Budgeting Vs Savings Rate

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
pointyhead
Posts: 163
Joined: Sun Apr 08, 2012 11:38 pm

Budgeting Vs Savings Rate

Post by pointyhead » Sat Jan 13, 2018 12:07 pm

I'm wanting to get some feedback about budgeting. Currently, we save 50% of our combined gross pay and I track spending in Quicken so I can look up how much we spend on different categories. My spouse suggested that we start a budget, but I don't see a need to do so when we can save 50% and still basically do what we want. What am I missing? Will we benefit financially or otherwise it we create a detailed budget? Thanks for reading and replying!

PH

KT785
Posts: 107
Joined: Fri Jul 11, 2014 2:21 pm

Re: Budgeting Vs Savings Rate

Post by KT785 » Sat Jan 13, 2018 12:15 pm

I find there's great value in the clear quantification and planning of household spending. You may discover additional opportunities to save; you may likewise discover areas where further efficiencies can be gained, allowing you to spend more on things you truly value.

My view? You don't really know what you're spending (even with a high savings/deferral rate) until you've actually mapped out your spending relative to a planned budget to see if it jives with what you think you're doing.

Jags4186
Posts: 1570
Joined: Wed Jun 18, 2014 7:12 pm

Re: Budgeting Vs Savings Rate

Post by Jags4186 » Sat Jan 13, 2018 12:18 pm

pointyhead wrote:
Sat Jan 13, 2018 12:07 pm
I'm wanting to get some feedback about budgeting. Currently, we save 50% of our combined gross pay and I track spending in Quicken so I can look up how much we spend on different categories. My spouse suggested that we start a budget, but I don't see a need to do so when we can save 50% and still basically do what we want. What am I missing? Will we benefit financially or otherwise it we create a detailed budget? Thanks for reading and replying!

PH
Apple practically prints money but I'm sure they have detailed budgets. You should have a budget simply so you are controlling where your money goes, regardless of your savings rate. The budget doesn't have to be granular like some people (i.e. me) do, but it will help keep you both in line and also allow you to spend on things maybe you wanted but couldn't justify before.

Think of a budget in your situation as a permission slip vs a monetary constraint.

Also, saving 50% of gross is not really a meaningful number. You might make $1,000,000/yr and are spending $500,000/yr while saving $500,000/yr. I would say anyone spending $500,000/yr has some waste in there. That may or not really matter in the grand scheme of things, but you should give meaning to the dollars you spend.

User avatar
kenyan
Posts: 2872
Joined: Thu Jan 13, 2011 12:16 am

Re: Budgeting Vs Savings Rate

Post by kenyan » Sat Jan 13, 2018 12:21 pm

We lived for a long time without a budget, while saving 40-50%. I only started budgeting when we were getting serious about purchasing a house, with all of the new expenses that come with it.

My feeling now is that we use it as a tool to highlight where we are being wasteful/can trim down expenses, rather than a strict constraint on our spending. I also feel like it helps provide a concrete measure of progress when I am able to increase savings in the budget. Since you're already tracking your spending, you're doing most of the work.

Do you need it? No. However, you might like your discoveries once you start doing it.
Retirement investing is a marathon.

thangngo
Posts: 570
Joined: Sun Feb 26, 2017 2:08 pm

Re: Budgeting Vs Savings Rate

Post by thangngo » Sat Jan 13, 2018 12:22 pm

Keeping track of your spending is already a part of budgeting. I find a detailed budget might help with:
1) plan for irregular expenses: traveling, car/house repair & maintenance, other discretionary expenses.
2) trim the fat: cut wasteful spending in certain categories.
3) increase your saving rate to help you get to your goals faster.

50% saving rate is impressive. Let's say your gross is $100. You pay taxes for $30 (income tax, property tax, SS, Medicare, etc.) and you save $50. That put you in position to save $2.50 for every dollar you spend ($50 saved vs. $20 spent). You probably don't need budget to reach your financial independence goal. If you don't feel like doing it, help your wife understand this maybe unnecessary.

My saving rate is 40-50% but I still do budget. It's what I enjoy doing as well.

User avatar
Phineas J. Whoopee
Posts: 6778
Joined: Sun Dec 18, 2011 6:18 pm

Re: Budgeting Vs Savings Rate

Post by Phineas J. Whoopee » Sat Jan 13, 2018 3:01 pm

Just to offer a possibility, I budget, but one line item is a set amount of dollars per week that are flexible. They cover food, dry cleaning, entertainment, whatever. If I don't spend all of it, the remainder accrues into what I non-GAAP-ly call discretionary funds, which I can use for something bigger later.

A good side effect, although not the reason I set things up that way, is each and every flexible weekly purchase decision includes a tradeoff between spending now or spending on something nicer later.

Objections I've heard to budgeting are along the lines of but if I can't deviate from the budget it's no good. That's why I built in flexibility.

Just a thought.

PJW

The Wizard
Posts: 11212
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Budgeting Vs Savings Rate

Post by The Wizard » Sat Jan 13, 2018 3:22 pm

I think budgeting is a personality thing, fine for some folks, not for others.
The need for budgeting depends to some degree on one's native tendency to spend money just because it's there. If "shopping" is your idea of a fun recreational activity, then yeah, budgeting could be a good idea for your continued solvency.

As for me, I keep an eye on income and outgo, but I'm way too cranky for real budgeting...
Attempted new signature...

delamer
Posts: 3445
Joined: Tue Feb 08, 2011 6:13 pm

Re: Budgeting Vs Savings Rate

Post by delamer » Sat Jan 13, 2018 3:32 pm

Not meant to be a snarky remark, but for what purpose do you track your spending if not to act on the information that you gather?

And if you are acting on the information by reallocating money to different categories, then you are effectively budgeting already.

