Budgetting hassle, need to get some tips

[Cerberusss]

About a year ago, I decided I want to get a grip on my expenses. So whenever I reach for my wallet, I also pulled out my smartphone and added the expense in an app called HomeBudget.

This has learned me so far what I spend on groceries, video games, going out, and clothing.

There are plenty of other expenses which I don't put in this app for example holidays, electricity/gas, maintenance of the house, stuff for my business etc. Several times, I attempted to add these additional expenses, but it's such a hassle to account for each and every line in my bank statements. I have to put things into a category for which usually no category is present in the app, or it's really just a one-time expense, or it doesn't seem to fit anywhere, etc.

However the present situation also leaves me unsatisfied. I know where most of the money is going, but not all of it. And I also don't budget, I just administrate.

So my questions are:
- should I bite the bullet and really copy and categorize every expense in the bank statements?
- do you guys use budgets and actually stop spending in a particular month when you reach the limit of the budget, or is budgeting somewhat fluid?
- is budgeting actually a necessity or am I dealing with an underlying, invisible problem?

[George the original one]

So what % of money do you not know where it goes? 1%? 5%? Or 25%

The object of budgeting is two-fold. 1) To understand where it goes so surprises don't happen which leads to 2) Targeting budget items for reduction/elimination. If you're at the point where you're looking for the last 5% reduction in expenses, then you'll want to know where the little 1% stuff goes unless you still see a bigger target. If you don't know where 25% goes, then you need to document more thoroughly.

You can also change the categories so they're more broad if you have two dozen 1% categories.

[GandK]

The object of budgeting is two-fold. 1) To understand where it goes so surprises don't happen which leads to 2) Targeting budget items for reduction/elimination. If you're at the point where you're looking for the last 5% reduction in expenses, then you'll want to know where the little 1% stuff goes unless you still see a bigger target. If you don't know where 25% goes, then you need to document more thoroughly.

I agree 100%.

@Cerberusss Why don't you try keeping track of ALL of your spending for the month of October? Then you should have all the data you need to make these decisions.

[startbyserving]

Some may consider it extreme, but I've been trying to track every cent. In fact I write down $0.00 purchases because I am still technically consuming. I have a small notebook and I write down the item every time I spend money. To make this more absurd I have a history of couponing. I may go to the grocery and make 5 orders for $0.17 each. (For these I will write them down on the same line, followed by the total)

I then add mortgage and non cash transactions like utilities. (I tend to pre-pay my utilities 6-12 months in advance.)

Personally I haven't been totaling this up. I spend a very small percentage of my take home pay and this lets me scan and see where my money goes. I don't want a free ride for purchasing something. If it isn't worth writing down, it isn't worth purchasing. Also I try to set a good example for sig. other. It's a little difficult to expect someone to do something you aren't willing to do yourself.

Sorry I don't have better big picture ideas. MInt.com has some amazing tracking abilities, but certainly has its limitations.

[Cerberusss]

OK great replies!

Some clarifications: I'm a freelancer and after tax, I pay myself a salary of about 2550 euros per month. I maintain a list of my monthly bills, which add up to about 1830 euros. That should leave 720 euros for everything else. Usually I can account for about 500 euros. So I can't account for about 20% of my expenses. This includes gasoline.

Now you could say, why don't you track the gasoline as well? I do, because it's usually a business expense. As a freelancer, I have to maintain the administration for my business. I use separate bookkeeping software for that, which I access once a month.

I hate tracking it twice, but for one month, it's certainly doable. Will update with the results, thanks so far!!

[thrifty++]

should I bite the bullet and really copy and categorize every expense in the bank statements?
- Yes. I do. But it doesn't take hardly any time. With my NZ bank it automatically shifts all transactions into categories. It did take about three hours to set up the categories first of all. Eg I plug in the supermarket I go to into food and groceries and all future and past transactions at that place automatically go into that category. From there it has just been checking and making slight alterations which realistically takes 15 minutes a week. Check if banks where you live have this degree of automation. If you are in USA I hear Mint is the thing to use and I am sure it has that level of sophistication.

do you guys use budgets and actually stop spending in a particular month when you reach the limit of the budget, or is budgeting somewhat fluid?
- I used to be fluid but I saved much less money. Since going ERE three months ago I have started strictly budgeting and tracking expenditure as I go. I cut down all spending before I hit my budget and have been very strict. This has allowed me to save WAY more. And has focussed me much more. It has been stressful at times and I have relaxed a little bit this month. Mainly with food spending. I just cant meet my budget for that one item without being highly unsatisfied. So this is a loose budget now for food.

