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A New Budget for the New Year

Jan05

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Advice Smackdown ArchivesHi Amy,

I remember in a past column you mentioned that you and your husband have a budget that you stick too. And I know this is going to make me look pretty dumb, but, how did you come up with that budget? Do you use Quicken, have outside help from an accountant, or are you and Jason just naturally math minded? My husband and I need a budget, but I’m not sure where/how to start. We’ve listed our expenses before and tried to keep track of where our money goes, but it’s just not something that we have a good logical grasp on. Any advice?

Hoping that the only dumb question is the one you don’t ask,

Brandi

Not a dumb question at all, and particularly timely, I’d say, now that we’re past the holiday shopping free-for-all and maybe feeling a twinge or two of regret. And I’m sure many New Year’s resolutions included something about getting in control of finances, spending or finally bucking up and paying down debts.

So. Our household budget. In the past, we used Microsoft Money, but that’s been discontinued for awhile now. Rather than shell out money for Quicken or another expensive DIY software program, my husband decided to give Mint.com a try. It’s all online and…it’s free (!). And we’ve been very pleased with it. (And for the sake of transparency, no, the Mint.com service did not send/offer me anything additional for free, or pay me in any way for an endorsement.)

The benefit to a service like Mint (or Quicken, or any other personal finance software program) is that you can import your online banking info automatically, and every transaction is labeled and categorized for you. Thus you can easily see EXACTLY where your money is going, month by month and week by week. Most of us grossly underestimate our spending in at least one category — the dreaded “miscellaneous,” usually — but with Mint, your spending is spat right back at you in a visual graph format, so there’s no way to deny just how much you’re overspending at Starbucks or lunches out once you see the “Dining” category is about twice the size you expected. Occasionally, yes, some transactions will get labeled incorrectly and require a switch, but for the most part it does a good job at categorizing things correctly.

I personally find it impossible to keep track of spending using makeshift lists or checkbook registers or Excel spreadsheets, but nice colorful graphs work great. (And at Mint, they’ll even change colors for you! Green means you’re still within the monthly budget/limit you set, yellow means you’re getting close to the edge, and red means you’ve officially gone overbudget for that category. Beautifully simple for us non-math-minded types.) (Though my husband is a software engineer and took a scary amount of higher math courses in college. Yet he still likes those graphs, too.) Keeping a well-maintained historical budget not only helps you keep spending in check, it reveals intangibles that you may not have realized before. Considering the switch from working outside the home to SAHM or WAHM? See exactly how much your job costs you beyond daycare, in gas, clothing, lunches out or mid-afternoon grande lattes.

So. Mint is a great place to start. Import your bank and credit card statements and spend an hour or so getting all your various cash/debt accounts entered and in order and you’ll likely immediately see where your budget is consistently going off the rails, or where you can cut back. Set spending limits for each category, and promise to check in on those handy graphs regularly to see how you’re doing. You can also set savings goals or pay-down-the-credit-card goals and track your progress.

The one thing we do NOT use budgeting software for, however, is retirement planning. Super long-term goals like that? We see a financial advisor, especially since I freelance and no longer have the ease and benefit of a company-sponsored 401(k) with auto-paycheck deductions. (Not to mention unlimited access to really valuable investment advice, since I was an editor of stock market/mutual fund investment newsletters.) My old 401(k) was through Fidelity, and since they have low fees and a decent selection of mutual funds, we stuck with them and used the local brick-and-mortar office to help us get started with rollovers and IRAs and goals and figuring out whether we were saving enough (we weren’t) or whether we needed more life insurance (we did)…stuff like that. Now this is another thing that can be more or less managed online, but we like being able to have things reviewed and checked up on from time by time by an actual human being who pays attention to the market because it’s THEIR JOB.

Taxes are whole other thing, too — if I were living on my own and trying to file a tax return with a half-dozen freelance income sources and paying estimated taxes throughout the year, I’d probably hire myself a good tax accountant for that, and it would be worth every penny. I obviously keep track of my own fluctuating income and invoices and 1099s and W2s and such, but Jason does our taxes himself, with TurboTax, and for that I am so eternally grateful that I generally go a tad over-budget at Victoria’s Secret around early April, if you know what I mean.

About the author

Amalah

http://www.amalah.com
Amalah is a pseudonym of Amy Corbett Storch. She is the author of the Advice Smackdown and Bounce Back. You can follow Amy's daily mothering adventures at Amalah. Also, it's pronounced AIM-ah-lah.

If there is a question you would like answered on the Advice Smackdown, please submit it to amyadvice@gmail.com.

Amy also documented her second pregnancy (with Ezra) in our wildly popular Weekly Pregnancy Calendar, Zero to Forty.

Amy is mother to rising first-grader Noah, preschooler Ezra, and toddler Ike.