Dottie57
Posts: 2541
Joined: Thu May 19, 2016 5:43 pm

Re: Budgeting Vs Savings Rate

Post by Dottie57 » Sat Jan 13, 2018 3:39 pm

pointyhead wrote:
Sat Jan 13, 2018 12:07 pm
I'm wanting to get some feedback about budgeting. Currently, we save 50% of our combined gross pay and I track spending in Quicken so I can look up how much we spend on different categories. My spouse suggested that we start a budget, but I don't see a need to do so when we can save 50% and still basically do what we want. What am I missing? Will we benefit financially or otherwise it we create a detailed budget? Thanks for reading and replying!

PH
I agree with you. Why have a budget unless there is a big need or crunch in money. I agree it is good to know where your money goes so you know where you can trim if you have to. You can do this once a year.

annielouise
Posts: 124
Joined: Wed May 14, 2008 4:11 pm

Re: Budgeting Vs Savings Rate

Post by annielouise » Sat Jan 13, 2018 5:29 pm

Did your spouse give a reason why he/she wants to budget? I can think of a dozen different reasons from a friend suggesting it to being worried about the future. Maybe understanding why might help.

We enjoy having records of how we spent our money. We also use our budget to pay (or verify automatic) bills, to plan gift giving, to plan and track household projects, to track account balances, to track gift card balances, and much more. Ours is a many tab Excel spreadsheet that is fun to use and play with (we are a 2 software engineer household).

pointyhead
Posts: 163
Joined: Sun Apr 08, 2012 11:38 pm

Re: Budgeting Vs Savings Rate

Post by pointyhead » Sun Jan 14, 2018 1:02 am

Thanks for all the thoughtful feedback! I read these to my spouse and we decided we will make a flexible budget based on our current spending. Hopefully, we’ll gain a better understanding of our situation. Thanks again!

PH

JBTX
Posts: 1919
Joined: Wed Jul 26, 2017 12:46 pm

Re: Budgeting Vs Savings Rate

Post by JBTX » Sun Jan 14, 2018 1:25 am

We have saved on average probably 20% of gross. We track expenses in Quicken but have never really done a budget long term. I’ve tried a couple of times but it never really stuck. The only real reason to do a line item budget is if you are truly committed to acting upon it and changing spending habits. I hate to say it but I haven’t had much luck in “selling” that to DW, and I’m not without fault myself. I’m probably going to take another swing at it soon because we need to do some long term prioritization.

I’m interested in how some of the more frugal members in here were able to get more buy in from family to stay frugal.

TwstdSista
Posts: 144
Joined: Thu Nov 16, 2017 4:03 am

Re: Budgeting Vs Savings Rate

Post by TwstdSista » Sun Jan 14, 2018 3:41 am

I think that I budget, but what I really do is track my spending. I pretty much spend whatever I want and then when I notice a category is out of whack, I stop. Or at least slow down.

For instance -- our "clothes/hair/personal" category was high last year, so I waited until January to go see my hairdresser. This category is often out of whack, but I've gotten better over the years. It also helps that my dresser drawers are full....

Other than that one category, we tend to be close on everything else. Occasionally something crazy will happen (like last year when I ran out and bought a new truck simply because I wanted it -- I flippin' love that truck!), but for the most part we keep to the so-called budget.

HIinvestor
Posts: 1319
Joined: Tue Apr 08, 2014 3:23 am

Re: Budgeting Vs Savings Rate

Post by HIinvestor » Sun Jan 14, 2018 4:05 am

Dunno, sounds like the two of you have figured out something to try. We tried budgetting at different points of our life individually and as a married couple. Most of the time we really don’t but we have much more than we need and are happy with how we spend and save.

We also each get $150 to $200 apiece in cash to spend however we want. This has been how we’ve done things for nearly our whole 30+ year marriage. If we need more money due to more expenses (eg kids college), we’ve earned it. We tend to live well below our income tho, so for the most part never had any cash flow issues.

CT-Scott
Posts: 188
Joined: Sun Feb 22, 2015 3:01 pm

Re: Budgeting Vs Savings Rate

Post by CT-Scott » Sun Jan 14, 2018 11:20 am

JBTX wrote:
Sun Jan 14, 2018 1:25 am
We have saved on average probably 20% of gross. We track expenses in Quicken but have never really done a budget long term.
...
I hate to say it but I haven’t had much luck in “selling” that to DW, and I’m not without fault myself. I’m probably going to take another swing at it soon because we need to do some long term prioritization.
This is pretty much my situation. My wife and I are fairly high-income earners and are maxing out all of our tax-advantaged savings (401k, Roth, HSA), but we spend way too much, and I'm a guilty contributor there, too. But I'm also the one who manages the bills and savings, and anytime I've tried to talk about cutting back on spending, she never wants to talk about money.

OP, you mention saving 50% of gross, which is awesome, but you haven't mentioned your ages, what your current savings balance is, rough income level, whether or not you have kids or plan to have them (and how many), whether you rent now but plan to purchase a home later, job security longer term, whether you live in a lower cost of living area vs high cost of living (and plan to stay in such an area long term). All of those factor into whether that will be "enough" for retirement/financial independence later.

delamer
Posts: 3445
Joined: Tue Feb 08, 2011 6:13 pm

Re: Budgeting Vs Savings Rate

Post by delamer » Sun Jan 14, 2018 11:28 am

CT-Scott wrote:
Sun Jan 14, 2018 11:20 am
JBTX wrote:
Sun Jan 14, 2018 1:25 am
We have saved on average probably 20% of gross. We track expenses in Quicken but have never really done a budget long term.
...
I hate to say it but I haven’t had much luck in “selling” that to DW, and I’m not without fault myself. I’m probably going to take another swing at it soon because we need to do some long term prioritization.
This is pretty much my situation. My wife and I are fairly high-income earners and are maxing out all of our tax-advantaged savings (401k, Roth, HSA), but we spend way too much, and I'm a guilty contributor there, too. But I'm also the one who manages the bills and savings, and anytime I've tried to talk about cutting back on spending, she never wants to talk about money.

