How Budgeting Software Works

Budgeting a small business can be a bit more difficult than a personal budget, because income isn't as normalized, and several factors -- like the cost of goods and services --aren't always fixed. Because of this, small business budgeting software comes in a few different shapes and sizes, depending on which features you're most interested in. Some, like Quicken Home & Business, blend together your personal and business finances in one place so you can easily track both at the same time. Others, such as QuickBooks, PeachTree and Plan Guru, offer additional features like payroll services and payment processing to the mix. You'll need to pick what you need based on the size of your company and the features you're looking for.

The core of these programs will be familiar to most people who have balanced a budget. On top of the increased support for business-specific factors, small business software offers more forecasting methods to help you better plan your business' budget. For instance, you could look at potential profits over the course of 10 years using historical data, or you could use your own set of factors. Most have several types of models built into the software to ensure you can get a wide-ranging view of your company's potential and plan your budget accordingly.

Unlike personal software, you also typically get more options for generating reports of all types, giving you a better idea of where your money is going and why.

For do-it-yourself types in both personal and small business software, there is the first and most common budgeting tool: spreadsheets. Most spreadsheet programs come with access to simple budgeting templates, or they can be found (often for free) online. These work similar to the software programs you can purchase, but require you to manually enter or import the data from your bank -- and they don't come with any snazzy routines to help you predict or categorize you purchase types.

Next up, let's get personal.

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.