The second step to an easy budget is: Buy Quicken (or MS Money). Either one works. Then auto-download your bank statements and categorize your spending.
Now that you are using electronic transfers as was covered in part 1 of this series, it is time to centralize and streamline your budgeting and money management.
I know many people who are concerned with budgeting and personal finance are skidish about forking over $60 for a piece of software. I'm not going to pretend like $60 is a drop in the bucket for everybody, for many people that's a fair chunk of change. But, you need to look at Personal Finance software as an investment.
You can justify this by looking at the opportunity cost of maintaining a budget by hand, or you can look at the productivity gains, etc. I'm not going to make these arguments, even though I agree with them.
I'm going to justify this expense a different way. Buying personal finance software will help you cut your frivolous spending in other areas.
You are your own worst enemy when it comes to financial planning. Those $3.95 lattes that I can't live without, the $60 treat for doing something well, the $45 cheer me up that you buy when you are depressed, the "oh, it's only $XX a month for 24 months, I can afford that" thinking, and the simple words "charge it:" These are the things that are going to keep you from reaching financial prosperity.
You can be a millionaire on $40K a year, all you have to do is live below your means (don't belive me, read Eight Steps to Seven Figures, The Automatic Millionaire, and/or Richest Man in Babylon). What kills many of us is that we spend beyond our means and we don't realize just how bad our spending habits are until we're declaring bankruptcy (my parents made $200k a year and declared bankruptcy last year - not because they weren't making enough that's for sure).
In business, a common saying is "you get what you measure." If you measure people on revenue, you get more revenue. If you measure people on profit margin, you get higher profit margins. If you measure the time it takes to fulfill an order, chances are you're going to get shorter order fulfillment times.
The first step in fixing a problem is knowing that you have a problem. It wasn't until I realized I was spending north of $500 a year on Lattes that I sat down and thought, hmm... perhaps I would be better off cutting off that Latte and saving the money instead. I didn't cut myself of entirely, but I now only have 1 or 2 a week. What was a commodity is now a luxury that I enjoy even more. Drip coffee gets me through most of the week, and now a Latte is a treat. (i'd love to go into the psychology of this, but this post is already way to long already)
If you record and categorize your spending, you're likely going to be shocked and appaled at how much you spend on things that you previously never noticed. $20 here, $15 there, $25 another time can add up very quickly to overtake some of your major expenses.
This doesn't just have to be for scrimping and saving. Once you know how much you spend on each item, you can ask yourself if you could get more enjoyment by shifting your spending a little. Eating 1 really nice dinner a week vs. 3 trips to Denny's? You'd be surprised what kind of "luxury" items you can afford if you avoid spending your money on mindless things every day.
Bottom line: You have to know what your spending money on to make a budget work. Quicken and MS Money are easy to use, fast, and can download and categorize your spending in about 30 minutes a month (setup should take a few hours, and analysis will likely take another 30 minutes). You can see changes in spending habits over time, and spot problems before they pull you under. But most of all, once you know what you are spending your money on you can, in a reflective state every month, figure out if what you're doing with your money is really creating the most value for you.
Budgeting Made Easy Series:
Budgeting Made Easy Overview
Budgeting Made Easy 1 - Electronically Pay Yourself First
Budgeting made Easy 2 - Buy Quicken