Budgeting vs Tracking Expenses?

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kjvmartin
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Budgeting vs Tracking Expenses?

Post by kjvmartin » Wed Mar 29, 2017 10:37 pm

I've always tracked my expenses. My family taught me early how to balance my "kiddie" savings account and later the check book.

Now, I can review personal finance software and see what I've spent on various items & categories since about 2007 (college graduation).

Every time I try to setup a budget, I put in the work and then I find it seems useless. It doesn't change my behavior at all.

For example, if I set limits based on my averages for transportation, but then work sends me halfway across the state for training, should I let my gas tank run dry in order to meet my budget? Same thing with groceries - I can budget an average reasonable amount, but if we end up needing an extra milk for some reason, I'm not going to let the kids be thirsty. When the kids outgrow clothes, we can't skip new shirts based on a budget. Almost everything we (most people I know?) spend money on is a fixed expense or necessity. Our main variable expense is restaurants, since our entertainment is essentially Netflix and going to the park or indoor playscape. It seems obvious to me that the less I buy variable stuff (restaurants) the more savings I will have. Is there a psychological benefit to putting this in a formal budget? Do I just need better software?

Aside from automatic 401k contributions, we always put what is left into savings. We have to evaluate what to use that for, like what "wants" we're thinking about. When prudent, we make those purchases. Is what I'm doing a very loose form of budgeting?

kjvm

Dottie57
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Re: Budgeting vs Tracking Expenses?

Post by Dottie57 » Wed Mar 29, 2017 10:53 pm

A budget is a plan. You can adjust the plan.

As for me, I set savings targets. Once I meet them, I am free to spend how I want. If more savings are needed, then spending needs to go down.

anonsdca
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Re: Budgeting vs Tracking Expenses?

Post by anonsdca » Wed Mar 29, 2017 11:09 pm

Same here as Dottie. I start at the top with all the income, less all expenses AND savings and investments and what is leftover is my spending budget. As long as I hit my targets, which increase annually, I don't worry about food, entertainment and those sorts of things. It helps not have exaggerated needs too.

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cheese_breath
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Re: Budgeting vs Tracking Expenses?

Post by cheese_breath » Thu Mar 30, 2017 12:05 am

If you need to spend more than planned one month, then cut back the next month to compensate. If there's absolutely no place you can cut back (highly doubtful), then increase your income.
The surest way to know the future is when it becomes the past.

SQRT
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Re: Budgeting vs Tracking Expenses?

Post by SQRT » Thu Mar 30, 2017 2:28 am

I've been tracking expenses for decades. I call it a " budget"but as in the OP it doesn't really restrict my spending much, ie I generally spend what I want and this results in being "over budget" most years. More of a guideline than a budget. I think I was only "under budget" once. I did reduce the "budget" in 2009 though. Still it works for me as we can easily afford it,
Last edited by SQRT on Thu Mar 30, 2017 10:13 am, edited 1 time in total.

blueman457
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Re: Budgeting vs Tracking Expenses?

Post by blueman457 » Thu Mar 30, 2017 3:17 am

I track expenses and have a budget. I'm fortunate that a budget for me is a guideline of how to spend for the year, tracking expenses makes ensures that I'm not developing bad spending habits.

Some folks need a strict budget because spending is out of control or income is only just enough for needs and little wants.

As long as you meet your savings/investing goals, feel free to spend as you need/want.

Lobster
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Re: Budgeting vs Tracking Expenses?

Post by Lobster » Thu Mar 30, 2017 4:54 am

kjvmartin wrote: Is there a psychological benefit to putting this in a formal budget? Do I just need better software?
Your approach is the same we used, and I experienced the same frustrations with budgeting software. I wanted to have better visibility even though expense tracking worked okay. We settled on using multiple checking accounts/debit cards because 'available balance' is both automatic and very accurate. Took some work to set up but I'm happy with the result after two years. I no longer wonder if my wife really needed those boots and she doesn't mind if I grab a beer after work because we each have a spending account (in addition to grocery, household, etc).

Fwiw I tried the 'pay off the credit card balance every month' approach for a year and we spent about 15% more compared to just using a single debit card.
I definitely advise against that method after seeing the results of our experiment. We spend similarly with the new system but are more consistent and have fewer disputes about whether one of us is overspending, which is priceless!
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Daryl
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Re: Budgeting vs Tracking Expenses?

Post by Daryl » Thu Mar 30, 2017 5:19 am

Like a couple of the previous posters, I have a flexible budget. It is a statement of the top 10 or so items that are important to me, and where I plan to spend my money over the next 12 months. I don't worry too much about going over in any one or more categories, provided that each time I pull out my credit card it is for something meaningful.

I'm very interested in tracking expenses and the ratio between annual expenses and my investment portfolio. I'm currently @ 17 times expenses. Unless something crazy happens to either my spending or portfolio, I should be @ 25 times average annual spending before I turn 40.

traveltoomuch
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Re: Budgeting vs Tracking Expenses?

Post by traveltoomuch » Thu Mar 30, 2017 6:31 am

I find value in tracking expenses - knowing what went where (v. averages or even a "budget"), just so I can consider where I might want to cut next. What pain points give me the most financial impact? "Hummm, spending $2400/year on cable TV... do I want to continue that?"