OP, you mention saving 50% of gross, which is awesome, but you haven't mentioned your ages, what your current savings balance is, rough income level, whether or not you have kids or plan to have them (and how many), whether you rent now but plan to purchase a home later, job security longer term, whether you live in a lower cost of living area vs high cost of living (and plan to stay in such an area long term). All of those factor into whether that will be "enough" for retirement/financial independence later.
When someone says they “ spend way too much” to me that is another way of saying they aren’t meeting their savings goals and/or have too much debt. So I am curious as to what exactly your issue is.

MikeG62
Posts: 614
Joined: Tue Nov 15, 2016 3:20 pm
Location: New Jersey

Re: Budgeting Vs Savings Rate

Post by MikeG62 » Sun Jan 14, 2018 11:33 am

Never had a budget for spending while I was working. Much like the OP, we saved a sizable portion of my annual take home pay and felt like our spending was what it was (and was not going to change based upon a "budget compare to" exercise, as we were living significantly below our means already - although far from frugally).

FWIW, I spent my career in accounting and finance, so I have a good grasp of numbers even without detailed tracking. Having said that, in the year before I retired, I began some high level tracking (and did a historical retrospective) to ensure my thinking around our spend rate was accurate - turned out it was.

For those who may not spend their work day rolling around in numbers, having an annual budget and tracking spending is probably a wise thing to do during your working years. Instills some discipline and keeps you close to numbers. Also, may result in many folks spending less (an old boss of mine used to say "what gets measured, gets managed").

DW and I just completed our second full year of retirement. Now in retirement, I do prepare a somewhat detailed budget at the start of each year. In addition, I track our monthly spend (both checkbook and credit cards, of which we use about a dozen different CC's each month) as well as compared to budget in a multi-tabbed, customized (for my needs) excel file. While this takes me a few hours each month (on and off) I actually don't mind doing it as it keeps me very close to the numbers.

At the end of 2017, I produced a series of charts (bar and pie) to show my DW graphically where we spent our money in 2017 (as well as our investment performance). I must say the charts made the discussion easier as my DW's eyes usually glaze over about 2 minutes into a discussion about finances and numbers.

randomguy
Posts: 5168
Joined: Wed Sep 17, 2014 9:00 am

Re: Budgeting Vs Savings Rate

Post by randomguy » Sun Jan 14, 2018 11:38 am

Dottie57 wrote:
Sat Jan 13, 2018 3:39 pm
pointyhead wrote:
Sat Jan 13, 2018 12:07 pm
I'm wanting to get some feedback about budgeting. Currently, we save 50% of our combined gross pay and I track spending in Quicken so I can look up how much we spend on different categories. My spouse suggested that we start a budget, but I don't see a need to do so when we can save 50% and still basically do what we want. What am I missing? Will we benefit financially or otherwise it we create a detailed budget? Thanks for reading and replying!

PH
I agree with you. Why have a budget unless there is a big need or crunch in money. I agree it is good to know where your money goes so you know where you can trim if you have to. You can do this once a year.
Credit card company tells me where the money goes. There is no need to plan spending in that o have money and only spend it on things I value

User avatar
KlingKlang
Posts: 524
Joined: Wed Oct 16, 2013 3:26 pm

Re: Budgeting Vs Savings Rate

Post by KlingKlang » Sun Jan 14, 2018 11:43 am

JBTX wrote:
Sun Jan 14, 2018 1:25 am
I’m interested in how some of the more frugal members in here were able to get more buy in from family to stay frugal.
Easiest way is to find a frugal partner and raise your kids to be frugal also. I'm not sure how feasible it is to convince other adults to make major permanent modifications in their attitudes towards spending.

I've tracked all of our financial transactions using double entry accounting software for decades. It's mostly useful for completing tax returns. For planning major expenses I will eyeball expenses and assets but I have never bothered to write out an actual budget.

User avatar
WoodSpinner
Posts: 411
Joined: Mon Feb 27, 2017 1:15 pm

Re: Budgeting Vs Savings Rate

Post by WoodSpinner » Sun Jan 14, 2018 12:00 pm

pointyhead wrote:
Sat Jan 13, 2018 12:07 pm
I'm wanting to get some feedback about budgeting. Currently, we save 50% of our combined gross pay and I track spending in Quicken so I can look up how much we spend on different categories. My spouse suggested that we start a budget, but I don't see a need to do so when we can save 50% and still basically do what we want. What am I missing? Will we benefit financially or otherwise it we create a detailed budget? Thanks for reading and replying!

PH
Quick thought....

Are both of you on the same page on what you want to spend on?

One of the main reasons I budget is it becomes a discussion of priorities and often gives me insight into what my DW thinks is important as compared to my priorities.

Congrats on the savings rate! It is really worth the sacrifices now for the future freedom of Financial Independence.

WoodSpinner :beer

User avatar
Alexa9
Posts: 596
Joined: Tue Aug 30, 2016 9:41 am

Re: Budgeting Vs Savings Rate

Post by Alexa9 » Sun Jan 14, 2018 12:52 pm

There's wasteful spending and then there's taking frugality overboard. Depends on income/lifestyle but you should usually agree on these things early on in a relationship.

bltn
Posts: 10
Joined: Mon Feb 20, 2017 9:32 pm

Re: Budgeting Vs Savings Rate

Post by bltn » Sun Jan 14, 2018 1:36 pm

Budgeting made my financial life easier during the accumulation phase. And I was saving about 1/3 of my gross.
Using a budget facilitated my paying cash for cars, and all other purchases, prepaying my first mortgage, and always having money on hand for unexpected expenses.

