONE reason people are in so much financial trouble right now is that they are not willing to put in the work and sacrifice needed to save money, wait for purchases, or do without some things altogether. The simple act of budgeting is like an athlete training and developing discipline. At some point you have to be willing to do the hard and boring things if you want to make changes and improve your situation.

I will say that, in the previously mentioned article, the author goes on to talk about the idea of an “Anti-Budget” – a worksheet listing all the things you have to pay subtracted from your income, leaving you with what he calls a spending allowance. In my mind, that is a budget, so what he’s really doing is just trying to present the idea of budgeting in a different way. That’s good.

Back to our family’s budget. When we started reevaluating our finances, we had two assumptions:

• There’s no way we can decrease our current expenses – we’re already at rock bottom.
• There’s no way we can increase our income – that’s beyond our control.

Expenses
“Rock bottom” for us still meant spending more than we earned, so we knew something had to change. When we decided to get this debt taken care of – whatever the cost – we started cutting mercilessly: turning off cable, selling a car (only paying for gas and maintenance on one vehicle has saved us more than we imaginged it would!), even cutting a few important things – like piano lessons for the kids – for a short time. A lot of these changes won’t be permanent, but paying off our debt is more important to us (short- and long-term) than having these luxuries that just a few months ago seemed like necessities.

Income
When I realized that “income” did not have to equal “salary,” that was a game-changer for me. Instead of relying solely on the salary from mine and my husband’s jobs, we started trying to think of other ways we could earn money during the month. Clothing that we normally would have (tried to) sell in a garage sale, we started putting up on eBay (and getting three times a garage-sale price). We sold over half of the Wii games that our kids no longer played. Things that had been lying around the house, taking up space, now became valuable.

My point in saying all of this: If you want to badly enough, you can always find something to do to make more money. Whether it’s selling stuff or teaching an instrument or a hundred other possibilities, don’t wait for someone to give you the money you “deserve” – go out and get it.

I’ve written more about our family’s budgeting philosophy.  When we dealt with these two areas, budgeting because a lot less overwhelming. It’s still hard – and it takes discipline to stick to it. When financial crises come, the single best first step in tackling them is to have a written budget that will show you where your money is going. If money isn’t tight, your budget can probably be a lot less formal than ours is, but even then it’s still important to, as Dave Ramsey says, “Tell your money where to go, so you don’t have to wonder where it went.”

Did Netflix’s latest price increase cause you to leave the company?

I can’t say that the price increase caused me to leave but I did cancel our membership. Why? Mostly because it seemed like I would scroll through the instant offerings and RARELY find anything I wanted to watch. Maybe I’m just particular. I don’t know. We were on the plan that sent us one DVD at a time. Guess what? The DVD would sit by our TV for weeks (or months) without us ever watching it. So, I canceled the service. Don’t really miss it either.

What about you?

Oh, and if you’re interested, Netflix’s CEO offered up an apology (thanks, Lindsay) for the company’s latest moves.

Could you come up with $2K in 30 days? One quarter of Americans report that they would certainly not be able to come up with such funds, and an additional 19% would do so by relying at least in part on pawning or selling possessions or taking payday loans.

He said he got his information from a recent NBER Working Paper. I haven’t read the paper.

Anyway, to answer the question…

Yes, I could come up with $2,000 in 30 days. I’m not sure just how much I could come up with in 30 days. I suppose it would depend on the severity of the need.

It’s pretty sad that 25% of the population could not come up with $2,000 and another 19% could only gain access to $2,000 through payday loans or selling/pawning possessions. I’m thankful for the position we are in.

This is a guest post by Doug Warshauer, author of If I’m So Smart Where Did All My Money Go: Balancing Your Financial Objectives for Lasting Wealth (Personal Finance)*. I met Doug through Twitter. Gotta love social networking.

My friend Tom plans to buy a car in two years. His current car, a 2003 Chrysler, is nearing the end of the line. Tom recently began setting aside some money each month, hoping that, two years from now, he’ll have enough accumulated to purchase his new vehicle. The car he has his eye on: a Honda Accord, which he estimates will cost him about $27,000.

Tom, and millions of other people in similar situations, face a dilemma right now: how to invest that money which they plan to spend in a couple of years. He realizes that two years is far too short a window of time to invest in stocks. When the stock market falls – as it has numerous times in the past decade – the losses could wipe out a substantial portion of his savings and delay his ability to buy the car.

