Creating a budget often seems mind-boggling to those who don’t consider themselves money-savvy, but Quicken can make it simpler than you ever thought possible. This article will teach you how to do the legwork necessary to track your income and expenses as well as set up a budget. From there, all you have to do is monitor your budget and enter transactions regularly.
In order to manage your money wisely, you have to be aware of your monthly income and expenses. If you aren’t, you may cruise through your bank account without a care in the world until there’s too much month at the end of the money.
The following steps will show you the easiest way to create your budget using Quicken. If you still find yourself confused by a term or feature, try using the program’s extensive online documentation, which has both topical and alphabetical indices. It’s available under the Help menu.
TIP: If you’re a complete Quicken beginner, I’d recommend that you do steps 1 and 2 but put off creating your budget for a few months until you’ve accumulated some categorized transactions and have become comfortable with the program.
Step 1: Set Up Your Categories
Categories are Quicken’s window to your wallet. They are how the application tracks the details of your spending (and earning). Without categorized transactions, you won’t have any data on what to base a preliminary budget. Here are some tips on creating your categories. It’s the most time-consuming part of the process, but it pays big dividends.
Customize Quicken always gives you a default set of categories to work with when you first start using the program. Don’t be afraid to customize them to suit your own situation. You can do this using the Categories & Transfers window (command-L, and under the Lists menu). In coming up with a category list, try for a compromise between too specific and too vague. For instance, you might set up a category for “auto” rather than “transportation,” to be as specific as you can, and add a subcategory for “gas” but not for “car wash,” which could be included in a “maintenance” subcategory. If you’re trying to get out of debt, don’t forget to create a single “nonessential” category with subcategories such as “CDs,” “videos,” “eBay,” and “fancy shoes.”
“Garbage In/Garbage Out” If you have vague or inappropriate categories, your budget will be useless. So take some time to think about what your categories should be, because otherwise, you’ll have to go back later and reassign them all. If you end up deleting a category, it will simply disappear, leaving all the transactions you assigned it to without categories.
Step 2: Categorize Transactions in Your Register
Go through your checking account and credit card registers in Quicken and categorize each expense using the categories you set up in step 1. Ideally, you’ll want to categorize between three months’ and a year’s worth of transactions in the Quicken electronic registers for your credit cards and checking accounts. However, the number of months you categorize isn’t as important as how thoroughly you categorize. It’s important to assign a category to as many of your expenses (and deposits) as possible.
Avoid Typing Assigning categories might seem like a pain in the neck, and that’s because it is. However, Intuit’s usability experts have done their best to make it as easy as possible for you. Although you can simply click once in a transaction’s category box and choose from the scrolling list of categories, it’s usually faster to use the Tab key to go to the category box and type the first few letters of a category name. Quicken will complete the category for you, using a feature called QuickFill.
Really Avoid Typing QuickFill is a shortcut that has additional shortcuts. Suppose you have a category that has more than one subcategory (such as “Nonessential:CDs” and “Nonessential:fancy shoes”). You don’t have to type all of “Nonessential”: Just type the first few letters. Quicken will fill in a category and subcategory. But what if it fills in “Nonessential:CDs” when you just bought a pair of purple Prada pumps? Don’t panic. Just type a colon (:) and the first couple of letters of the subcategory (that is, “fan” for fancy shoes).
Completely Avoid Typing Because many transactions that you’ll be entering into the register are repetitious, learn how to make the most of both the QuickFill and Memorize features. For instance, QuickFill also works on entire transactions, automatically filling them in as soon as it recognizes a unique payee name. So, if you type ama in the payee box, and the only previous transactions in your register starting with ama are for Amazon.com, then Quicken will automatically duplicate the most recent entry for Amazon.com, complete with categorization and amount.
