How do you budget?
Posted on April 2nd, 2008 – 2:36 PMBy Kara McGuire
Good news for budget-haters. Turns out frequently tweaking your spending plan may be less effective than doing so once a year.
This NYT story takes a look at new research from a University of Southern California professor who found that people budgeting for the long term are less confident of their spending needs and more likely to pad their budgets than short-term budgeters who regularly spend more than they estimate.
I haven’t found a link to the study to post here, but if I do, I’ll be sure to share it.
Just the other day, Matt was clearing off our computer’s desktop and asked if he should uninstall Quicken. I said yes.
After trying for months to use the software, spending my precious time inputting data and approving transactions, we let it go.
Then we tried Mint, a free, web-based, stripped down version of financial tracker. But that had all sorts of glitches, frequently making laughable category errors– like the time it labeled the Town Hall Brewery “home,” as in housing-related expense. I like my beer, but I certainly don’t live at the bar.
So for months now, we’ve had no budget, proving my theory that if you save automatically for retirement, emergencies, and fun, keep your expenses fairly low, and don’t go hog wild every week, you can live within your means and meet your goals without spending hours categorizing expenditures and poring over spreadsheets.
18 Responses to "How do you budget?"
Congratulations! You’ve reached the same conclusion that we did many years ago that saving first, paying bills second and staying reasonable in casual spending is easier that micro-managing pennies. We even quit balancing the checkbbok 15 years ago as it didn’t provide much value.
I only use Quicken to download transactions so I can export or report capital gains/loses for tax purposes.
We have also started using this theory. In our “budget” worksheet, I have a rough estimate for all the bills and spending. We both know we have roughly $200 a month for fun money, 400 for groceries, etc. If we spend more in one area, we take away from another, but I havne’t sat down and put exact numbers together for a year. We aren’t spending like crazy and have just implemented a weekly coupon clipping tradition (I still feel great when I save XX on my grocery bill.)
This has made budgeting less stressful. It appears that now I have stopped worrying about ever last dime, we seem to have more money in our accounts…weird how life works that way. 
I think the theory works as long as you are not “cutting it close” - this means you either make plenty to cover variances each month…or you’re not saving so much that it ‘hurts’. That said, I am guilty of budgeting but it’s very fast and I focus on trends rather than nickels/dimes. Given the amount of money at stake, I prefer running things like a business with an income statement/balance sheet. But what’s easy for me may seem tedious to others.
I also gave up on quicken, it just took too much time and I couldn’t get some other issues worked out. I still swear by envelope budgeting program:
http://www.snowmintcs.com/products/budgetmac/index.php
The only down side to this is that it doesn’t track our investments, like Quicken theoretically would. That said, we don’t really have any investments outside our respective 401(k) programs and an ESPP for my husband’s work, and all of the above provide convenient on-line tracking through their respective websites.
As I was paying bills last night and seeing the checkbook balance drop to a disturbingly low number, I decided that my non-budgeting approach isn’t working for us. I think my husband and I need something concrete to tell us whether we can afford to go out to eat or not. I’m not sure how to deal with things like the energy bill that changes dramatically over the course of the year, though.
We don’t really budget either. I think most people spend what they have and if you save first and then pay the bills and your income is stable, after a while you kind of know how much money you have left to fritter away each month. We save for vacations and big purchases and if they credit card bill looks strangely high one month, we immediately nip it in the bud. This works for us because we have the same money habits; I don’t know that it would work if one person spends money like a drunk sailor.
My husband and I implemented a system when we first got married to help with the budgeting without tracking mentality. We’ve found it to work GREAT! We each have our own checking account, and we have a joint account. (We are actually both signers/owners on all accounts, but they are ‘assigned’ to us) All income goes into Joint Account, all standard bills (utilities, mortgage, etc.) are paid out of Joint Account, savings come out of joint account, groceries and household stuff is paid out of joint account. Each month, we pay ourselves an ‘allowance’. This allowance is to cover our personal gas expense, out to eat expense, entertainment expense and clothing expense. It’s not equal between the two of us - my husband uses more gas to get to/from work each day - but it really makes us ask “do I have enough money to suggest we eat out tonight?” because who ever suggests going out to eat or to a movie has to buy It also has helped me save for splurge things I want but don’t feel right taking our joint money for (new purse, massage, etc.). We never argue about how each of us has spent our money, because it’s our own decision. I highly recommend the system to anyone. We each carry two debit cards and know when to use each one according to the purchase.
okay - just one more comment. (I love budgeting.)
I also track our expenses from the Joint Account (referenced in last post) in a Google spreadsheet. I keep a running total of standard expenses/bills, expected income and fill in the variable expenses (groceries, Target) as they happen so I can see the projected balance at the end of the month. This way I know if I can push a little extra $$ to debt or not.