Unfortunately, with short-term interest rates near zero, Tom finds all the investment options unappealing. Bank savings accounts, 2-year CDs, Treasury bills, and money market funds all offer negligible returns. With such undesirable options, he feels tempted to find some alternative investment vehicle.

What should Tom do? Here is my suggestion:

First, he needs a little perspective. While nominal short-term interest rates are at an all time low, real interest rates (inflation-adjusted) are not too different from historical norms. Tom is not going to get much of a return on his investment, but the cost of the car is also not likely to rise much, either.

His ability to buy the car in two years depends on two factors: 1) saving enough money each month, and 2) not losing the money he saves through poor investing.

How can he keep from losing it through poor investing? The biggest risk we’ve already mentioned: he must avoid the temptation to invest in the stock market. Still, even if Tom sticks to fixed income investments, he needs to avoid the temptation to accept two other risks that could undermine his ability to buy that car.

First, he needs to protect against credit risk, the risk that the security he buys will fall in value if the likelihood that its underlying investments default. Tom can essentially eliminate credit risk by purchasing U.S. Treasuries, putting his money in a bank that offers an FDIC guarantee, or investing in a bond fund that buys highly rated securities. While mutual funds that buy high-yielding (lower rated) bonds might offer tempting interest rates, they could fall sharply in a down market, when the risk of default of lower-rated bonds skyrockets.

Second, he needs to protect against interest rate risk, the risk that the security he buys will fall in value if interest rates rise. He can eliminate most interest rate risk by purchasing securities with a short duration. Savings accounts, money market funds, and short-term bond funds all fit this description.

As with credit risk, Tom may be tempted to accept some interest rate risk in order to earn a higher yield. Currently, a 2-year Treasury yields about 0.5%, and a 30-year Treasury bond yields about 4.25%. After all, with a highly liquid market for Treasuries, he’ll be able to sell the 30-year bond when he wishes to buy the car.

If he buys the 30-year bond, and interest rates rise, he could be in for a shock in two years. An increase in long term interest rates of two or three percent could wipe out 25% or more of the value of his investment! Once again, the downside of chasing a higher return dwarfs the modest benefit.

True, to avoid credit risk and interest rate risk, Tom must resign himself to accepting the negligible returns he will earn investing in high-quality, short-term fixed income investments. But accepting them comes with a real reward: the near certainty that two years from now, as long as he saves as much as he intends, he will be the owner of a new Accord.

What would you do? Would you be tempted to seek a higher-yielding investment?

Doug Warshauer’s new book, If I’m So Smart Where Did All My Money Go: Balancing Your Financial Objectives for Lasting Wealth (Personal Finance)*, teaches how people can design savings and investment plans to meet all their financial objectives. He blogs on personal finance issues at www.dougwarshauer.com.

After reading her post, I got to thinking about times when I practiced self-control when at the store. I think I have a pretty good handle on compulsiviness when at the store. That’s not to say that I haven’t had times when I walked out of a store thinking, “Why did I buy this?”

My problem is with silly stuff like iTunes. I’m a music nut and I find it too easy to purchase music from iTunes. That’s not to say I’m bad or anything but that’s one area I have to be careful of.

What about you?

How Good Are You at Controlling Compulsive Spending?

How often do you and your family eat out on a monthly basis? How much do you spend per month on average, eating out?

Over the last month (August 10 – September 10), we have eaten out once as a family and I took the kids to lunch twice. We are drastically cutting back on our eating out for three reasons:

1. It’s expensive

2. It’s not healthy

and…

3. With the kids being in school, we don’t have time to eat out.

My wife took the lead on this and drafted a 2-week menu. She shops for groceries every two weeks. We still have to buy milk, juice, and produce in between the big trips. So far, it’s working great. I estimate that we are going to be able to save $500 – $700 per month by eating out no more than once or twice per month.

So, what about you?

At the start of this school year, it was announced that our school district would no longer accept checks as payment. This announcement included checks written for school lunches. They will now accept cash, money orders, or parents can sign up for an account with MyLunchMoney.com and pay that way. Cash and money orders are inconvenient for me because everything we do is electronic. I rarely have cash on hand. The MyLunchMoney website charges a $1.75 fee per transaction. Sure, it doesn’t seem like much but on a $100 transaction, that’s a 1.75% fee.

I called the director of nutrition services for our school district to find out more about this policy change. Here is what she told me:

• “We’re moving away from a cash-based society.” This one made me scratch my head because they tell parents that they can pay with cash.