JBTX
Posts: 1919
Joined: Wed Jul 26, 2017 12:46 pm

Re: Budgeting Vs Savings Rate

Post by JBTX » Sun Jan 14, 2018 2:23 pm

CT-Scott wrote:
Sun Jan 14, 2018 11:20 am
JBTX wrote:
Sun Jan 14, 2018 1:25 am
We have saved on average probably 20% of gross. We track expenses in Quicken but have never really done a budget long term.
...
I hate to say it but I haven’t had much luck in “selling” that to DW, and I’m not without fault myself. I’m probably going to take another swing at it soon because we need to do some long term prioritization.
This is pretty much my situation. My wife and I are fairly high-income earners and are maxing out all of our tax-advantaged savings (401k, Roth, HSA), but we spend way too much, and I'm a guilty contributor there, too. But I'm also the one who manages the bills and savings, and anytime I've tried to talk about cutting back on spending, she never wants to talk about money.
I hear you. We don't spend money on the big items, like house and cars, but we spend lots of frivolous discretionary spending. Changing the mindset that you actually have to exercise restraint and not buy whatever you want is a change of mindset.

CT-Scott
Posts: 188
Joined: Sun Feb 22, 2015 3:01 pm

Re: Budgeting Vs Savings Rate

Post by CT-Scott » Sun Jan 14, 2018 4:03 pm

delamer wrote:
Sun Jan 14, 2018 11:28 am
When someone says they “ spend way too much” to me that is another way of saying they aren’t meeting their savings goals and/or have too much debt. So I am curious as to what exactly your issue is.
As I said, I max out all of my tax-advantaged accounts, but that ends up being only about 20% of our gross income, and the rest seems to get spent. We don't buy new/expensive vehicles or jewelry, and I don't think we spend a lot on clothing or jewelry. We probably spend a bit too much on vacations (though most of it probably comes from eating out when on vacation), and we do spend too much money on eating out, groceries, and wine/liquor. The other large expenses come from some home repairs/remodeling.

So my biggest concern/fear is that we simply can't sustain our level of spending later (retirement), and that if we don't make lifestyle adjustments sooner, it will be too big of a shock/adjustment to try to make them later.

smitcat
Posts: 894
Joined: Mon Nov 07, 2016 10:51 am

Re: Budgeting Vs Savings Rate

Post by smitcat » Sun Jan 14, 2018 4:49 pm

CT-Scott wrote:
Sun Jan 14, 2018 4:03 pm
delamer wrote:
Sun Jan 14, 2018 11:28 am
When someone says they “ spend way too much” to me that is another way of saying they aren’t meeting their savings goals and/or have too much debt. So I am curious as to what exactly your issue is.
As I said, I max out all of my tax-advantaged accounts, but that ends up being only about 20% of our gross income, and the rest seems to get spent. We don't buy new/expensive vehicles or jewelry, and I don't think we spend a lot on clothing or jewelry. We probably spend a bit too much on vacations (though most of it probably comes from eating out when on vacation), and we do spend too much money on eating out, groceries, and wine/liquor. The other large expenses come from some home repairs/remodeling.

So my biggest concern/fear is that we simply can't sustain our level of spending later (retirement), and that if we don't make lifestyle adjustments sooner, it will be too big of a shock/adjustment to try to make them later.
This is where a budget comes in - you know your targets and you track your spending. Then upon review you can see if your spending as really on target and really worth the dollars spent. As your life goes on you 'plug in' (mortgage/ kids /college/ cars) and then 'unplug' various costs (mortgage, kids etc) that will lead you to a good platform for your retirement costs.
Seeing where it goes and deciding whether it is worth the expense helps to plan your future budgets. Spending what you have leaves you with a bunch of unknowns and questions. FWIW - our current savings rate is about 44% of gross and we are getting ready to retire now.

delamer
Posts: 3445
Joined: Tue Feb 08, 2011 6:13 pm

Re: Budgeting Vs Savings Rate

Post by delamer » Sun Jan 14, 2018 5:05 pm

CT-Scott wrote:
Sun Jan 14, 2018 4:03 pm
delamer wrote:
Sun Jan 14, 2018 11:28 am
When someone says they “ spend way too much” to me that is another way of saying they aren’t meeting their savings goals and/or have too much debt. So I am curious as to what exactly your issue is.
As I said, I max out all of my tax-advantaged accounts, but that ends up being only about 20% of our gross income, and the rest seems to get spent. We don't buy new/expensive vehicles or jewelry, and I don't think we spend a lot on clothing or jewelry. We probably spend a bit too much on vacations (though most of it probably comes from eating out when on vacation), and we do spend too much money on eating out, groceries, and wine/liquor. The other large expenses come from some home repairs/remodeling.

So my biggest concern/fear is that we simply can't sustain our level of spending later (retirement), and that if we don't make lifestyle adjustments sooner, it will be too big of a shock/adjustment to try to make them later.

You are smart to recognize that eventually this catches up with you — in the form of being forced to spend less because you don’t have enough income (or access to credit) to sustain your lifestyle.

If you have not before, I highly recommend tracking your spending by category for 6 months or a year, so you know where your money really is going. Sometimes finding out that you are spending $1,000/month eating out or $10,000/year on clothes is enough to spur changes.

KlangFool
Posts: 7568
Joined: Sat Oct 11, 2008 12:35 pm

Re: Budgeting Vs Savings Rate

Post by KlangFool » Sun Jan 14, 2018 5:12 pm

OP,

1) I have a saving goal. I save X% of my gross income. Then, I spend the rest.

2) I tracked my expense via Quicken. I know where my money goes. But, I do not budget. I do not use that tracking to control my expenses.

3) After my "Pay Yourself First" savings, I debit the rest of my income into my checking account. If the balance of my checking account is getting low, I spend less.