But as for budgeting...
kjvmartin wrote:... It seems obvious to me that the less I buy variable stuff (restaurants) the more savings I will have. Is there a psychological benefit to putting this in a formal budget? Do I just need better software?
There may be benefit if you have a specific goal. Perhaps "I want to spend less", "I want to spend only $3k/mo.", etc. But then the question is "how how I control spending". A budget might or might not be the best tool.

I have found a budget helpful at controlling spending when it gives me an actionable meme - something that helps me make decisions. For example: if I have a "variable stuff" budget of $300/mo., that's $10/day. $10/day is, for me, an actionable meme. When I contemplate a $100 "variable stuff" purchase, I can think of it as "and how do I get by on $6.67/day for the next month?", or "what will I eat for the following nine days"? Or, more generally, what else am I willing to give up in order to make this purchase?

I like your "road trip for work" example. If you had a goal of "limit unreimbursed business expenses", the budget might have helped you spot this one earlier than you would have with retroactive expense tracking. That might have led to some decision in how to handle the employer's request (e.g. "no, thank you", "will you be paying mileage?"). But if there's nothing actionable, there's probably no point in having the budget.

kjvmartin
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Re: Budgeting vs Tracking Expenses?

Post by kjvmartin » Thu Mar 30, 2017 7:32 am

cheese_breath wrote:If you need to spend more than planned one month, then cut back the next month to compensate. If there's absolutely no place you can cut back (highly doubtful), then increase your income.
Yes, I agree about cutting back on other expenses, but isn't this a default behavior? What purpose does it serve to write it down? For example, a $200 ER copay would mean I have $200 less that month to go toward discretionary saving. I'll have no choice, regardless of what I've put on Excel.

onourway
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Re: Budgeting vs Tracking Expenses?

Post by onourway » Thu Mar 30, 2017 8:09 am

The difference for us is that budgeting forces you to acknowledge that trade-off with every purchase. Yes, intuitively if you spend more in one area you will spend less in another, but in practice, when we don't acknowledge that trade-off in near real-time, our spending gets skewed in ways that are not as solidly aligned with what our goals really are. Since switching to a budget we have far more available to save (even though we were saving at a very high rate previously) and many of our goals are now going to be achieved much sooner than we had previously anticipated.

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JDCarpenter
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Re: Budgeting vs Tracking Expenses?

Post by JDCarpenter » Thu Mar 30, 2017 9:26 am

OP's approach is what we've done since the mid-80s, before, during, and after raising three kids. High income with inexpensive tastes made that very possible; in that situation, if your savings goals are being met, I've never really seen the necessity of a formal, prospective budget. I have, however, used Quicken to track our spending on a daily basis since the early/mid 90s.

Perhaps we'll have to change to prospective budgeting of some type with retirement. We'll see after the first five months, which includes the first two-month trip....
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jlcnuke
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Re: Budgeting vs Tracking Expenses?

Post by jlcnuke » Thu Mar 30, 2017 9:48 am

kjvmartin wrote:
cheese_breath wrote:If you need to spend more than planned one month, then cut back the next month to compensate. If there's absolutely no place you can cut back (highly doubtful), then increase your income.
Yes, I agree about cutting back on other expenses, but isn't this a default behavior? What purpose does it serve to write it down? For example, a $200 ER copay would mean I have $200 less that month to go toward discretionary saving. I'll have no choice, regardless of what I've put on Excel.
A budget isn't a "I can spend no more than $XYZ on category ABC" thing. A budget is the "I plan to spend $XYZ on category ABC, but if that changes I know what money I have available in other categories that I can use to cover any additional expense and can adjust my spending in those other categories accordingly to ensure I'm not spending beyond my means."

The purpose of tracking expenses is to make your budget as accurate as possible. Combined with a budget, you can then use the results of that comparison to see where you are spending more than planned or less than planned and decide if you:
a. need to adjust your budget to match reality (zero months in the past year have had any category match your actual spending, indicating you don't really understand where you're spending your money)
b. can afford to adjust your budget to increase your quality of life or savings rate (something to consider if your savings and investment goals are all met and you consistently have money left over anyway after making your "normal" spending for bills and discretionary expenses)
c. need to cut back on some expenses because you're routinely not staying within your overall budget for some reason.


The budget is "the plan", tracking expenses is the measurement of how well you followed your plan, and they work together to make your next plan. If you "just' track expenses then you have nothing guiding your spending. If you "just" budget, then you have nothing making sure you follow it.

corysold
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Re: Budgeting vs Tracking Expenses?

Post by corysold » Thu Mar 30, 2017 9:55 am

jlcnuke wrote:
kjvmartin wrote:
cheese_breath wrote:If you need to spend more than planned one month, then cut back the next month to compensate. If there's absolutely no place you can cut back (highly doubtful), then increase your income.
Yes, I agree about cutting back on other expenses, but isn't this a default behavior? What purpose does it serve to write it down? For example, a $200 ER copay would mean I have $200 less that month to go toward discretionary saving. I'll have no choice, regardless of what I've put on Excel.
A budget isn't a "I can spend no more than $XYZ on category ABC" thing. A budget is the "I plan to spend $XYZ on category ABC, but if that changes I know what money I have available in other categories that I can use to cover any additional expense and can adjust my spending in those other categories accordingly to ensure I'm not spending beyond my means."

