A friend/commentator said that they got into debt because they were intimidated by getting started on budgeting. Sounds weird right? But I wonder how many people fall into this trap and it snowballs into a bigger and bigger debt?
How this happens? Well it happens because you know you make a good income, and have low monthly expenses, but you are overwhelmed by the idea of tracking your spending. There are so many bills, so many receipts, so much paperwork. The idea of starting a spreadsheet or using software like Mint.com, quicken, or microsoft money seems insurmountable. Thus it’s easier to ignore the problem and just pay bills whenever they seem due than to sit and really get started.
Truth is that budgeting is pretty easy, but the upkeep of tracking spending, reconciling it to the budget, paying bills, does take time. Being in charge of your personal finances can mean sitting for an hour a week just reviewing your spending, or a couple hours a month. And if you are in a couple, it can be even harder to get both people on board. Typically one person takes charge, but the other person has to help out by keep receipts and turning them in.
I wonder what the solution is? Is there an easy way to get over being intimidated by budgets? Is it to start out simple? That you use a simple budget of Income, rent, utilities, gas, etc? And the only thing you really track might be eating out or groceries? Then as you get more comfortable, you start to track more categories?
Now using a system like Mint.com, money, or quicken actually might be faster and easier. The problem is getting the system up and running is a lot more effort in the beginning. And that can turn off people just trying to get a handle on their personal finances.
How did you get started on budgets and tracking your spending? Personally I just said I was going to do it, and I did. I use an excel spreadsheet mostly and I’ve been testing out Mint.com. But I think it’s easier doing it myself than Mint.com mostly because I find the site sometimes difficult to navigate and I have no idea how to reconcile a CC payment within the transactions.
What do you use?
10 responses so far ↓
1 david // Jan 21, 2010 at 10:46 am
I was one of those people you describe: intimidated by budgeting and putting it off for years. Fortunately, I never got into debt as a result, but I knew something had to change or else I would, eventually.
I started using Mint about two years ago, and it has completely revolutionized how I manage my money. The budgeting features are SO easy to use. I have complete up-to-date knowledge of where my finances are at any given moment. I used to spend hours each weekend entering transactions into Quicken. Now I do almost no data entry, aside from correcting Mint’s auto-categorization from time to time.
Regarding reconciling CC payments with transactions: it’s my opinion that it is no longer necessary. As long as all the transactions look familiar and you know the current balance at all times, why do you need to manually reconcile them? It is a different way of thinking about tracking money, for sure, but it is quite liberating IMHO.
2 Colette // Jan 21, 2010 at 11:12 am
I have been using Mint for a few weeks now and am loving it.
My DH and I have very different spending habits. Because of this I set up 2 checking accounts recently. One is money strictly for bills and the other is for spending.
Mint sends a daily report to his phone so that he can see exactly what is in the spending account. I’ve noticed that he has started thinking more about impulse purchases. Like the kids, he wants his “allowance” to last a bit longer.
Mint is very user friendly and much easier than Quicken. I am still using Quicken as well, but am very impressed with Mint and the fact that it is FREE!!!
3 Meg // Jan 21, 2010 at 1:04 pm
First my husband and I started tracking our account balances. Then we started laying out a spreadsheet with our regular, fixed expenses. Then we added regular, less fixed expenses by averaging up previous bills and adding a cushion or even just making a good faith guestimate and seeing how it worked. We also set up our “fun money” accounts which sort of work like a budget because we have a certain amount automatically transferred to each with every paycheck.
Finally, we set up a food account that we use similarly to budget food. That’s been the toughest for us even though we do A LOT better than we used to. I think, mostly, we just didn’t realize how the little trips and snacks added up until we had them all coming out of just one dedicated account. It’s worked, though! We’ve definitely seen our expenses go down and we have a much clearer picture of how much we spend even if we don’t record every receipt or have as detailed a budget as some people do.
4 Stacey // Jan 21, 2010 at 4:44 pm
I’m a spreadsheet kind of girl… but I know a few friends who use cash to stay within budget. Why not subtract the bills that can’t be paid in cash (mortgage, ect. – estimate high if it’s an adjustable bill like electricity) from your income, and then use cash for everything else. If you’re going to spend $100 on groceries this week, put $100 in an envelope. When it’s gone, it’s gone.