KlangFool

KlangFool
Posts: 7568
Joined: Sat Oct 11, 2008 12:35 pm

Re: Budgeting Vs Savings Rate

Post by KlangFool » Sun Jan 14, 2018 5:15 pm

CT-Scott wrote:
Sun Jan 14, 2018 4:03 pm
delamer wrote:
Sun Jan 14, 2018 11:28 am
When someone says they “ spend way too much” to me that is another way of saying they aren’t meeting their savings goals and/or have too much debt. So I am curious as to what exactly your issue is.
As I said, I max out all of my tax-advantaged accounts, but that ends up being only about 20% of our gross income, and the rest seems to get spent.
CT-Scott,

After I max out all my tax-advantaged accounts, the additional savings are debited into my Vanguard taxable account. This brings the amount up to my 30+% gross saving rate goal.

KlangFool

delamer
Posts: 3445
Joined: Tue Feb 08, 2011 6:13 pm

Re: Budgeting Vs Savings Rate

Post by delamer » Sun Jan 14, 2018 5:19 pm

KlangFool wrote:
Sun Jan 14, 2018 5:12 pm
OP,

1) I have a saving goal. I save X% of my gross income. Then, I spend the rest.

2) I tracked my expense via Quicken. I know where my money goes. But, I do not budget. I do not use that tracking to control my expenses.

3) After my "Pay Yourself First" savings, I debit the rest of my income into my checking account. If the balance of my checking account is getting low, I spend less.

KlangFool

Why do you bother to track your expenses, if you don’t use that information to control them?

sambb
Posts: 1920
Joined: Sun Mar 10, 2013 3:31 pm

Re: Budgeting Vs Savings Rate

Post by sambb » Sun Jan 14, 2018 5:23 pm

If you save 50% of gross, i dont see the need for a complex budget

User avatar
GerryL
Posts: 1522
Joined: Fri Sep 20, 2013 11:40 pm

Re: Budgeting Vs Savings Rate

Post by GerryL » Sun Jan 14, 2018 5:25 pm

The Wizard wrote:
Sat Jan 13, 2018 3:22 pm
I think budgeting is a personality thing, fine for some folks, not for others.
The need for budgeting depends to some degree on one's native tendency to spend money just because it's there. If "shopping" is your idea of a fun recreational activity, then yeah, budgeting could be a good idea for your continued solvency.

As for me, I keep an eye on income and outgo, but I'm way too cranky for real budgeting...
Although I go into classrooms to teach high school students about the joys of budgeting, I don't tell the kids that I have not really created a budget since the days when my mother gave my brother and me little metal budget boxes so we could divvy up our allowance to cover our needs and wants. What I have done for years is something I call after-the-fact budgeting. Much like what the OP seems to do.

Having 20+ years of data in Quicken enabled me to scope out my spending for retirement and set an annual spending target. Throughout the year I keep an eye on my Quicken home page where I can see how much I have spent so far to make sure I am not at risk of overshooting the target. [Last year, despite increased travel, I didn't even hit my target.] This works for me and my save-like-crazy personality, but it might not work for everyone.

delamer
Posts: 3445
Joined: Tue Feb 08, 2011 6:13 pm

Re: Budgeting Vs Savings Rate

Post by delamer » Sun Jan 14, 2018 5:31 pm

GerryL wrote:
Sun Jan 14, 2018 5:25 pm
The Wizard wrote:
Sat Jan 13, 2018 3:22 pm
I think budgeting is a personality thing, fine for some folks, not for others.
The need for budgeting depends to some degree on one's native tendency to spend money just because it's there. If "shopping" is your idea of a fun recreational activity, then yeah, budgeting could be a good idea for your continued solvency.

As for me, I keep an eye on income and outgo, but I'm way too cranky for real budgeting...
Although I go into classrooms to teach high school students about the joys of budgeting, I don't tell the kids that I have not really created a budget since the days when my mother gave my brother and me little metal budget boxes so we could divvy up our allowance to cover our needs and wants. What I have done for years is something I call after-the-fact budgeting. Much like what the OP seems to do.

Having 20+ years of data in Quicken enabled me to scope out my spending for retirement and set an annual spending target. Throughout the year I keep an eye on my Quicken home page where I can see how much I have spent so far to make sure I am not at risk of overshooting the target. [Last year, despite increased travel, I didn't even hit my target.] This works for me and my save-like-crazy personality, but it might not work for everyone.
I honestly don’t understand the difference between an “annual spending target” and a budget. Reasonable people can disagree with the level of detail needed in either, but the basic idea is the same.

stan1
Posts: 5143
Joined: Mon Oct 08, 2007 4:35 pm

Re: Budgeting Vs Savings Rate

Post by stan1 » Sun Jan 14, 2018 5:41 pm

pointyhead wrote:
Sat Jan 13, 2018 12:07 pm
I'm wanting to get some feedback about budgeting. Currently, we save 50% of our combined gross pay and I track spending in Quicken so I can look up how much we spend on different categories. My spouse suggested that we start a budget, but I don't see a need to do so when we can save 50% and still basically do what we want. What am I missing? Will we benefit financially or otherwise it we create a detailed budget? Thanks for reading and replying!

PH
You are saving 50% of your gross income and tracking details in Quicken. You don't have a discipline problem. I think you can skip the budgeting step and just look at data you have in Quicken to see how you are spending money. Quicken's report features are great and are very customizable (has been that way for decades). If you are spending $25/year at Starbucks you don't need to look at that. If you are spending $7,000/year on dining out then that may be an area you want to think about (or you may decide this is exactly how you want to spend the money you don't save). This does not need to be hard.

KlangFool
Posts: 7568
Joined: Sat Oct 11, 2008 12:35 pm

Re: Budgeting Vs Savings Rate

Post by KlangFool » Sun Jan 14, 2018 5:45 pm

delamer wrote:
Sun Jan 14, 2018 5:19 pm
KlangFool wrote:
Sun Jan 14, 2018 5:12 pm
OP,

1) I have a saving goal. I save X% of my gross income. Then, I spend the rest.

2) I tracked my expense via Quicken. I know where my money goes. But, I do not budget. I do not use that tracking to control my expenses.