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20 Responses to “A New Budget for the New Year”

  1. Sarah in LA Jan 05 at 11:49 am Reply Reply

    I used Money for years, too, and tried out Mint.com when it got discontinued. Mint.com is great, except that if you had previously used Money to keep track of your bills, you will be disappointed – Mint.com doesn’t offer anything where you can enter your bills and enter them into your register when you pay them. Having this feature is crucial for me, so I spent the money and bought Quicken. It looks a lot different than Money, but it works essentially the same way and I’ve been pretty pleased with it.

  2. MamaBird Jan 05 at 12:31 pm Reply Reply

    As an additional idea– we had great budgets for years, but a hard time sticking to them. We have had GREAT luck by switching to a bank that lets us open as many checking accts as we want, and then we use each one for a different purpose. So, the one with the blue checks is for groceries, gas, and other flexible expenses, including clothes, gifts, lunch out, babysitting for dates, the dates themselves, etc. The one with the red checks is for the fixed costs: mortgage and taxes, utilities, student loan bills, etc. Money is direct deposited into the red account, and we move a small amount weekly into blue. If I go to buy lunch and there is no money in blue? I’m SOL, and I don’t spend the money– but at least I don’t accidentally spend this month’s student loan payment on my lunch either! We also have accounts for “short term emergencies”– think new tires, a broken boiler, etc; vacation savings; longer term emergencies, like somebody getting laid off; and so on and so forth. This has worked amazingly well for us. Good luck!

  3. Katy Jan 05 at 12:38 pm Reply Reply

    One bit of advice about financial planners. Make sure to use a fee-only planner. Otherwise, you’re potentially getting financial advice from a planner who earns a commission for selling various products.

  4. Stephanie Jan 05 at 12:42 pm Reply Reply

    Good advice Amy. I also use mint.com, although I was forced to when Quicken Online stopped offering their services. I am pleased, overall with Mint, but the one area that is lacking is that they don’t allow to put in recurring expenses/transactions like Quicken did. I used to be able to set up recurring expenses like the monthly mortgage, our paychecks, our automatic transferring to savings, etc, and now I have to manually input it. Not a huge deal, but kind of a pain. What I like with Mint to is that you can check boxes in your transactions that have to do with certain things – for example, tax-related. If I wanted to find any transactions that can be tax-deductible, I can bring those transactions up very easily. Plus, the number one reason I like online budgeting? I can access it from anywhere, including my handy Mint app on my iPhone. I’m kind of anal about tracking my money (call me a classic Capricorn), so it’s nice to see it all in one place!

  5. Procrastamom Jan 05 at 2:21 pm Reply Reply

    Wee! Budgeting, saving, getting out of debt…a mecca of delight for this accounting student and “spreadsheet guru”! I don’t personally use mint, because it doesn’t work with Canadian banks (we are still in the dark ages when it comes to online software like mint), but I have heard rave reviews from a lot of Americans about it. I have my own spreadsheets and systems that I’ve revised and molded over time.
    I also love reading personal finance blogs, the best of the best being Get Rich Slowly: http://www.getrichslowly.org/blog/ There is tons of information on JD’s site regarding budgets, getting out of debt, saving, investing and every other money topic you can imagine. Check him out.

  6. Heather Jan 05 at 2:28 pm Reply Reply

    Another bonus to Mint.com is that you can add your own categories. We have added “$300 thing” which is the random expensive thing we have that month (a new car seat, or exorbatant vet bill, or a new lawnmower). We’ve included “$300 thing” as part of our budget so that it doesn’t stump us the 10 months out of 12 that it happens.

  7. annemarie Jan 05 at 4:29 pm Reply Reply

    Procrastamom – Mint works in Canada now – I use it too! With my local credit union and national bank and credit cards and everything.
    Another tracking tool where you input your own receipts is http://pearbudget.com. Their categories are great and it’s a nice simple interface. It costs $30 a year and is hosted (securely) online. I get all my info from Mint and put it in Pearbudget because I like their recurring events (mortgage, phone bill, etc) and space for “irregular stuff” like car insurance, Christmas, travel, etc. 

  8. Alanna Jan 05 at 9:08 pm Reply Reply

    I tried Mint.com over the summer, but it continually had problems with one of my student loans, one of my credit cards, and my IRA. Also every month it labeled our rent as eating out for some unknown reason and I got irritated with changing it every month. We had lots of problems with mislabeled transactions (or them wanting to separate things that are billed/paid together for us).

  9. Heather Jan 06 at 12:26 am Reply Reply

    Good call on the VS ;)  

  10. Alison C Jan 06 at 4:38 am Reply Reply

    I second having seperate accounts were possible.
    I have one for usual monthly expenses such as bills, mortgage etc, a couple of different savings accounts (one for general one for holidays) and then an account were I can spend what is there. I transfer money to each on payday. If there is no money in the last one then I can’t have that new dress but at least my mortgage is paid every month.
    I am in the UK and use my online banking and an excel spreadsheet to check a few times a month where I stand financially.

