First of all to review, what do you need to take into consideration when you create a budget? We can split our overall categories of spending into needs, wants, and savings. Needs include basic necessities to live such as food, rent, utilities, and other products for which you can't avoid paying. Wants are extra things we buy to satisfy some of our desires, but ultimately they are not necessary to live. Obviously, there are some gray areas: does eating at a fancy restaurant count as a want or a need? These issues don't need to be exclusively addressed since categorizing your monthly or yearly expenditures is supposed to be more of a guide than a strict limit. You would also need to pay attention to your income. If you have a job, how much is your paycheck normally and how often do you get it? It may be good to set your budgets biweekly if your paychecks arrive biweekly so that it is easy to see what you need to adjust. Generally, you don't want to budget to spend more than your income since you will run out of money very quickly by doing so. If you are currently not employed but receive an allowance from parents, use that as your income to measure how much you can spend. As a college student, this is good practice before getting a real job and managing a steady flow of income each month.
After taking into consideration what goes into a budget, what tools should you use? One popular tool I have heard a lot about is Mint.com. It is an online tool developed by the makers of Quicken to help manage your personal finances online. You enter your bank, credit card, and investment information and it organizes everything in an easy-to-view format. Whenever you pay for something with a credit card, the transaction will automatically appear on your mint account. However, I have read a lot of reviews online talking about its security and I am still hesitant to input all my information into one location. One very comprehensive review can be found here. You can see the Mint video on their homepage and they way they describe how people usually keep track of their financial information is actually very accurate for me: statements and spreadsheets. While Mint.com does look very useful in tracking all your information and making it less tedious since transactions are imported automatically, I still would not feel comfortable using it.
Excel is the main tool I use to keep track of my expenses on my computer. I don't have an extremely comprehensive mastery of all the excel functions, so anyone should be able to use excel to at least budget. I usually use three columns to list each item: Date, Merchant, Amount. In the fourth column, I label the overall budget I have for all my expenditures and (for this example let's say I have a budget for $4000) type in the box below "=4000 - SUM(C:C)" which is set to automatically calculate how much budget I have left after subtracting the total of all the numbers put in the amounts column from $4000. Obviously you can change the number from $4000 to anything you want, and I've included a screenshot below in case anything I said wasn't clear.
As you budget, you can just look at the number below Budget in the D column to see how much is left. You can create different spreadsheets for different budgets, but I may update later with some more sophisticated formulas you can take advantage of. The downsides to using Excel over a powerful tool like Mint is that it can be painfully tedious if you aren't that interested in budgeting in the first place. You would have to remember to budget and write down the amounts that you spent somewhere so that you don't forget them by the time you get home to your computer. However, there is no threat of someone getting access to all your bank account and credit card information. Also excel is fully customizable so that you can manually add in categories for your spending and use it to display handy graphs to give you a visual representation of the data. I may try to go over some of this excel functionality in a future post.
I'll leave it at that for now. Overall, you can choose between some more sophisticated programs or budget manually. There is some trade-off between security and convenience (you could also make your own sophisticated program but that would take a lot of technical skill). Also, the SpendingLite app I mentioned earlier may be the easiest thing for people with an iTunes handheld. I may revisit this topic later if there is a lot of interest in it, but hopefully you feel like you will be able to do the basics of budgeting and add that to your personal finance toolbox.