Tuesday, March 24, 2009

Using Budgets and Tracking Dollars

Last week the author of Budgets Are Sexy pointed out a great article by StretchyDollar.com that has gotten me to thinking. It was called "Understanding When to Stop - A Key to Your Budget." The premise was simply this: many people start off with budgets that simply show how much money is budgeted and how much has been spent. This is a good start, but it doesn't do much to reign in spending mid month. In other words, you don't know you are over your limit until it is too late.

I used to have budgets like this. They were written out carefully on legal pads. The first page would have my meticulously planned budget. Each subsequent page would be for the individual months. I kept all my receipts and bill statements in a big envelope, and at the end of the month would plug everything in. It kind of worked, but I ran into the same problem that StretchyDollar did. I'd go out to dinner a few times at the top of the month, a few in the middle and maybe once at the end, and wouldn't realize I was way over my dining out budget until it was too late!

This time when I built my budget, I did it differently. First of all, I did it electronically, which is just wonderful for making updates and corrections. Secondly, I have four columns - Item, Budgeted Amount, Actual Spent and Difference. Now I enter my receipts daily and at the same time update the Difference column. That tells me when I am getting close to hitting the budget and keeps me from going over.

Although my homemade spreadsheet is my favorite budgeting tool, I also use www.mint.com. Mint is a free online budgeting tool that has some nice features. In fact, one of my favorite features is the nifty graphs. That's one there showing my budgets for Groceries, Restaurants and Utilities. It also has a "Trends" section that shows your spending compared to other users. Check out how I compare to other Michigan spenders...

Here's the Food and Dining chart. It compares me (in orange) to other Michigan Mint users. March is looking pretty low for everyone so far! Maybe most folks eat out at the end of the month? Anyway, as you can see, I am usually behind the curve. Then again, I'm one single gal. My guess is this includes couples and families... naturally I come out quite a bit lower.

I do notice I either bought a lot of groceries or went out quite a bit in February. Hmm.... wonder what was going on then? Anyway, here's another rather nifty chart:

This one is shopping. I look awesome here! I'm not entirely sure how accurate this is though. I mean, did I really not do any shopping in the months of October, November and December? It also depends a little how you categorize your purchases. That little orange blip in March? That is a gift that ended up being categorized incorrectly. So technically it shouldn't even show up on here. Also, not in this category are my impulse purchasing traps - home improvement and personal care. Home improvement spending is in another category all together appropriately called "Home." I don't look nearly so well when you pull up that graph. Here it is - Gulp!!

"Home" not only includes Home Improvement but it also has the Mortgage & Rent. Got to say, this is more than a little painful to look at. I am spending at least double, if not three times what other Michigan Mint users are spending. Then again, I have two homes so maybe that all works out. Of course, the housing and real estate marketing here in Michigan is in the tank too. Yesterday I heard that 1 in 5 buildings in Detroit is vacant. That is not good for anyone! I even heard that there was talk about abandoning parts of Flint because there are so many empty homes. They are tossing about the idea of moving people in closer to the more populated areas and then turning the empty areas into green space. Right now it is all talk, but I wouldn't be surprised to hear of something like that happening.

The important thing about budgets is to find what works for you, and to keep tweaking it until you find the right method. Each person will have their own quirks. I think that is why I like my homemade budget the best, though Mint is great for having all my various banking information (and credit info) in one spot.

What about you? How do you set up your budget?

Photo by: Jeffrey Simms


Simplelivin' said...

I love mint!!! I was seriously addicted to it when I first found it (as in checking it 4x's/day). It won't let me link my hubby's account, so it's a little off, but I keep a spreadsheet so I can keep track on my own.

Dawn said...

I'm fond of it too. I check it about once a day, it isn't always good at labeling my transactions (because so many of them are through online bill pay) so I like to go in and update them now and again so I don't have to go in and do a whole month at once.

margybrd@fuse.net said...

I'd love to build an excel spreadsheet for my budget as you do. Would you mind sharing your template without your finances disclosed?

Dawn said...

margybrd - I don't have one in Excel as I use a Mac, however, Milk Your Money (http://milkyourmoney.com/) has one. Go to the site and look under "Tools" on the lower right. A friend of mine uses that one and loves it.

Slinky said...

I use YNAB for expense tracking, but excel for budgeting. I got YNAB hoping it would be a one stop shop deal that would work for me, but it doesn't work the way I'd like it to at all. So I just use it to track expenses now. I'm slowly working on writing my own budget program.

I won't use mint because I refuse to allow someone else to store all my financial credentials. Too many eggs in one basket!

Dawn said...

Slinky - Budget programs take time. I think part of that is just figuring out some of the odd expenses that crop up.

Jeff@StretchyDollar said...

Hey Dawn,

I'm glad you enjoyed the post - I think your analysis is correct - figuring out how much is left is almost always an afterthought at first, and it can be crippling to someone just starting out. Luckily there are quite a few people out there willing to help.

Slinky said...

Budgets take time, budget programs either work or they don't. :) My budget is fine and has been for years now. I just haven't found a program to combine all my finance tracking in one place.

It needs to be desktop based, good for tracking expenses AND budgeting (zero based) many months in advanced. It needs to track my accounts. Those are my bottom line basic requirements and so far no luck. So I'm making my own.

Dawn said...

Jeff - glad you didn't mind me linking to you! I agree, by the way. I feel like there is a lot more information out there and people who are willing to help than there was many years ago when I first started trying to get my finances under control.

Budgets are Sexy said...

glad you got some good thoughts out of it! And a post :) big ups to Jeff too!

Dawn said...

Good for you Slinky! I love that kind of thinking. Make your own - perfect!

J. Money - thanks for bring it to my attention