Tuesday, August 12, 2008

Bemoaning the Budget

Since budgets are all the talk right now in Sacramento, I thought it would be a good topic for the day.

When average folks have a goal, like home ownership or early retirement, the standard advise seems to be "make a budget". To me this is a lot like the "food diary" advise for weight loss. Nice in theory, but just way to intrusive and hard to keep up for a busy family.

I do reconcile our credit cards, bank statements, etc. in Quicken every couple months. I also categorize the purchases, but there are many items that fall outside a normal budget (like loans to family, or work expenses), or ATM cash that just disappeared. I have tried on several occasions to use the budgeting functionality in Quicken, but for some reason or another, it doesn't get me what I am looking for.

This leads me to wonder, does anyone actually have a household budget and if so, do you follow it?

There are many categories, in which I am unsure about how much to budget. For instance, how much to give to charity, how much should we allocate in gifts to family and friends, how much for travel and vacations?

Both Mr. BT and I grew up in families that struggled to pay for basics like food and clothes during some periods of our lives. This environment shaped our financial habits. We don't buy on credit unless we can pay off the bills immediately. Now that our massive student loans are paid off, we have relaxed the reigns a bit and spend a bit more freely.

I have an idea how much we spend on things, but I don't know if its above average, or if we are really pinching pennies. Talking to my uncle, who's family makes considerably less than us, I feel like we really pinch pennies on things like food, auto and cable bills compared to them. But I don't know if they are over spending, or if we are underspending.

With finances a somewhat taboo subject among friends and colleagues....how do people figure this stuff out?


Patient Renter said...

I've always liked the idea of making and keeping a budget, but I'm pretty much in the same boat as you. I synch my purchases into quicken and categorize them all periodically, but so far haven't developed any sort of budget. I too am curious what others do.

Deflationary Jane said...

I keep my budget in an excel spreadsheet. Each worksheet represents a year and it's all linked. I tract my interest earned and CD maturities for each year as well. I have my budgets (forecasts vs. actuals) from as far back 1994 and I forecast out to 10 years ahead.

I reconcile to my electronic statements about every 2 or 3 days. I do this to make sure I pay zero fees or interest on anything.

If I have an emergency, a quick look at the file on my phone tells me everything I need to know. I want to work on a solution and not spend time trying to figure out if I can cover it.

I'm not always perfect with the numbers but my margin of error is about 5%. I don't have kids and just track 2 adults so it's pretty basic.

We grew up financially stressed too though that certainly changed for my mom in the last 25 yrs. It made me absolutely paranoid about over extending myself.

mcb44 said...

DJ may have set the bar on personal cash flow and balance sheet management.

In general, we forcast income and expenses, target a savings amount and live on the remainder without too strictly controling day to day expenses.

Key factors to our approach are to save the right amounts first, we tend to be pretty aggressive with our savings % and keep recurring expenses under control by limiting debt.

Jacob said...

I track my info in Excel. Never really cared for Quicken.

In Excel I have a tab for each bank account: checking, saving, CD etc. And then I have my expense tab.

On the expense tab I track all my expenses, to the penny. I am only tracking for myself so it is easy. Also I rarely use cash except when I am at garage sales or denios or somewhere that doesnt take credit.

And I make sure to pay off the credit each month. I don't like the idea of paying fees at all.

I then have a table the breaks down the expenses by category and month so I can see month to month to month changes easily.

I also have a savings goal for each month.

Now as for a budget I don't really limit myself like that. If I need gas or food or a bill is higher than expected it all gets paid. So long as I am meeting my savings goal then it is all good.

If I were to miss a savings goal, if some expenses went up or my income went down, then I would have the data to see where I can reduce my costs.

I also prorate large purchases (~$1000 or more) over the entire year. Vehicle maintenance, new TV etc. I do this so it doesn't through the monthly numbers off for whatever month the charge happened to come in.

I definitely feel it is important to know where your moeny is going. And it is also important to pay yourself each month and bank some money.

Buying Time said...

Homage to DJ & Jacob.

Currently we don't specifically save money except for our 401ks (we put away the max allowed).

I should probably just break down and hire a financial advisor...sigh.

sacramentia said...

We have a weekly target that we stick too. I don't really ever reconcile and focus almost all my energy on the income side. My wife and I have always lived way below our means so tracking each dollar isn't that important to us.

Deflationary Jane said...

I'm obsession with reconciling to the penny comes from banking with BoA. They used to try the sneakiest things to get you to owe fees then the cycle would escalate. Other then that, it's easy to do as we do all out bills once a month and almost everything is paid electronically. Takes no time at all.

As for savings, compound interest is it's own reward. I needed no other motivation.

Perfect Storm said...

Figure out how much you make a month and then figure out how much you want to save a month and at the end of the month compare. Otherwise be thrifty, but don't give up on the pleasures in life, unless eating canned spam is a pleasure, I like it actually, but a nice ribeye is more my taste.

sacramentia said...

I like what perfect storm said.
For me, when I first started working I saved 30%. With that savings I invested mostly in what I felt comfortable with and have always targeted a 20% cash on cash return. I had some excellent years where I re-invested over 70% of my income but the important part was that I never consumed the saved income or its proceeds.

The 20% goal led to some risky investments so I had to make my first million twice, but the 30% rule was one that I always stuck by until the last year since I've been heavy real estate and my kids are at an age where it doesn't make sense to skimp.

My wife grew up wanting things and so did I so it is natural for us to not spend money. And the funny part of that is that she looks high maintenance so I guess that just means I'm lucky.

I digress. Budgets are great for investments, but making an extra 10% is better than saving an extra 10%.

anon1137 said...

We've used Quicken for many years for all our accounts, including investments. I think it's a fantastic tool. The more recent versions have the financial planner built right in so you can do fairly detailed retirement plans, home purchase plans, etc. Like sacramentia, we've always lived well below our means, so we've never used the budgeting features.

VirtualVoice said...

My husband & I have been struggling a bit with the budget as well. We tend to work more to saving a set amount each month, and spending the rest how we see fit. (It's so easy to spend.)

I've "tried" the budget in Quicken & MS Money (didn't try too hard) & plan to try again. We just got married, so at least now our expenses won't have all of the wedding interferences that they did before.

The M-velopes software has a nice concept on how to budget. (I can't imagine paying so much for it. I've read others who use the same concept without the fancy software).

PearBudget is a free excel worksheet which I have been using to at least help plan the budget- taking into account variable & irregular expenses like car maintenance, renewal fees, etc. I've used MSMoney to help fill in gaps, and then will transport my budget to Money & see how it goes!

To make sure we can afford the house payments we think we can, we plan to take a couple of months and save the difference in rent vs. house payments/expenses, and make sure we can survive ok.

tecmo said...

Quicken is perfect for what you are trying to accomplish. The first step is to just track / categorize your expenses. This will give you a baseline on which to set your budget. I would start by tracking EVERYTHING you spend for 3 months.

This may sound difficult but in practice it can be very easy. The best advice I can give is to keep your categories managable (ie: don't track Hair Cuts as a category); and to watch out for the growing "misc" category.

Using a credit/debit card for all your purchases will help categorize as well (easier than keeping receipts).

Once you have tracked 3 months; just review the expenses and set out a forecast for the next 3; again quicken has a good screen for this. You can then run reports to see how you are tracking to your budget / forecast.