The purpose of tracking expenses is to make your budget as accurate as possible. Combined with a budget, you can then use the results of that comparison to see where you are spending more than planned or less than planned and decide if you:
a. need to adjust your budget to match reality (zero months in the past year have had any category match your actual spending, indicating you don't really understand where you're spending your money)
b. can afford to adjust your budget to increase your quality of life or savings rate (something to consider if your savings and investment goals are all met and you consistently have money left over anyway after making your "normal" spending for bills and discretionary expenses)
c. need to cut back on some expenses because you're routinely not staying within your overall budget for some reason.


The budget is "the plan", tracking expenses is the measurement of how well you followed your plan, and they work together to make your next plan. If you "just' track expenses then you have nothing guiding your spending. If you "just" budget, then you have nothing making sure you follow it.
Good synopsis. We also include a "Miscellaneous" category and have say, $200/mo for spending that is irregular and doesn't really fit in any other category. We try not to spend in this category, but it is there for when we need it, the road trip example above would be in that category for us.

KlangFool
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Re: Budgeting vs Tracking Expenses?

Post by KlangFool » Thu Mar 30, 2017 10:03 am

OP,

I do not budget. I track expenses via Quicken. I pay everything via credit card and my one checking account. I keep 3 months of expense as the emergency fund in that checking account. I do "Pay Yourself First" saving method. I deduct all my savings and put the money for expense into that checking account. After a few months, if the amount in my checking is below 3 months' buffer, I spend less. If I have a lot more in that checking account, I transfer and invest the extra amount in vanguard mutual fund.

Very simple and not complicated.

KlangFool

Mom 2 Groms
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Re: Budgeting vs Tracking Expenses?

Post by Mom 2 Groms » Thu Mar 30, 2017 11:06 am

We use YNAB to budget and track expenses. I found that it completely changed my perspective on budgeting, and also changes our behavior.

To me, there are 3 important aspects of a zero based budget. You have to plan (allocate), track (actuals), and then there's what's left to spend. All 3 have important roles in our decision making progress for our daily spending. Sometimes things happen that are truly unexpected and you have to "Roll with the punches" as YNAB says.

Daily Spending decision making example:
Our grocery budget is $450/month for a family of 4. Its the 25th, and we only have $45 left to spend (we know this because we track throughout the month). We can choose to cook dinners with items that we currently have in our pantry, and grocery shop for necessities only. Or we can choose to regular grocery shop, where we buy all of our normal items, and go over budget in groceries, but we will need to reduce the budgeted amount from another category.

I think its also important to have a complete budget. This means, you know that your car will need new tires, or the AC will break, and you need oil changes. These expenses don't happen every month, but we save $175/month for car maintenance and repairs. When our AC broke in the fall and we didn't have $850 in our car maintenance budget line to fix the AC, we chose to wait to fix it in the spring because we knew that we'd have enough saved in that line item by the time we actually needed the AC to work. We save for home repairs and medical expenses this same way. The expenses are expected and planned for.

All of our income is allocated (budgeted) every month, but its not all spent.

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Re: Budgeting vs Tracking Expenses?

Post by fishmonger » Thu Mar 30, 2017 11:17 am

My brother and SIL do a cash based budgeting system, which I believe is a Dave Ramsey idea. The put a certain amount of cash in envelopes each month - food, gas, entertainment, etc.

I think it's INSANE, but it works for them. After spending years fighting over money, it is now a non-issue

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Re: Budgeting vs Tracking Expenses?

Post by BogleMelon » Thu Mar 30, 2017 11:26 am

Mom 2 Groms wrote:We use YNAB to budget and track expenses. I found that it completely changed my perspective on budgeting, and also changes our behavior.

To me, there are 3 important aspects of a zero based budget. You have to plan (allocate), track (actuals), and then there's what's left to spend. All 3 have important roles in our decision making progress for our daily spending. Sometimes things happen that are truly unexpected and you have to "Roll with the punches" as YNAB says.

Daily Spending decision making example:
Our grocery budget is $450/month for a family of 4. Its the 25th, and we only have $45 left to spend (we know this because we track throughout the month). We can choose to cook dinners with items that we currently have in our pantry, and grocery shop for necessities only. Or we can choose to regular grocery shop, where we buy all of our normal items, and go over budget in groceries, but we will need to reduce the budgeted amount from another category.

I think its also important to have a complete budget. This means, you know that your car will need new tires, or the AC will break, and you need oil changes. These expenses don't happen every month, but we save $175/month for car maintenance and repairs. When our AC broke in the fall and we didn't have $850 in our car maintenance budget line to fix the AC, we chose to wait to fix it in the spring because we knew that we'd have enough saved in that line item by the time we actually needed the AC to work. We save for home repairs and medical expenses this same way. The expenses are expected and planned for.

