A New Budget for the New Year
Hi 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,
B
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.
Household Budget
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.
Retirement Planning
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
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.