3) After my "Pay Yourself First" savings, I debit the rest of my income into my checking account. If the balance of my checking account is getting low, I spend less.

KlangFool

Why do you bother to track your expenses, if you don’t use that information to control them?
delamer,

1) I would like to know how much of my expense is discretionary.

2) I use my number to project my FI number.

3) For example, I know that my personal inflation rate is about 0% over the last 10 years.

KlangFool

delamer
Posts: 3445
Joined: Tue Feb 08, 2011 6:13 pm

Re: Budgeting Vs Savings Rate

Post by delamer » Sun Jan 14, 2018 6:04 pm

KlangFool wrote:
Sun Jan 14, 2018 5:45 pm
delamer wrote:
Sun Jan 14, 2018 5:19 pm
KlangFool wrote:
Sun Jan 14, 2018 5:12 pm
OP,

1) I have a saving goal. I save X% of my gross income. Then, I spend the rest.

2) I tracked my expense via Quicken. I know where my money goes. But, I do not budget. I do not use that tracking to control my expenses.

3) After my "Pay Yourself First" savings, I debit the rest of my income into my checking account. If the balance of my checking account is getting low, I spend less.

KlangFool

Why do you bother to track your expenses, if you don’t use that information to control them?
delamer,

1) I would like to know how much of my expense is discretionary.

2) I use my number to project my FI number.

3) For example, I know that my personal inflation rate is about 0% over the last 10 years.

KlangFool
Thanks: very interesting.

I have a “basics” retirement budget and a “living-the-dream” retirement budget. Not yet implemented since my spouse is still working.

I don’t think I’d be comfortable without a budget unless I had a one checking account that contained money for fixed (like mortgage) and basic (like groceries) expenses and another account for discretionary expenses.

KlangFool
Posts: 7568
Joined: Sat Oct 11, 2008 12:35 pm

Re: Budgeting Vs Savings Rate

Post by KlangFool » Sun Jan 14, 2018 6:07 pm

delamer wrote:
Sun Jan 14, 2018 6:04 pm
KlangFool wrote:
Sun Jan 14, 2018 5:45 pm
delamer wrote:
Sun Jan 14, 2018 5:19 pm
KlangFool wrote:
Sun Jan 14, 2018 5:12 pm
OP,

1) I have a saving goal. I save X% of my gross income. Then, I spend the rest.

2) I tracked my expense via Quicken. I know where my money goes. But, I do not budget. I do not use that tracking to control my expenses.

3) After my "Pay Yourself First" savings, I debit the rest of my income into my checking account. If the balance of my checking account is getting low, I spend less.

KlangFool

Why do you bother to track your expenses, if you don’t use that information to control them?
delamer,

1) I would like to know how much of my expense is discretionary.

2) I use my number to project my FI number.

3) For example, I know that my personal inflation rate is about 0% over the last 10 years.

KlangFool
Thanks: very interesting.

I have a “basics” retirement budget and a “living-the-dream” retirement budget. Not yet implemented since my spouse is still working.

I don’t think I’d be comfortable without a budget unless I had a one checking account that contained money for fixed (like mortgage) and basic (like groceries) expenses and another account for discretionary expenses.
delamer,

1) My gross saving rate is about 30+%.

2) But, I am not frugal. My annual expense excluding housing is about 40K per year. There is plenty of money for the discretionary expense.

KlangFool

CT-Scott
Posts: 188
Joined: Sun Feb 22, 2015 3:01 pm

Re: Budgeting Vs Savings Rate

Post by CT-Scott » Sun Jan 14, 2018 6:40 pm

delamer wrote:
Sun Jan 14, 2018 5:05 pm
If you have not before, I highly recommend tracking your spending by category for 6 months or a year, so you know where your money really is going. Sometimes finding out that you are spending $1,000/month eating out or $10,000/year on clothes is enough to spur changes.
Yeah, I have a fairly complex Excel spreadsheet that I use to manage all of my bills, balance my accounts, etc., and I categorize everything at a pretty granular level. I then have another worksheet that sums up the various categories. I got lazy the last couple of years, though, and need to get all of the functions working again. It also takes some effort to export data from my credit cards' websites, import that data, and manually categorize transactions to match the categories I use (we pay every bill/purchase we can via a 2% cashback card).

Anyway, it was probably at least two years ago that I last showed some of our spending summaries to my wife. We were both in agreement that we spent too much on eating out, but we both lacked will power to make significant improvements there. I was also disgusted with our grocery bill, but to my wife, most of the numbers were just numbers, and I don't think she really appreciated just how bad the numbers were, so it mainly led to an argument. All that said, I do plan to get the worksheet working again and see if I can get my wife on board with trying to make some changes to our lifestyle.
KlangFool wrote:
Sun Jan 14, 2018 5:15 pm
After I max out all my tax-advantaged accounts, the additional savings are debited into my Vanguard taxable account. This brings the amount up to my 30+% gross saving rate goal.
Yeah, right now my problem is that I seem to be saving about 20% (maybe a bit less), and I'd be much happier if I was saving 30-40%. But it seems like all of our money gets spent, so there's nothing left to save/invest. Right now we're paying OOP for some of our daughter's college costs, so when she graduates in a couple of years, that will free up about $20K/year.