All of our income is allocated (budgeted) every month, but its not all spent.
+1
I am a Ynaber too. The thing about YNAB is it is not just a software but a methodology (which is more important).
Without it i would never know how much I can afford to buy a car or anything else. I would never know what if I overspent a category?... Software trackers such as Mint and Quicken doesn't answer these kind of question.
Ynab is an envelop budgeting system, u spend on food based on the actual money you have in that food envelop not on your overall money, not your forecasted income. Envelop is empty and u need more food? you have to figure out which other envelop you going to use based on ur priority. Get paid again? go ahead and fulfill your envelops according to your priority, oh and dont forget christmas envelop and new car envelop (no need to open separate accounts).
The total $$ in envelops minus the total $$ in all of your banks, is always zero $0.00 (AKA zero-based budgeting).
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

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Re: Budgeting vs Tracking Expenses?

Post by KlangFool » Thu Mar 30, 2017 11:31 am

OP,

I do not know your income and tax bracket. But, folks like me and my peers with our household gross income place us into the 25% tax brackets, it comes down to 2 key questions in term of expense.

1) How much do we spend on the house?

2) How much do we spend on college education for our children?

Pretty much nothing else matters. Many of my peers bought 500K to 600K houses. After that, they could pack their lunches every day and it won't matter. They could not afford to save. Ditto on overspending on private college education for their children. Those big numbers swarm everything else.

Make sure that your big numbers work out. Then, everything else will be fine.

KlangFool

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DaftInvestor
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Re: Budgeting vs Tracking Expenses?

Post by DaftInvestor » Thu Mar 30, 2017 11:35 am

As long as you are well-disciplined in spending and living below your means you are good to go without a budget. Tracking expenses is a nice bonus so you know where your money is going.
Back when my income was lower and I was a very young homeowner I used to "attempt" to budget - kept it up for a number of years - then moved to tracking expenses - now I'm doing away with that as well (for the most part).
The problem I always found with budgeting was the silly "Monthly" aspect to most software. I hate shopping for clothes so I typically only do so once or twice a year - buy new stuff as required: a few suits, pants, shirts, sport jacket, shoes, etc. all in one trip (usually during a big sale at jos.a.bank or brooks brothers) - spend a few thousand all at once - then almost nothing for a year. The next month I go to a big wine-tasting event and stock up. The next month our butcher has our grass-fed ground beef on sale so we stock up for that. (If I stuck to a "Monthly" budget I would lose money as I'd only buy what I need for the month, miss a stock-up sale, and pay full price the next month). So my spending would always be:
Month 1: Clothing $3000; Grocery $600; ...
Month 2: Clothing: $30; Grocery $1500; ...
Month 2: Clothing: $0; Grocery $500; ...
and so on. Then the large items would come in (New TV; dishwasher; etc.) and usually several within the same month. The "monthly" budget never worked for me - I always felt I'd lose money by missing the big sales if I adhered to it. Thus - I track expenses somewhat roughly - look yearly then divide out monthly to help with my emergency savings and retirement spending types of projections.

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Re: Budgeting vs Tracking Expenses?

Post by petiejoe » Thu Mar 30, 2017 4:30 pm

We have budgets set up in Mint. They serve three general purposes:
1) They tell me it's okay to spend more money.
2) They tell my wife when she probably shouldn't spend any more money.
3) They encourage us to level out monthly spending by opportunistically buying certain supplies instead of waiting until we absolutely need them.

Note that the reason for 1) and 2) isn't because I'm limiting my wife any more than myself, it's because we have different default states for spending money. She defaults to spending money whenever it's available and then charging up credit cards when there's an emergency. I default to spending nothing even to my detriment. I feel a lot more comfortable spending money on various "optional" categories when we have a steady budget because I know that it's not going to jeopardize my overall financial health. I find the budget very freeing.

Ultimately the budget is ours so we can decide to overrun it for some categories in some months. If it's a large overrun, it prompts discussions around whether the expenditure really is necessary (ok, we need new shoes, but would $20 shoes work as well at $100 shoes for this application). I challenge the assertion that everything we spend money on is a fixed expense or necessity. I know very few people who limit their expenditures to only the bare necessity. When we're buying groceries, there's usually some thought around having beef or beans or lobster. When we're buying clothing, there's usually a chance to get it from a facebook hand-me-down group, buy it at WalMart, or buy it at Neiman Marcus. We may be implicitly making those decisions based on our general ability to pay. If you actually set a budget you can explicitly make the choice instead of letting it be an implicit choice.

We also have two very important release valves within our budget that are meant to keep us from feeling deprived. First, we have a cash allowance each week that we can spend on anything we want, no questions asked. A lot of this gets used for eating out because we don't have a budget line item for eating out. Second, we split any leftover money at the end of the month between savings and fun (my income is fairly fixed, but hers is very variable, so we set the budget parameters based on my income alone). Savings gets invested (currently into paying down mortgage faster) and fun goes into an account that we can use for anything as long as we both agree (usually vacation expenses, but sometimes new computers or other big-ticket items that aren't strictly necessary). We also keep our own escrow account for large annual purchases (property tax and insurance being obvious contenders, but annual membership fees are also included). The escrow account is budgeted in to the monthly spending just like everything else.