I don’t total up all categories each month, but I have recently been tracking grocery expenses. I’ve been happy to say I’ve moved us from a $100 a week couple to a $75 a week couple, and created planning habits that will help us sustain this level of spending without being so anal about it going forward.
So here’s a question: how can you plan to save more/pay down debt/whatever (balance sheet) without knowing your spending (income statement)? Effecting the balance sheet requires knowing the income statement. My guess is that “saving first” = saving a percentage and not amounts toward concrete goals.
I was devoted to microsoft money for years, but it was basically just a very time consuming balanced checkbook. My husband and I use a similar system as breder, joint account, two separate accounts. As a couple, we are not really into buying stuff. We eat in and watch baseball, go to the library, and avoid target. Ever since I cut down on consumption, I find that budgeting is not really necessary. Taking the bus or my bike everywhere means that gas prices don’t really affect us, either.
Re: Utilities/Energy bills that fluctuate from month to month.
Check into the budget helper plans that average out your bills for an entire year based on historical usage. This way you gas and electric bill will be the same each month.
Ditto what Jack says. the only minor downside is you might end up “settling” later (usually them paying you back or not charging you as much at the end of the cycle), so it’s kind of a no-interest loan to the utility company. But a typical household is probably only talking about $50 to $100 a year in that “difference”. (Unlike overpaying taxes where you might be floating the Feds several K a year.) That small amount is more than worth the convenience of having a predictable utility bill.
We use Money, and it IS time consuming. I’ve gotten it down by automatically recording the predictable transactions so I just match them up each month. But it’s still a lot of work and sometimes wonder if it’s worth it. Then I look at the “big picture” of our net worth, investments, assets, spending reports, and realize it’s the ONLY place I can carry all those things together at the level of detail I want.
This doesn’t translate into micro-managing pennies, though. Like David, I’m more interested in trends. Are we spending more on gas and groceries now than a year earlier? Yes (but not much, thanks to transit & coupons). Are we going to be able to afford to save more when our car payments end next month? Yes. Stuff like that is why I do it.
My husband and I budget very similar to breder, except instead of each of us having our own account, we just give ourselves $100/wk cash (each) that we can do whatever we want with (out of our joint checking account.) That way I don’t feel guilty buying myself a pair of jeans, because I know I’ve saved up for it. Also, we have similar spending/saving habits and are working toward the same goal, ultimately, which helps tremendously. I can’t imagine trying to share money with a big spender. Does anyone here have that issue?
I hate Budget Helper plans from the utilities, especially Centerpoint Energy. Sure it hurts to pay my $222.00 gas bill today, but I love my $20 gas bill in July. I’d rather pay as I go instead of letting Centerpoint manipulate the numbers.
I have used quicken since 2002 to manage all of my income, spending, and investments. After I was married I merged my wifes income and debt into the quicken file. At first I spent time using quicken every day but realized that wasn’t necessary — especially once I figured out how to put transactions in categories automatically. I now use the program 2-3 times per week to update my accounts and quickly review transactions. One benefit to using quicken for me was to drastically cut down on the number of accounts I had open. I collapsed the family accounts (credit card, checking, savings, investing) from over 20 to 8 — mainly because it was so time consuming to update all of these in quicken. The other benefit is that now I have over 6 years of data about my income and spending habits. This year we started saving for a house down payment. We were able to review last year’s spending on things we considered “discretionary” and ended up discovering places (categories) where we could go without and save a ton of money without feeling like we were denying ourselves things. Now we both think twice about unnecessary spending at the POS (don’t want it to “+” that category in quicken!) Also seeing the savings number grow (we put it on the opening screen of the program) is really motivating. Sounds nerdy but it works!
This is the biggest money disagreement between my wife and me. We (read: she) uses Mvelopes for our budget, and worries excessively if we don’t meet our budget goals in every area (”We’re $14 over our grocery budget this month!”). She obsesses about how we’re not saving enough, but she seems to forget that we’re socking away 15% in retirement and a nice chunk of cash each month for emergency savings.
She’s handled the checkbook, budget, etc., for years and now wants me to take over. I’m happy to pay bills and take care of the checkbook, but I have no interest in being a slave to budget software.
Use phone to record transactions and sync with Microsoft Money.
Someone asked about about sharing money with a “big spender.” I make ~$40K and my boyfriend makes a pretty reliable $100K as a contractor (so no benefits). He is the big spender–which makes sense, given how much more he makes than me.
However, he also carries credit card balances and currenly owes more in his mortgage than his house is worth because of home equity stuff. (I don’t have a full handle on his finances, of course, since we’re not really sharing expenses…yet…)
I have zero debt, rent a small apartment, maintain emergency funds, etc. I’m the “saver.”
Up to now, our biggest problems have been restaurants and vacations, where he invariably wants expensive meals and hotels.
Anyway, I’m nervous about what happens when/if we combine our incomes. I’m very protective of my savings and I have a bit of a “mine vs his” attitude in my head about this stuff right now. Stupid money.