TIP: If you don’t want Quicken to always use the most recent transaction match, the Memorize command (found under the Edit menu) will remember a transaction exactly how you want it to appear when QuickFill fills it in. So you could memorize a transaction for Amazon.com with the most commonly used category and subcategory (maybe you buy more books than CDs) and a blank transaction amount (for you to fill in with the current damage). To get a better idea of how this works, check out the list of QuickFill Transactions under the Lists menu.
Step 3: Create Your Budget
After you’ve categorized all your transactions, you should be ready to create a budget. The fastest, easiest way to create an initial budget in Quicken is to use the QuickBudget feature.
a. In the Budgeting submenu of the Activities menu, open Budget Setup….
b. In the resulting Create Budget window, name your budget and click on the QuickBudget button at the bottom left to open the QuickBudget window.
c. In the Date box, use the dates for which you know you have carefully categorized transactions.
d. Leave everything else at the default settings, as shown in the screenshot above.
TIP: Don’t worry about including all categories when setting up your budget. If you decide later that you want to delete a category from your budget, you can get rid of it by going to the Edit menu, choosing Budget, then choosing Delete Item.
e. Click on OK. Quicken will create a new budget with the name you gave it.
Your Budget Setup window should now look something like the above image, only with your own categories and amounts.
Step 4: Adjust Your Budget
Now fiddle with your budget until the money that’s leaving your pockets (expenses) is less than or equal to the money that’s filling them (income).
The Difference You’ll find the most important number in your budget at the very bottom of your new budget window (circled in red). This is the difference between what you’ve budgeted to spend and what you’re expecting to earn. If it’s a positive number, then there’s more money projected to come in than you have projected to go out. Before you break out the bubbly, take a good look at your budget categories and reassure yourself that they look reasonable. Maybe you didn’t spend that much on DVDs last year, for instance, because you only just got a DVD player. Maybe you need to budget more for DVDs this year and less for CDs. Basically, though, as long as that difference in number is positive, you’ll have a working budget.
Making the Difference Adjust amounts as necessary. Unfortunately, most people are more likely to find a negative number at the bottom of their budget worksheet than a positive one, which means that Quicken projects that you will spend more than you will earn — thus the expression “negative cash flow.” Here’s where the art of budgeting happens. By manually adjusting the amounts for various categories, you can turn your negative number into a positive one.
Fixed and Flexible Expenses Notice that Quicken has grouped your expenses into two main categories: fixed expenses and flexible expenses. Fixed expenses are things over which you have little or no control: your rent (or mortgage), insurance, and utilities. Flexible expenses are ones that — theoretically at least — you have some measure of control over. That’s where the belt tightening can occur.
TIP: You aren’t bound by what Quicken identifies as a flexible versus a fixed expense. If you think a category is in the wrong place, just drag it to where you think it belongs. For instance, if you have a regular, non-negotiable education expense (such as a child’s tuition), and Quicken has placed Education in the Flexible category, you can drag it up to the Fixed category.
They’re Called “Flexible” for a Reason Once you’ve decided which expenses are flexible, start adjusting them. Say you are projected to spend $500 a month on gifts. If you change that to $250 (by clicking in the amount box under “Entered as:” and to the right of that category), then your overall monthly outflow will decrease by $250. If your budget difference, as explained above, was originally $500 a month, it would now change to $250 a month. Keep whittling away at flexible expenses until the difference is zero or, even better, a positive number.
Congratulations, you now have a balanced budget. Now all you need to do is follow it. You can use the Budget Monitor function to track how well you’re doing on a monthly, quarterly, or annual basis.
TIP: Here’s one last tip for the super-ambitious budgeter. If your expenses (or income) predictably vary depending on the time of year, you can actually break out your budget by month. Set View in the Budget Setup window to “All Months,” and you’ll be able to enter individual budget amounts for each category for each month of the year. This isn’t recommended for beginners, but it’s bound to please the truly meticulous money manager.
James Bradbury is the former editor of MacUser and former online editor of Macworld. He also writes the Macworld column Your Mac and Your Money.