• “We had problems with some checks bouncing and the parents were left with lots of fees.” My response to this: “So? Why should I care about this? Why should those of us who DON’T BOUNCE CHECKS have to forgo the ability for a few who do bounce checks?” Why couldn’t they flag these students’ accounts and not accept check payments? Each kid has their own ID number that can be flagged so that the kid cannot buy extras through the lunch line. It wouldn’t be hard to flag the account to not accept payments by check.

• “The person running the cash register does not have time to process checks during the lunch period as they are trying to move students quickly through the line.” This also made no sense because the kids are supposed to make payments during non-lunch hours.

The director was quick to direct me to the website. I asked her how much this would cost me and she said $1.75 per transaction. If my kids were at the same school, I could get by with paying only one transaction fee. Unfortunately, our three kids go to three different schools, which means three different transactions.

Anyway, I don’t care for this new policy. It’s another example of government making a decision with no regard to those who are impacted by the decision.

(end rant)

1. Gather ALL of your financial papers together. This step will require a lot of work and some digging around. I recommend you go through all of your financial papers and organize them. Electric bills, credit card statements, loan paper work, mortgage, bank statements, etc. Make a stack for each and arrange them by date.

2. Organize your financial information in a spreadsheet. You can title the spreadsheet “Budget 2010″ or whatever you wish. I recommend a tab for each spending category and then a summary page.

3. Create a budget from your spreadsheet information. Give it its own tab in your spreadsheet. Figure out ALL your bills (monthly and annually). Take the annual bills and divide them by 12 to get a monthly amount. Don’t forget Christmas, birthdays, and school supplies. All three of those are biggies and can really mess up your budget if not planned for.

4. Analyze your budget. Look for areas that you can either eliminate or cut back on. One of the sore spots in our family budget is in eating out. We simply spend too much money eating out. Not only are we spending too much money, it’s also not healthy. But, I would not have known this information had I not spent the time to analyze our spending. Look for areas that are overlapping or redundant (cell phone service and long distance from your home phone). If you can’t cut enough to balance your budget, consider other options like working more hours or taking a second job.

5. Add a tab in your spreadsheet for your net worth statement. You’ll want to update this information on at least an annual basis. If you find your net worth discouraging, just remember that it will improve over time as long as you are taking the necessary steps to make improvements.

6. If you have a lot of credit card debt, make a plan to get out from under it. Start by listing out all your debts from smallest to greatest. You can even set up a credit cards tab in your spreadsheet. Be sure and get the balance owed, minimum payment, and interest rate information. Write down the exact amount you owe. Remember that number! Put it on a notepad beside your bed so that you can remind yourself of how much you owe. Figure out a plan to pay it off and write down the due date along with a reward for paying it off. Track your progress.

7. Set aside a little money each pay period for emergencies but ONLY use this money for an emergency. You’ll be surprised how quickly even $50 per month will add up as long as you save the money and forget about it. Take any extra money you receive and put in your cushion account. Ideally, you should have $500 – $1,000 in your checking account as a buffer for unexpected expenses.

8. Take advantage of your company’s retirement plan (if they have one). Don’t forget to put AT LEAST enough to get the full company match, which is often a 3% match on a 6% contribution. If you can put in 6% and your company matches 3%, that’s a 9% contribution. Not bad. And, your contribution is pre-tax, which means it’s not costing you as much as you think.

9. If you have enough savings available, consider contributing to a Roth IRA.

10. Find cheap entertainment. Read books. Exercise outside and not at a health club. Go to the park. Take the kids to library. Eat at home. My wife and I have decided that we are not going to eat out more than 2 times per month. It takes planning to accomplish this. My wife has created a 2-week meal plan and shops accordingly. Having a grocery plan has helped us cut back on unnecessary trips to the grocery store, which always seemed to lead to overspending.

Like I said earlier, this isn’t a complete list. Rather, these are steps that will help you head in the right direction. The main thing is that you get started.

How much should kids know about the family finances?

This question has been on my mind for a couple of years now. Our boys are (nearly) 15 and 13.5-years old (our daughter’s still too young to be interested in this stuff) and I want them to have a better understanding of how family finances work. I want them to see how eating out more often means that there is less money for other things. Although I know they don’t really think this way, it’s like they see the family income as just pouring in and that there’s enough to do anything we want to do.

So…

I think I want to take steps to educate our boys on the basics of family budgeting. What I’m struggling with is just how much information I want to give them regarding our finances. I don’t see a problem with the budget. I’m just not sure beyond that. I don’t see that it’s necessary for them to know 401(k) balances or details like that.

What do you guys think?

I’ll detail my “plan” in another post. I have some ideas that I want to share with you on teaching kids personal finance.