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How Budgeting Software Works


Personal Budgeting Software

Personal budgeting software is similar to the small business type, but in a stripped down, easier to use way. Many of the services allow you to directly import you bank statements by either exporting a specific file type from your bank's Web site, or by allowing you to enter your username and password so it can pull it directly for you. This software typically ranges from free to $100, with Quicken and You Need a Budget being two of the most popular.

With all of your financial data imported into the software, the budgeting program will categorize your expenses so you can see how much you're spending and where. For instance, the software will recognize your grocery store and put that into a "groceries" category or it will notice you've been hitting up the coffee shop every day and put that into the "eating out" section. This allows you to see exactly what types of expenditures your money is going to.

From there, you can set a budget with goals -- say you want to save up enough money to take a vacation by next year, you enter the amount of money you'll need, and then the budgeting software will look at your past data and generate an amount you need to set aside each month. In most cases, it's up to you to decide what might need to be cut from your budget if you're going to make your goal, but some software offers suggestions for where you might be able to trim down. It will also alert you when you spend more money than usual in a particular category, but it generally takes a few months of use before this becomes useful.

Software and Web-based programs like Mint, Buxfer and Mvelopes don't differ in many ways, with the exception that Web-based software comes with the added incentive to integrate everything into one Web site, which means you'll have access to it from any computer or smartphone. The downside is that it also comes with security concerns, since all of your data is being stored in one centralized location that doesn't have the security of your home computer. You'll want to keep this in mind when choosing which service or program is right for you.

At its core, budgeting software's goal is to help you create and maintain consistent spending habits and create an easy-to-understand means to reach your financial goals. For lots more information, continue on to the next page.


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