Budgeting
We generally have the following expenses one needs to plan for:
1 Monthly regular expenses (rent/mortgage, phone, internet, groceries, etc) 2 semi-annual or annual expenses (insurance, property taxes, some subscriptions, etc) 3 Planned irregular expenses (new car, maintenance(house or car), vacation, etc) 4 Unplanned irregular expenses (lost job, emergency room visits, etc) 5 long term (retirement) savings.
And the tenants for budgeting well:
- Live within your means - spend less than you make(save 50% and can retire in about 15 years)
- Have an emergency fund (1 month’s expenses minimum, recommend 3-6 months)
- Pay yourself first. Save as much as you can afford in tax protected, retirement plans (401k, 457, 403b). Maximize any matching funds, then aim for > 15%.
- Pay off credit cards every month.
- Loans/debt in general is terrible. Mortgages are okay, but spend less than you are approved for a mortgage. see [Money]
- Drive an appropriately priced car, the longer you keep it the better
- Have appropriate insurance: health, long-term disability, auto. Add term life once you have dependents.
For every $5 you spend today, that’s $10-15 dollars every 15 years and 4x the amount in 30 years (at 5% annual interest).
Run through this fidelity financial checkup [https://digital.fidelity.com/prgw/digital/financial-checkup/survey/1] or follow this flowchart [https://yuma.ca/PersonalIncomeSpendingFlowchart.png]
Budgeting Tools
My recommendation:
Track only what you want to track. Why do you care that you spent $100 in groceries? Does it matter at all? Maybe, but probably not. What do you actually want to track, then only track that. Most categories of expenses in financial apps/tools are almost universally terrible. If you are going to use a tool I suggest you delete all the categories and start with 1: Expenses. Then add additional categories as you know you need them. There is no point in trying to decide if that $10 at CVS was for Snacks or for Makeup.
If you have $50-100 to spend on getting your financial life in order: select one of the software packages on the list below that seems to fit your personal goals, and use that for the first year.
If you don’t have any money to spend(or don’t want to spend), then start with Personal Capital for the first year.
After the first year, you probably don’t need a tool anymore, as your spending will be under control, and you can just monitor your CC/bank statements every month for unexpected things. Not use any software or tools, except what your bank/brokerage provides, except the occasional spreadsheet when you want to do some quick math. I.e after the first year, you will know your expenses are X dollars a month, and as long as your statements keep showing right around $x/month you are within budget and doing great, no need to in-detail keep track. However, if you want to keep using a tool, don’t let me stop you.
I do recommend you download the statements and transactions from your bank & brokerage every 6 months or so and save them either with fidsafe(see [ToolsResources]) or just locally to your computer. That way if you ever need to go back and look something up, say for taxes, you can. Banks tend to not make that information available after 6 months or a year, so just download it and keep it around.
Budget Tool options.
The bare minimum here is just read through your statements from your CC, checking, savings, etc every month and get a feel for your spending and also make sure nobody is taking your money without your consent.
You probably want more than that. From simple to complex one might make a list like so:
- Paper or envelopes(pay using cash, each envelope is a bill you have to pay, fill it with money) Great for a very cash centric lifestyle.
- A simple spreadsheet, there are some to download free, you would probably be better served just making one yourself using [https://www.libreoffice.org|LibreOffice]
- Personal Financial Websites(see dedicated section below)
- Personal Financial Software(see dedicated section below)
A quick note about spreadsheets: The problem with all the spreadsheets out there to download or use with Google Docs are the instructions are usually pretty bad, and are hard to understand/use. If you built it yourself, then you definitely understand it. Plus for a budget all you really need are 4 columns: Date, Who you payed, The Amount you paid, a Category or what you bought. Then you just want to total the amounts by category. Also, if you use Google Docs, then Google absolutely looks at your spreadsheet information and uses it to build better ads for you. If you like the idea of Google knowing even more about you, go for it, but I don’t recommend it.
Another option is just bulk expense tracking, sometimes called the 60% solution, more information here. Basically you keep all your needed expenses including taxes to 60% and the other 40% to saving: 10% to retirement savings, 10% to long-term savings 10% to short-term savings and 10% to fun money. If it works for you, I have no complaints.
Personal Financial Websites
There are only 3 worth talking about, [https://www.mint.com|Mint] and [https://www.personalcapital.com/|Personal Capital]. Of the two I vastly prefer Personal Capital. Both are free and easy to get started.
Mint is owned by Intuit and will do a lot to monetize you, so your privacy is missing using mint.com. It works fine if privacy isn’t an issue for you. They have ads.
Personal Capital is owned by an investment company, and they want to sell you their investment services, but they are pretty low-effort in trying to sell you said services. I have no experience with their paid for investment services, and since they are actively managed. But their personal finance tools are pretty great!
The 3rd is Fidelity Full View
Personal Financial Software
In no particular order.
- [https://financier.io/|Financier] an OSS clone of YNAB, syncing is $12/yr, if YNAB is your jam, def. give this a try.
- [https://www.youneedabudget.com/|YNAB] $’s If you like the idea of YNAB(giving every dollar a job), then it’s probably worth the money.
- [https://www.iggsoftware.com/|Banktivity] $’s MacOS only application works fine, boring and stable. The iOS app is fine.
- [https://www.quicken.com/|Quicken] $’s Used to be owned by Intuit(terrible) Now owned by themselves. Supports Mac and Windows and Mobile. Worth checking out.
- [https://gnucash.org/|GnuCash] Free and open source. Double entry accounting. if you can handle it’s complexity, and you can make it run, it’s great.
- [https://plaintextaccounting.org/|Plain text accounting] Free and open source. If you can handle it’s complexity, it’s awesome. If you can’t, don’t bother.
- [https://www.portfolio-performance.info/en/|PP] Portofolio/Investment tracker, open source and free.
- Others I have either no experience with, or think they are terrible and not worth your time. Probably mostly not worth your time.
Differences between website and software
The websites are easier to get started, but your financial data is on some remote server somewhere, un-encrypted, and in the case of Mint likely harvested for data. The software tools cost $’s, but are a lot more privacy respecting. Some software will sync your data to mobile, but will encrypt it and not share it with anyone else.
So basically you trade privacy for cost.
What I do
I keep a spreadsheet “My Finances” on my computer that has my goals that I care about. I purchase everything on credit card that I possibly can. I don’t track expenses except by CC (just to ensure I pay off the CC every month). I handle my finances monthly.
I have a Fidelity CMA account called “Incoming” all my pay checks and other income get deposited there. I spend money via CC. On the last day of the month I login, open the apps and look at my various CC balances and type them into a spreadsheet. My spreadsheet then tells me I need to transfer $X to this CC and this amount to Bank Of America for the BOA CC’s, etc. I pay all my bills and everything left over gets invested. My spreadsheet also calculates how much I’m saving towards my goals and if I’m on track or not. It also generates random things I’m curious about sometimes, like after 2020 when inflation started going up, I was curious about my personal inflation rate, so I have it calculate that. For the curious: My 2021 inflation rate was 1.6%.