| PC - Your new money manager |
One of the challenges of creating and maintaining a household budget is keeping track of all expenditures, large and small. With the proliferation of ATM machines and the growing use of debit and credit cards, keeping track of spending is often difficult. If you have a personal computer, you can simplify the process of creating and maintaining a budget, track account balances, and even pay bills electronically.
First you have to define what constitutes the budget. It is not only the balancing of household expenses, it ought to encompass aspects like tax planning, asset allocation cash management and check book balancing. It would be better to have different files for each of these which can then be complied on to a master sheet to give you the over all picture. Also the formats and formulas for each of the areas of financial budgeting would have to be tailor-made and done very minutely.
So you start with the most important thing-the budget. A budget is a tool by which you control your spending in order to meet financial goals. By following a budget, you ensure that you don't spend more than you make in income. And by setting limits on spending, you can increase the amount of money you can save or invest. While old-fashioned pencil and paper calculations will work, it is much easier and faster to create and maintain a budget using a computer, which will do all the addition, multiplication and subtraction for you. You can create your own budget using spreadsheet software, such as Excel or Lotus, or you can buy budgeting software, such as Microsoft Money or Managing Your Money.
For the household expenses you can start with a simple Excel sheet in which you feed in the budgeted expenses under various heads. It is the classification of heads that is important. There is no one particular format and one would have to customize the various heads to suit their personal life style. At the end of the month you can then feed in the actual expenses in a column and through a simple formula of the budgeted expenses minus the actual expenses you can come to terms with where you've gone over budget and where you haven't. A percentage formula will tell you by how much percentage points you've gone over board.
To create a realistic budget, you'll need to gather copies of bills, cancelled checks, and credit card statements you've received over the past year. To start, make a list of all your regular monthly payments, including mortgage or rent, car payments, credit card minimums, parking fees and tolls, insurance, newspaper and cable TV subscriptions, and school tuitions. Also include amounts that you set aside each month in savings or investment accounts. Then, add up your annual cost for expenses that vary month to month, such as utilities, telephone service, clothing and dry cleaning, food, and entertainment. Finally, list your total annual cost for occasional expenses, such as gifts, vacations, car repairs and maintenance, and medical expenses. Divide the annual amounts by 12 to estimate how much you should set aside each month in your budget to fund these expenses. Then total up your monthly spending and see how it compares with your monthly income.
If you find that your spending is higher than your income, it's likely that your debt burden is growing. Continuing indefinitely, this will lead to financial disaster. Instead, look for areas in which you can reduce spending — food, entertainment, and clothing, for example. To make sure that you keep your spending in line with your budget, you'll have to track your spending in each category. Budget software programs ask for your expenditures in each category and then calculate your actual versus budgeted expenses. Another benefit is that you can instantly see a history of all expenditures in a particular time period or in any given category. If you set up your budget using money management software and enter all deposits, checks, ATM withdrawals, and debit card purchases as they occur, reconciling your bank statement becomes easy. You just need to enter the date of your last statement, your last balance, and the checks that have been paid. The computer then adds or subtracts outstanding items against your balance and tells you how much cash should be available in your account.
If your bank offers home banking, you can use your computer to manage your checking and savings accounts. You can monitor your account balance and deposits, transfer funds, identify which checks have been paid, and even pay bills. In an age when many people find they have little time to manage household affairs, the ability to get an up-to-date balance on your checking account and pay bills at 10 p.m. on a Saturday night is a definite plus. There are some limitations, however: you cannot withdraw cash or make deposits from your computer. Before signing up for home banking, you'll also want to ask about any extra fees and charges. Home banking requires that you have a modem and telephone line. Some banks now offer the facility of online bill payment.
If you tend to overlook paying bills on time, using your PC to pay bills can mean eliminating late fees and protecting your credit rating. You do not have to write checks, mail them, and record them in your check register. Instead, you simply record in your computer how much to pay to whom, and when. The computer will send you or pop up a reminder to initiate the requested transfers from your account. Your computer can be set up to remember routine payments, such as mortgage or car payments. If the company you are attempting to pay does not have electronic payment capabilities, your bank will send an old-fashioned paper check. In this case, you need to instruct your bank to pay at least five days in advance of the due date to ensure that your payment is made on time.
Depending on your comfort level with computers and the software you choose to use, you may need to spend a little time learning how to manage your money with your computer. Also, you must be prepared to enter information on a regular basis to keep your budget up to date. If you use home banking or online bill payment, you need to be careful about security. If your password is easily accessible, or you do not change it frequently, you risk unauthorized access to your checking or savings account.
With online access to financial markets, you can check the latest quotes on your investments. In most cases the information is updated every 20 minutes, so you can track your investments as often as you like. Your computer can also update the value of your portfolio with the most recent information. Money management programs or online services can help you select investments by searching databases for desirable stocks and mutual funds when you enter your investment criteria. For example, most personal finance websites now let you set your own portfolio tracker.- your own "watch list" of stocks and mutual funds.
Most of the things we have mentioned above can be got from leading personal finance websites. These websites not only have calculators which help you determine your tax, retirement savings, etc. they also help you keep an account of your household expenses as well as a portfolio planner. So the best mix is to log on and register at a site you prefer and download what you can and also utilize their advise and online expertise Remember how much you get out of your PC is only dependant on how much you are prepared to understand it and the net and how much time you devote to your personal finances.
Aru Srivastava