So there's a lot of talk here about how much everyone is saving based on their gross income. As someone who is already maxing out every pre-tax thing I can (401k, HSA), I think I'd prefer to look at my net wages/bonuses (and company stocks that vest), and see what sort of goal my wife and I should be setting for ourselves in terms of additional after-tax saving/investing.

thangngo
Posts: 570
Joined: Sun Feb 26, 2017 2:08 pm

Re: Budgeting Vs Savings Rate

Post by thangngo » Sun Jan 14, 2018 6:57 pm

CT-Scott wrote:
Sun Jan 14, 2018 6:40 pm
Anyway, it was probably at least two years ago that I last showed some of our spending summaries to my wife. We were both in agreement that we spent too much on eating out, but we both lacked will power to make significant improvements there. I was also disgusted with our grocery bill, but to my wife, most of the numbers were just numbers, and I don't think she really appreciated just how bad the numbers were, so it mainly led to an argument. All that said, I do plan to get the worksheet working again and see if I can get my wife on board with trying to make some changes to our lifestyle.
I found lowing the groceries bill is about better planning and cutting down waste. I keep track of the budget in very detail like you do. My wife and I review monthly budget and we came up with those two actionable plan. My wife takes care of meal planning for the whole week so we only buy what we need for the week. I'm in charge of cutting the waste to make sure we have the right portion in recipe and make use of all the leftover.

Again, budget is a very useful tool. Other than helping me maximizing my savings, it also provides useful information for FI/retirement planning. But maybe some people don't like using it or not using it in an effective way to bring positive result.

WL2034
Posts: 452
Joined: Tue May 21, 2013 10:36 pm

Re: Budgeting Vs Savings Rate

Post by WL2034 » Sun Jan 14, 2018 6:58 pm

We "pay ourselves first" and then spend the rest. I sometimes think about a budget, but we are both fairly frugal and save a large percentage of our income (not even sure the percentage). If you are saving 50% of your income, what would a budget accomplish? Would you want to cut out Netflix or your morning latte so you can save 52% of income? 50% is a lot, and puts you on the road to early retirement.

I think if we were saving 15% - 20% of income or less, and wanted to figure out a way to save more, I'd be more interested in creating a strict budget.

NYCguy
Posts: 222
Joined: Sun Nov 13, 2016 12:42 pm

Re: Budgeting Vs Savings Rate

Post by NYCguy » Sun Jan 14, 2018 7:06 pm

[/quote]
Also, saving 50% of gross is not really a meaningful number. You might make $1,000,000/yr and are spending $500,000/yr while saving $500,000/yr. I would say anyone spending $500,000/yr has some waste in there. That may or not really matter in the grand scheme of things, but you should give meaning to the dollars you spend.
[/quote]

Disagree you are forgetting taxes.

OP; I submit this is an important and impressive ratio. If you save in excess of 50% of gross, who cares whether you over or under spend in one vs another category? That savings rate implies to me that you are careful managaing spending overall.

Like others, I find tracking spending very helpful. I have used Quicken for this and other purposes for 20+ years. It also help track the ratios.

If you or your spouse want to squeeze even more into the savings ratio and want to beat yourself up if you exceed a prescribed category, have at it, but that’s not for me.

You have already won the battle by managing your spending overall.

The trick is to maintain and improve on those ratios as income changes and outgo changes (kids, parents, health etc).
If your out-go is greater than your income, your upkeep will be your DOWNFALL.

KlangFool
Posts: 7568
Joined: Sat Oct 11, 2008 12:35 pm

Re: Budgeting Vs Savings Rate

Post by KlangFool » Sun Jan 14, 2018 9:41 pm

CT-Scott wrote:
Sun Jan 14, 2018 6:40 pm
KlangFool wrote:
Sun Jan 14, 2018 5:15 pm
After I max out all my tax-advantaged accounts, the additional savings are debited into my Vanguard taxable account. This brings the amount up to my 30+% gross saving rate goal.
Yeah, right now my problem is that I seem to be saving about 20% (maybe a bit less), and I'd be much happier if I was saving 30-40%. But it seems like all of our money gets spent, so there's nothing left to save/invest. Right now we're paying OOP for some of our daughter's college costs, so when she graduates in a couple of years, that will free up about $20K/year.

So there's a lot of talk here about how much everyone is saving based on their gross income. As someone who is already maxing out every pre-tax thing I can (401k, HSA), I think I'd prefer to look at my net wages/bonuses (and company stocks that vest), and see what sort of goal my wife and I should be setting for ourselves in terms of additional after-tax saving/investing.
CT-Scott,

<< Right now we're paying OOP for some of our daughter's college costs, so when she graduates in a couple of years, that will free up about $20K/year.>>

If you count the out of pocket expense for my 2 kids' college costs, I am saying nothing now. But, it is okay. My portfolio is at 20 times my annual expense now. My FI is fully funded. I can count on my portfolio growth to get me through the finish line.

<<So there's a lot of talk here about how much everyone is saving based on their gross income. >>

I do not save based on my gross income. My goal is to save one year of annual expense every year. It just happened to be approximately 30+% of my gross income.

KlangFool

MandyT
Posts: 140
Joined: Sat Feb 13, 2016 2:29 pm

Re: Budgeting Vs Savings Rate

Post by MandyT » Mon Jan 15, 2018 6:10 pm

annielouise wrote:
Sat Jan 13, 2018 5:29 pm
Did your spouse give a reason why he/she wants to budget? I can think of a dozen different reasons from a friend suggesting it to being worried about the future. Maybe understanding why might help.
I think this is the key question. If your spouse is concerned about spending in general or your spending in particular, or wants to feel better about progress towards a specific goal, a budget might be worth it because it satisfies a concern and doesn't otherwise hurt anything. However, if it's a matter of "well, budgeting is good practice so we should do it", it might be a solution in search of a problem.

I've been on my own since 2002 and am naturally frugal, so I haven't seen the need for a formal budget (though I periodically track my balances and retrospectively estimate my spending). If either or both spouses is a "spender", I think a budget can be somewhere between helpful and necessary; in the fortunate case of both partners being frugal, though, it might be unnecessary (or, worse, create conflict for insufficient reason).