  11. Meredith Jan 06 at 9:13 am Reply Reply

    I would recommend ‘I Will Teach You To Be Rich’.  Both a book and a blog, and while the title is ridiculous, the author has a great method to non-budgeting and automating your finances.  Once you get the system set up, there’s almost no thinking involved.

  12. Debbie Jan 06 at 10:46 am Reply Reply

    My husband and I are also resolving to get our finances in order for the new year. For all the Canadians out there, I recommend “Debt-Free Forever” by Gail Vaz-Oxlade. She does a show on the Canadian Slice network called “Til Debt Do Us Part.” She’s really funny, no-nonsense, and her book is really easy to follow. What I love from the show is that she gives the couples a complete breakdown of where their money has been going over the past 6 months. It makes for a crazy wake-up call when she tells them that they’ve been spending $5000 more a month than they make. Her book taught me how to make all of the same calculations that she makes on her show, and her website (her name dot com) has downloads and worksheets that can help you on your way.

    Highly recommend! Thanks for the suggestion of Mint.com, Amy, I’d never heard of it but it looks fantastic!! Will try it as soon as I’m through with Gail’s book.

  13. IrishCream Jan 06 at 1:34 pm Reply Reply

    One thing that helped my husband and I stick to our budget when we were poor students was an allowance. Every month we’d each get $100 or whatever amount in cash. All of the little treats that add up fast (lattes, People magazine, & lipstick, in my case) came out of that $100. Since it was in cash, it was easy to see how fast I was going through it. On plastic, even with a debit card, it’s too easy to lose track of little things like that. We have a little more cash moneys these days, but on months when we’re traveling a lot or have more expenses, I’ll go back to that trick until we’re back on track.

  14. LawGirl1982 Jan 06 at 1:37 pm Reply Reply

    We used You Need a Budget, a program for Macs and it is great! Also we use cash for everything. Divided according to envelopes. We followed the Dave Ramsey total money makeover and we are not debt free except for our mortgage. Whatever you decide I would say the best thing we ever did was do the cash envelopes, even for something simple like say, your gas, drycleaning, clothing, personal/beauty, things like that. When the cash is gone, its gone. It’s a great system!

  15. LawGirl1982 Jan 06 at 1:38 pm Reply Reply

    Oops, “now” debt free…..otherwise why the heck would I have posted anything about the total money makeover?! :)

  16. Amy in StL Jan 06 at 6:05 pm Reply Reply

    I’m starting to try and budget this year as well. I went through and downloaded all my transactions from my checking into Excel and just categorized them. Honestly I have some weird categories like Hair Maintenance, Yarn, Shoes as well as normal ones like Food, Gym, Beauty supplies. But I’m wondering how it would categorized Target and Walmart and the like. I often pick up household items, food, clothes, shoes, dog food and the like all at the same place. How in the world does it know? My plan is to keep track weekly of how much I have to spend in a category and how much I’ve spent. That way I’ll know if I can buy that new pair of boots or not. I used a spreadsheet from the Crazy Aunt Purl website and customized the categories.

  17. Hannah Jan 06 at 7:31 pm Reply Reply

    To follow on with Debbie’s comment above – because I’m a Canadian too and a huge fan of Gail Vaz-Oxlade’s simple approach to money – we used her method for sticking to a budget. (Her show also airs on CNBC in the US, so there you go). It’s really simple; her online tools help you develop one, and then you use only cash in jars for your variable expenses. So, for example, if your budget calls for $100 for clothing and gifts, you take out that amount of money at the start of each month in cash and put it in a labelled jar. Once that money is gone, you either have to not buy anything else OR borrow it from one of the other jars – but no replenishing the total amount until the next month starts. You also have to put in a receipt when you take money out so you can track where it’s going.

    We did that for six months and we ALWAYS had money left over – and not a little money, either. It makes a huge difference to your spending habits when you can see the money before you spend it.

    A year after the experiment, we’ve gone from having debt on credit cards and a line of credit to being debt-free except for our mortgage. It’s an awesome feeling. We’re also saving more for our retirement.

    Living on a budget sounds scary, but it’s very rewarding. There are lots of different tools out there, you just need to find the one that works for you and your family. Good luck!

  18. Kimm Jan 06 at 9:26 pm Reply Reply

    I know where our money goes, straight to the vet. We might as well have direct deposit to his office. Monday Rosebud ate 1.5 pounds of jelly beans. She only weighs 16 lbs to starts with, hijacked a bag inside another bag up on a high shelf. Makes me scared to think about, if we can’t dog proof our house, how are we going to make it with a child? Our baby is due in March! Hospital bills, job changes, aieee. We are trying to pay off our c cards comepletely before baby is born, making a good dent but not done yet.

  19. Jaymee Jan 07 at 10:31 pm Reply Reply

    How secure is the website you use, Amy? It sounds like a fantastic idea. I just always get a little nervous when it comes to giving access to my bank account. I’m so afraid of people stealing money from me that I refuse to even use direct payment for my bills.

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