I generally wouldn't suggest going from no budget to an extreme cost cutting budget overnight. It's much easier to set a budget that's in-line with your typical spending patterns and over time gradually increase or decrease sections of the budget to be in-line with your personal needs, wants, and values. Once you learn how to stick to your own budget, you can make a decision about whether to increase or decrease a particular section.

delamer
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Re: Budgeting vs Tracking Expenses?

Post by delamer » Thu Mar 30, 2017 5:28 pm

fishmonger wrote:My brother and SIL do a cash based budgeting system, which I believe is a Dave Ramsey idea. The put a certain amount of cash in envelopes each month - food, gas, entertainment, etc.

I think it's INSANE, but it works for them. After spending years fighting over money, it is now a non-issue
Why do you think this is insane? My parents used this method to budget for most of their marriage, and 35 years after my father retired they left me an inheritance that was 25 times his final salary. So it worked very well for them.

I budget on an annual basis and track expenses (in Quicken) regularly. There are too many expenditures -- both regular and irregular -- for me to try to handle it in my head. I need the structure of Quicken. Of course, we make adjustments throughout the year as needed.

If you are paying your bills on time, meeting your savings goals, and not fighting with your spouse about money, then the method you are using to handle your money works. If those three things aren't happening, then your method isn't working and you need to try something else.

fishmonger
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Re: Budgeting vs Tracking Expenses?

Post by fishmonger » Thu Mar 30, 2017 7:57 pm

delamer wrote:
fishmonger wrote:My brother and SIL do a cash based budgeting system, which I believe is a Dave Ramsey idea. The put a certain amount of cash in envelopes each month - food, gas, entertainment, etc.

I think it's INSANE, but it works for them. After spending years fighting over money, it is now a non-issue
Why do you think this is insane? My parents used this method to budget for most of their marriage, and 35 years after my father retired they left me an inheritance that was 25 times his final salary. So it worked very well for them.

I budget on an annual basis and track expenses (in Quicken) regularly. There are too many expenditures -- both regular and irregular -- for me to try to handle it in my head. I need the structure of Quicken. Of course, we make adjustments throughout the year as needed.

If you are paying your bills on time, meeting your savings goals, and not fighting with your spouse about money, then the method you are using to handle your money works. If those three things aren't happening, then your method isn't working and you need to try something else.
Just the idea of having long-time friends come to visit and saying there isn't enough money left in that month's envelope to go out to dinner is the insane part. Same with kids' events that pop up, travel, etc.

Like I said it works for some people, just not how I choose to live my life

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Re: Budgeting vs Tracking Expenses?

Post by benevo » Thu Apr 06, 2017 10:37 am

BogleMelon wrote:I am a Ynaber too. The thing about YNAB is it is not just a software but a methodology (which is more important).
This is so, so true. YNAB is truly worth the yearly fee, even if simply to thank them for the methodology and tips. It's a great way to see exactly where your budgeted/liquid money is, and how it changes/is allocated.

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Re: Budgeting vs Tracking Expenses?

Post by afeltz » Thu Apr 06, 2017 12:35 pm

Mom 2 Groms wrote:
I think its also important to have a complete budget. This means, you know that your car will need new tires, or the AC will break, and you need oil changes. These expenses don't happen every month, but we save $175/month for car maintenance and repairs. When our AC broke in the fall and we didn't have $850 in our car maintenance budget line to fix the AC, we chose to wait to fix it in the spring because we knew that we'd have enough saved in that line item by the time we actually needed the AC to work. We save for home repairs and medical expenses this same way. The expenses are expected and planned for.
.
Question on this, great idea for expected uknowns. How do you "track" that $175/month, I'm assuming you dont just put $175/mo cash in an envelop in the sock drawer. Is it somehow earmarked in a savings account?

Accrual
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Re: Budgeting vs Tracking Expenses?

Post by Accrual » Thu Apr 06, 2017 12:37 pm

As someone who is a YNABer: would you guys recommend Quicken for solely tracking expenses/investments?

BogleMelon
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Re: Budgeting vs Tracking Expenses?

Post by BogleMelon » Thu Apr 06, 2017 12:48 pm

Accrual wrote:As someone who is a YNABer: would you guys recommend Quicken for solely tracking expenses/investments?
But what is the purpose of tracking the expenses if you are not willing to take any actions based on the results (AKA budgeting ahead)?
For tracking investments, I guess personalcapital can do the job.
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

Accrual
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Re: Budgeting vs Tracking Expenses?

Post by Accrual » Thu Apr 06, 2017 12:49 pm

BogleMelon wrote:
Accrual wrote:As someone who is a YNABer: would you guys recommend Quicken for solely tracking expenses/investments?
But what is the purpose of tracking the expenses if you are not willing to take any actions based on the results (AKA budgeting ahead)?
For tracking investments, I guess personalcapital can do the job.
I budget by using YNAB.

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JDCarpenter
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Re: Budgeting vs Tracking Expenses?

Post by JDCarpenter » Thu Apr 06, 2017 1:38 pm

Accrual wrote:As someone who is a YNABer: would you guys recommend Quicken for solely tracking expenses/investments?
As a long time (25 years) and continuing quicken user, I hesitate to recommend it; but for investments and expense tracking, there are sparse alternatives ... See this thread entitled "Quicken's future direction - a cause for concern": viewtopic.php?t=210143
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Mom 2 Groms
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Re: Budgeting vs Tracking Expenses?