User avatar
BogleMelon
Posts: 907
Joined: Mon Feb 01, 2016 11:49 am

Re: Budgeting Vs Savings Rate

Post by BogleMelon » Mon Jan 15, 2018 6:28 pm

Quicken doesn't do budgeting right. I have tried it for over 6 months before I decided to switch to YNAB.
YNAB method is superior if you decided to start budgeting. Below is a comparison in case you became interested:
Mint is telling you to budget from your "future" income that you haven't earned it, but can spend it at Day 1 of the month!
Ynab is telling you to budget the money you have on hand right now (give every dollar a job), then budget every time you get paid again. Kind of envelope cash system where you split all your cash into envelopes and label each of them.
Mint is clueless when it comes to overspending in one category. it shows red bar and that is it.
Ynab is asking you to cover the overspending from another category, there is nothing called negative cash in an envelope after all. That is why you can always spend based on your category balance. You can trust it because the total balance of all categories = exactly the total money you have in your banks (checking and saving combined). If you have a $25K balance in your new car category, you can confidently go and buy a car with that amount without double check your saving account or your future bills.
With Mint you have to literally wait for Day 1 to budget the month. Ynab, you can budget as much as months in advance as long as the money is in your possession.
Mint wants you to have a separate bank account for every goal!! Ynab doesnt care where your money is at. it is your all your money at the end of the day, you budget based on the total you have (mind blowing at beginning, but once it clicked you won't go back to Mint)
Ynab, you can enter as cash accounts as you want. a transfer from your bank to cash in home won;t affect the budget. Mint, has to be a bank account! a transfer from bank from your cash in home considered to be spent (while it is not!)
Excuse my English, it is my second language! | | "One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

delamer
Posts: 3445
Joined: Tue Feb 08, 2011 6:13 pm

Re: Budgeting Vs Savings Rate

Post by delamer » Mon Jan 15, 2018 7:19 pm

MandyT wrote:
Mon Jan 15, 2018 6:10 pm
annielouise wrote:
Sat Jan 13, 2018 5:29 pm
Did your spouse give a reason why he/she wants to budget? I can think of a dozen different reasons from a friend suggesting it to being worried about the future. Maybe understanding why might help.
I think this is the key question. If your spouse is concerned about spending in general or your spending in particular, or wants to feel better about progress towards a specific goal, a budget might be worth it because it satisfies a concern and doesn't otherwise hurt anything. However, if it's a matter of "well, budgeting is good practice so we should do it", it might be a solution in search of a problem.

I've been on my own since 2002 and am naturally frugal, so I haven't seen the need for a formal budget (though I periodically track my balances and retrospectively estimate my spending). If either or both spouses is a "spender", I think a budget can be somewhere between helpful and necessary; in the fortunate case of both partners being frugal, though, it might be unnecessary (or, worse, create conflict for insufficient reason).

My husband and I are pretty frugal by nature, and pay ourselves first. Yet I have always felt the need to have a budget.

One reason is that when our kids were young and in school, we were juggling a lot of large expenses — retirement, college, mortgage, summer and before-school day care, etc.

But as I’ve been thinking about it, I realize that part of the reason was that by budgeting, I knew that our savings and basic expenses were covered. And by having that assurance, then I could relax and enjoy spending on the non-necessities — like nicer vacations and nicer cars — without second guessing myself or pinching pennies whose brothers and sisters had already been pinched.

So maybe the OP’s wife feels that by having a budget, she’ll be more comfortable with spending what is left after their prodigious savings. The “frugal gene” — mostly a good thing — can sometimes prevent us from enjoying our discretionary money.

pointyhead
Posts: 163
Joined: Sun Apr 08, 2012 11:38 pm

Re: Budgeting Vs Savings Rate

Post by pointyhead » Mon Jan 15, 2018 10:51 pm

stan1 wrote:
Sun Jan 14, 2018 5:41 pm
pointyhead wrote:
Sat Jan 13, 2018 12:07 pm
I'm wanting to get some feedback about budgeting. Currently, we save 50% of our combined gross pay and I track spending in Quicken so I can look up how much we spend on different categories. My spouse suggested that we start a budget, but I don't see a need to do so when we can save 50% and still basically do what we want. What am I missing? Will we benefit financially or otherwise it we create a detailed budget? Thanks for reading and replying!

PH
You are saving 50% of your gross income and tracking details in Quicken. You don't have a discipline problem. I think you can skip the budgeting step and just look at data you have in Quicken to see how you are spending money. Quicken's report features are great and are very customizable (has been that way for decades). If you are spending $25/year at Starbucks you don't need to look at that. If you are spending $7,000/year on dining out then that may be an area you want to think about (or you may decide this is exactly how you want to spend the money you don't save). This does not need to be hard.
Haha...you made me look...$6633 on dining out last year...probably should tighten my belt! :shock:

Dead Man Walking
Posts: 546
Joined: Wed Nov 07, 2007 6:51 pm

Re: Budgeting Vs Savings Rate

Post by Dead Man Walking » Tue Jan 16, 2018 2:09 am

We've never had a budget other than knowing when things like taxes and insurance premiums would be due. I think an important aspect of budgeting is smart spending. An intelligent consumer buys things when they can get the best deal. Consumer Reports and others publish the best times to purchase most things. For example, when I was working, I bought suits at a local men's shop during their annual sale. The shop catered to professionals; consequently, I was buying quality suits at half price and proper alterations were free. Of course, the selection was limited; but I usually found an acceptable suit for the work place. Now that I am retired, I know the best time and place to buy sweatsuits.

Sometimes stuff happens and purchases have to be made at inopportune times. Knowing where the best place to buy becomes important. When the refrigerator bites the dust, you have to make an emergency purchase. That's the purpose of an emergency fund.

Common sense is the best budgeting plan. Some people spend money if the monthly payment fits their budget. I actually knew a guy who bought cars based on whether the monthly payment fit his budget. When he mentioned that strategy at a party, I thought a friend was going to have a stroke.

Some people are just cheap. For example, if you are using cottage cheese rather than ricotta in your lasagna, you're cheap. If ricotta is too expensive for your budget, eat spaghetti.

DMW

Post Reply