I prefer to work with big groups of money, so I lump groceries, home supplies and take-out into one spreadsheet line/”envelope.” But it’s really personal preference – do you like lots of flexibility, or do you think you need strick guidelines for every spending decision?
5 Not My Mother // Jan 21, 2010 at 5:04 pm
I use MS Money but I don’t let it budget for me. I use the envelope system for budgetting, so I’ve set up each of my budget buckets/envelopes as a separate account. My salary gets deposited into the ‘main’ bucket, then the amounts for each budget area (groceries, bills,mortgage, personal allowance etc) get automatically transferred into their buckets.
A simple transaction report shows me all the transactions across my “real” bank account, and another summary report of all accounts lets me see where each bucket is at any given time. It’s this bit that is why I use MS Money instead of just a spreadsheet (though I’m open to trying other software, just haven’t needed to yet).
As to how I got started, I just began that way. The envelope system always made sense to me (put aside equal amounts every month so I’m not scrabbling when four bills and the car registration comes due at once). Over time the amounts get adjusted depending on how I’m going, but the system is very simple and useable as long as you keep your accounts up to date.
6 Forest // Jan 22, 2010 at 8:13 am
If you live frugally and keep your budget simple to start with then the intimidation is kept to a minimum and you don’t even need a big spreadsheet….. However if you already have bills and things coming out of your eyes then its important…. Great post as always.
7 Forest // Jan 22, 2010 at 8:16 am
Sorry just read my comment and it looks like Spam….
I’ll elaborate. I keep my parts of budget in lump sums… Bills is broken down but only displayed as one figure on the main budget… the same goes for say “Shopping” and other things… Makes it easier to keep on top of and far less scary.
8 LAL // Jan 23, 2010 at 12:12 pm
David it’s my behavior. I don’t like the idea of not reconciling my checking account I guess.
Colette, I think that’s interesting that budgeting has caused more accounts for you rather than less.
Meg, the bare bones of a budget is getting into place all fixed expenses and non-fixed recurring expenses that you know happens. It’s painful but necessary. That will show you what you really have leftover to spend, because you’ve already committed yourself to other expenses!
Stacey, that might have to be a post. I have to consider.
NMM, I found money incredible hard to use.
Forest when I started out budgeting I did that too, only a couple categories. Now i have more, but I realize, I only care and track pretty much 3 categories – groceries, eating out, and entertainment.
Everything else is pretty much set. I have auto bill pay on a couple and fixed expenses on utilities. So it’s a moot point.
That and driving, I don’t drive for driving’s sake. So it’s about the same monthly.
9 Andy // Jan 24, 2010 at 3:05 pm
I’m not sure I understand what you mean by “reconciling my checking account.” Is reconciling just another word for balancing? My wife and I use the CC for 95% of our purchases, tracking with Mint, then just check that the balance, which is paid in full every month, matches what we were expecting. This gives us a big picture view of how we did the last month, but Mint lets us look closer.
I have been using Mint for about 8 months now. I check it about once or twice a week and it has every transaction I’ve made, from any account, be it checking, credit card, etc. I closely track very similar items to you…dining out, groceries, entertainment, automobile costs, and a few others. The beauty of Mint is, on the very first page (Overview), it shows me how much I’ve spent on each of those categories during the current month and if I’m on pace to go over or stay under my budgeted amount. Additionally, with three clicks of the mouse, I can show my wife what our trends have been, in the form of a graph, over the last 6 months, or any other time frame I choose. I have an excel spreadsheet that we adjust every couple months as a general spending plan, but Mint does all the work, and the reality of the spreadsheet is based on what Mint tells us we spend. When I check Mint once or twice a week, like David, I adjust any mislabeled items and clarify with my wife anything that I don’t recognize that she might have purchased. I have only used MS Money as an alternative, but Mint is light years ahead of it and I don’t ever anticipate doing it any other way.
10 LAL // Feb 8, 2010 at 5:33 pm
I guess I just need to start getting into Mint.com more. I find it difficult to explain how my checking payment is to a CC.
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