Post by Mom 2 Groms » Thu Apr 06, 2017 4:04 pm

afeltz wrote:
Mom 2 Groms wrote:
I think its also important to have a complete budget. This means, you know that your car will need new tires, or the AC will break, and you need oil changes. These expenses don't happen every month, but we save $175/month for car maintenance and repairs. When our AC broke in the fall and we didn't have $850 in our car maintenance budget line to fix the AC, we chose to wait to fix it in the spring because we knew that we'd have enough saved in that line item by the time we actually needed the AC to work. We save for home repairs and medical expenses this same way. The expenses are expected and planned for.
.
Question on this, great idea for expected uknowns. How do you "track" that $175/month, I'm assuming you dont just put $175/mo cash in an envelop in the sock drawer. Is it somehow earmarked in a savings account?
I'll try to explain how it works, and if something is not clear, feel free to ask me to clarify some more.
All of my money is held in bank accounts. We keep a normal amount in checking, and the rest in Ally right now. The way YNAB works is very similar to envelops, but its all in software.

April - I allocate the $175/mo to car repairs for April, and if I don't use it, the balance rolls over to May.
May - I'll allocate an additional $175 to car repairs, so I'll have a total of $350 to spend on fixing my car if it breaks. Also in may (for example) something little breaks and it costs me $100. I then have $250 to spend on car repairs for the rest of the month.
June - I'll allocate an additional $175 to car repairs, so i'll have a total of $425 to spend on fixing my car.
and so on...

YNAB keeps track of these things because I initially input my bank account balances and allocated all of the dollars I had. Then, as I received income, I input it as income, and the dollars were available to be budgeted. As I spent money, I entered the transactions (the cost, who I spent the money with, and what category the dollars should come from). The amount that's available to be spent at any point is equal to my bank account balances. I have 2 bank accounts because its simple, but the many categories that are in the software are what organizes my money. Some people try to manage all of this by having a million bank accounts, and that's just too much for me... but it works for them.

kjvmartin
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Re: Budgeting vs Tracking Expenses?

Post by kjvmartin » Thu Apr 06, 2017 5:06 pm

Mom 2 Groms wrote:
afeltz wrote:
Mom 2 Groms wrote:
I think its also important to have a complete budget. This means, you know that your car will need new tires, or the AC will break, and you need oil changes. These expenses don't happen every month, but we save $175/month for car maintenance and repairs. When our AC broke in the fall and we didn't have $850 in our car maintenance budget line to fix the AC, we chose to wait to fix it in the spring because we knew that we'd have enough saved in that line item by the time we actually needed the AC to work. We save for home repairs and medical expenses this same way. The expenses are expected and planned for.
.
Question on this, great idea for expected uknowns. How do you "track" that $175/month, I'm assuming you dont just put $175/mo cash in an envelop in the sock drawer. Is it somehow earmarked in a savings account?
I'll try to explain how it works, and if something is not clear, feel free to ask me to clarify some more.
All of my money is held in bank accounts. We keep a normal amount in checking, and the rest in Ally right now. The way YNAB works is very similar to envelops, but its all in software.

April - I allocate the $175/mo to car repairs for April, and if I don't use it, the balance rolls over to May.
May - I'll allocate an additional $175 to car repairs, so I'll have a total of $350 to spend on fixing my car if it breaks. Also in may (for example) something little breaks and it costs me $100. I then have $250 to spend on car repairs for the rest of the month.
June - I'll allocate an additional $175 to car repairs, so i'll have a total of $425 to spend on fixing my car.
and so on...

YNAB keeps track of these things because I initially input my bank account balances and allocated all of the dollars I had. Then, as I received income, I input it as income, and the dollars were available to be budgeted. As I spent money, I entered the transactions (the cost, who I spent the money with, and what category the dollars should come from). The amount that's available to be spent at any point is equal to my bank account balances. I have 2 bank accounts because its simple, but the many categories that are in the software are what organizes my money. Some people try to manage all of this by having a million bank accounts, and that's just too much for me... but it works for them.
Why do you need to allocate $175 to car repairs? Will you spend the money otherwise? Do you not have enough in your savings account to cover the car repairs?

BogleMelon
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Re: Budgeting vs Tracking Expenses?

Post by BogleMelon » Thu Apr 06, 2017 7:17 pm

Accrual wrote:
BogleMelon wrote:
Accrual wrote:As someone who is a YNABer: would you guys recommend Quicken for solely tracking expenses/investments?
But what is the purpose of tracking the expenses if you are not willing to take any actions based on the results (AKA budgeting ahead)?
For tracking investments, I guess personalcapital can do the job.
I budget by using YNAB.
So why don't you track expenses by YNAB too? Also you can add the investing accounts as off-budget accounts and track them, but you wont be able to disect them as in personalcapital
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

Mom 2 Groms
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Re: Budgeting vs Tracking Expenses?

Post by Mom 2 Groms » Fri Apr 07, 2017 8:15 am

kjvmartin wrote:

Why do you need to allocate $175 to car repairs? Will you spend the money otherwise? Do you not have enough in your savings account to cover the car repairs?
For us, its mental. Before we budgeted - we had enough money, but I felt guilt every time we had to pull from savings. Now I am able to spend guilt free, because we have money set aside for specific things. Neither my husband or myself is a real spender, but its also nice to have boundaries and to be able to stick to our priorities. If we didn't budget, we would definitely spend a lot more money going out to eat, and that's just not a priority for us.

The Wizard
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Re: Budgeting vs Tracking Expenses?

Post by The Wizard » Fri Apr 07, 2017 8:26 am

Dottie57 wrote:A budget is a plan. You can adjust the plan.

As for me, I set savings targets. Once I meet them, I am free to spend how I want. If more savings are needed, then spending needs to go down.
^^ this.
Set your long term savings rate and try to increment it a bit each year.

This method worked for me, but I was never a big impulse spender, so I never got into a financial hole...
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Carson
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Re: Budgeting vs Tracking Expenses?

Post by Carson » Fri Apr 07, 2017 8:41 am

kjvmartin wrote: Why do you need to allocate $175 to car repairs? Will you spend the money otherwise? Do you not have enough in your savings account to cover the car repairs?
I do the same as the original poster, but in Excel. I do it mainly to smooth the cash flow and not give a false impression of where we have a lot of $$$ but have our tax bill or summer camp tuition coming up. It makes it easier for me to spend money when I know those things are set aside, otherwise, I'd be inclined to hoard it all. I keep an eye on these accounts and reallocate them at the end of the year so excess doesn't build up.
30-something personal finance enthusiast, just get getting started on this whole portfolio thing.

ubermax
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Re: Budgeting vs Tracking Expenses?

Post by ubermax » Fri Apr 07, 2017 11:34 am

Dottie57 wrote:A budget is a plan. You can adjust the plan.

As for me, I set savings targets. Once I meet them, I am free to spend how I want. If more savings are needed, then spending needs to go down.
Well said and concise , +1 , we are in the drawdown and RMD phase now but I maintain a spreadsheet that has buckets corresponding to our various bills including tax on our RMD's and the bottom bucket is labeled "discretionary" , i.e. it's the amount leftover at the end of the month that can be used for extras - we budget in the sense that we try to live on SS, pension, & RMD's because we have a TIRA heavy portfolio and the tax whack is painful :( - along the lines of what Dottie said, when our discretionary bucket gets too thin we need to cut spending ; we used the same basic process when we were working but now we pay more attention to it .

Staying on strict budget can be a struggle depending on income and circumstances ; our D and SIL live near Boston and have a huge daycare cost , savings isn't a priority right now outside of their employer plans and won't be for a few years .

MikeG62
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Re: Budgeting vs Tracking Expenses?

Post by MikeG62 » Fri Apr 07, 2017 3:48 pm

DaftInvestor wrote:As long as you are well-disciplined in spending and living below your means you are good to go without a budget. Tracking expenses is a nice bonus so you know where your money is going.
I agree with this. Never made a budget during my working years. I made enough money that we were always saving a decent amount and knew we lived well within out means. So preparing a budget just felt unnecessary.

Retired early last year and developed a budget based upon spending over prior year. I kind of knew roughly what we were spending and this exercise pretty much validated that. However, now that we are retired, it makes sense to be more detailed and rigorous about it. Gone are the days of knowing the inflow would way exceed the outflows pretty much no matter what.

I track our spending by month using excel. It doesn't take all that long and gives me some financial analysis to do, which oddly enough I enjoy (retired finance guy). :)
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Not Law
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Re: Budgeting vs Tracking Expenses?

Post by Not Law » Fri Apr 07, 2017 7:00 pm

I have always tracked expenses on quicken since the 1980's. Any abnormal expense above $100 required a joint decision. We targeted retirement accumulations to provide for what we were spending, nothing to do with income. In the 90's, that included the house payment and college for the kids. (It was also in the 90's that my retirement accounts started earning more than I did more and more often!). By 2004 it was clear that the retirement funds were going to be sufficient, so we redirected those contributions to Roths and brokerage accounts. The condition of the market in 2007-09 had no bearing on our plan - we stayed the course. Once the house was paid off and ACA subsidies kicked in (2014), monthly expenses were cut in half, and the various funds (TIRA, Roth, Taxable) were suddenly projected to produce twice our ordinary expenses.

We have been gradually easing into the draw down phase over the last few years, and growth has exceeded needs (withdrawals) so far. We are planning to use various types of funds in a tax efficient manner until taking SS at 70, which should then cover ordinary expenses. We will be converting to Roths in the run up to SS (after Medicare - no more limited MAGI for ACA purposes), to avoid RMDs causing SS to be taxed. We are 61 and 63 with no pensions. Just our own various investments and SS for retirement. We have never been in the 25% bracket, and until ACA, we were converting to Roths up to the top of the 15% bracket.

So, over time we spent somewhat frugally (although we have been on a dozen cruises in 20 years, with two trips to Europe as well - and 2 paid for college degrees) and tried to save enough to provide for what we were spending once employment income ended. It seems to have worked since investments now produce twice what we ordinarily spend. It gives us enough room for an occasional cruise or a car replacement (we pay cash for 10 year old mass produced luxury cars - Buick Park Avenues right now - for about 10% of their list price - when necessary) - our last car loan was in the 80's.

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Re: Budgeting vs Tracking Expenses?

Post by KATNYC » Sat Apr 08, 2017 12:02 am

YNAB +2
Forcing yourself to check the budget before making a purchase was the game changer. It doesn't mean we won't spend an extra $200 for a nice dinner or theater tickets but we know that $200 has to come from someplace else (personal care category is the usual victim). Excel spreadsheets for a decade and using Mint for a few years didn't help since those were always after the fact. YNAB is on our phones so the budget is always in our hands, literally.
BogleMelon wrote:
Mom 2 Groms wrote:We use YNAB to budget and track expenses. I found that it completely changed my perspective on budgeting, and also changes our behavior.

To me, there are 3 important aspects of a zero based budget. You have to plan (allocate), track (actuals), and then there's what's left to spend. All 3 have important roles in our decision making progress for our daily spending. Sometimes things happen that are truly unexpected and you have to "Roll with the punches" as YNAB says.

Daily Spending decision making example:
Our grocery budget is $450/month for a family of 4. Its the 25th, and we only have $45 left to spend (we know this because we track throughout the month). We can choose to cook dinners with items that we currently have in our pantry, and grocery shop for necessities only. Or we can choose to regular grocery shop, where we buy all of our normal items, and go over budget in groceries, but we will need to reduce the budgeted amount from another category.

I think its also important to have a complete budget. This means, you know that your car will need new tires, or the AC will break, and you need oil changes. These expenses don't happen every month, but we save $175/month for car maintenance and repairs. When our AC broke in the fall and we didn't have $850 in our car maintenance budget line to fix the AC, we chose to wait to fix it in the spring because we knew that we'd have enough saved in that line item by the time we actually needed the AC to work. We save for home repairs and medical expenses this same way. The expenses are expected and planned for.

All of our income is allocated (budgeted) every month, but its not all spent.
+1
I am a Ynaber too. The thing about YNAB is it is not just a software but a methodology (which is more important).
Without it i would never know how much I can afford to buy a car or anything else. I would never know what if I overspent a category?... Software trackers such as Mint and Quicken doesn't answer these kind of question.
Ynab is an envelop budgeting system, u spend on food based on the actual money you have in that food envelop not on your overall money, not your forecasted income. Envelop is empty and u need more food? you have to figure out which other envelop you going to use based on ur priority. Get paid again? go ahead and fulfill your envelops according to your priority, oh and dont forget christmas envelop and new car envelop (no need to open separate accounts).
The total $$ in envelops minus the total $$ in all of your banks, is always zero $0.00 (AKA zero-based budgeting).

MotoTrojan
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Re: Budgeting vs Tracking Expenses?

Post by MotoTrojan » Sat Apr 08, 2017 1:09 am

Dottie57 wrote:A budget is a plan. You can adjust the plan.

As for me, I set savings targets. Once I meet them, I am free to spend how I want. If more savings are needed, then spending needs to go down.
After playing with Quicken, and having no luck, I am giving this a try. Since getting into index investing, I feel great every time I dump some money into my portfolio, which makes this much easier. Just yesterday I added another $250/month to my taxable automatic deposit, on top of my Roth and Ally Emergency Fund automatic deposits. The remaining amount of monthly income is sufficient, but only if I keep my discretionary spending in check. My hope is that I can do that, and still slowly grow my checking account. This way, when I do spend a larger amount in a month for a special event, I'll have the cash, and know I worked hard by keeping things in line the previous X months (or just build up a big balance and toss it into VTI!).

The Wizard
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Re: Budgeting vs Tracking Expenses?

Post by The Wizard » Sat Apr 08, 2017 2:24 am

I just track my checking account balance, which is affected much more by e-transfers nowadays than by writing paper checks.
I try to keep at least $5000 in there after all bills are paid for the month.
If new deposits push the total close to or over $10,000, then I move $1000 or so to VTSAX in my Vanguard account.
This seems to be working OK lately...
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Traveler
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Re: Budgeting vs Tracking Expenses?

Post by Traveler » Sat Apr 08, 2017 1:12 pm

I have what I call a budget, but it's more of a spending guide. I track expenses and pretty much know where every dollar goes. I find that some categories are over or under depending on the month, but annually it comes out pretty much in line with the plan. I enjoy playing around with the spreadsheet for various scenarios. I have the luxury of having a relatively high income and low expenses.

Dandy
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Re: Budgeting vs Tracking Expenses?

Post by Dandy » Sun Apr 09, 2017 7:27 am

Never had a budget per se. In our working years we took targeted cash for each week e.g. gas, lunches, food shopping. But, we also automated our savings and I used to subtract from my check register an amount each week to cover that month's rent and other fixed expenses and footnote that amount in the back of the check register. So, our check register essentially showed what we could afford to spend. When the month's rent came due I'd move the rent money back to the register and pay it.

Even in retirement I have money moved each week from checking to savings to cover quarterly real estate taxes. If there is money left over at the end of the month I move half to savings and start the next month with a bit of a cushion because monthly expenses can be lumpy.

But this only works if you are generally frugal by nature and control "want" vs "need" expenditures -- and have a cooperative spouse!

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