Is budgeting actually a necessity or am I dealing with an underlying, invisible problem?
- Not a necessity. I have had high rates of saving just based on frugal habits for years. Eg savings of around 30%. But with budgeting I am saving more. Eg now savings of between 55% and 70% I find the numerical target forces me to focus more on finding ways to cut costs.

[Cerberusss]

- Yes. I do. But it doesn't take hardly any time. With my NZ bank it automatically shifts all transactions into categories.

Nice. My (Dutch) bank offers something like that, but apparently it's end-of-life as per next month. It could be worth it to switch bank, I've posted a topic on a Dutch forum I frequent.

In the meantime, I shifted gears and copied the first half of this month in my current app, so I'll be able to update this topic at the end of September instead of October.

[steveo73]

I don't really budget at all. I do try and keep a relatively high savings rate but I do that by simply working out how much I save out of my income.

[Noided]

I don't budget strictly because I don't really care about spending money, but I do track all spending and I know how much I usually spend per month, divided by categories.

Since I don't buy a lot of things, I have less crap to put on my budgeting app. Also, I usually accumulate a few receipts on my wallet and then insert them when I feel like it.

The fact that I actually input all my expenses, actually contributes a little bit to curving my spending. Eventually it is more paperwork for me to do

You have to figure out a system for yourself so that you are comfortable. I wouldn't be comfortable with not knowing how I spend 25% of my expenses, but I am comfortable in not having that much detail in the tracking, for example.

[wood]

I try to track my expenses, but for me the problem comes in whenever I go through last month's bank transactions for the grocery store. That's the no. 1 place I get most of the stuff I need/want, like food, tobacco (on my way to quit), alcohol, household items, candy, socks/underwear, party preparations etc. These different categories of items correspond to totally different areas of my life: daily eating, household maintenance, luxuries, clothes and social affairs. Needs and wants all mixed together.

I could save all the receipts and go through them at the end of the month but:
I occasionally forget to ask for the receipt and
it's alot of work.

My solution has been to pay attention to what I consume, how much and how often I consume it and then make a weekly/monthly budget. It works for the most part - I usually stick to the budget and I have some ideas on how to cut costs further. I have just decided to settle with the fact that I have 95% control, which is good enough right now:)

[7Wannabe5]

I always track my expenses, sometimes meticulously, sometimes not. For me, the purpose of tracking is mostly observation of my decision-making and practices. I have budget categories with assigned estimates, but I don't take them too seriously, and I feel free to change them any old way as warranted by self-aware, self-interested desire to change my practices. For instance, I am a sugar fiend, so I sometimes break "Treats" out from "Food" as a category. Generally, I think budgeting is best applied in project or challenge mode, rather than monthly expense mode, because then you can really get a kick out of your ability to substitute ingenuity or creativity for cash. One thing I have learned is that $0 is not always the best goal, because it can unnecessarily limit your options, whereas using just a very small amount of cash in the mix can act as catalyst. For instance, I do not think ignoring bad aesthetics is a good practice in frugality, so maybe I would like to re-decorate my bedroom this weekend. I know from experience that the $0 bedroom re-decorate is too difficult, in a bad likely to get bogged-down in inertia and unnecessary tedium way, but the $100 room re-decorate is crazy spendthrift for me, so I decide to challenge myself to the $7 room re-decorate. The same process can be applied to realms that end up being set monthly budget expense columns when you first acquire them such as finding rental housing. For a flexible expense such as the cost of dinner each evening, you can focus in or out, but eating is not usually best regarded as a monthly project either in terms of expense or quality, because you want to avoid waste, eat fresh food, and have flexibility for social engagements and meal sharing. So,in a category such as this, you might try changing your practices first and then observing how that effects your spending. For instance, (and I will admit I have been slacking on this myself lately because I'm not currently responsible for cooking for others) many years ago I adopted the simple practice of asking myself "What's for dinner?" before eating breakfast. Asking yourself this question will lead almost instantly to the further good practices of checking your social calendar, surveying the kitchen for leftovers and needs to be processed sooner rather than later, and maybe doing a few minutes of prep, such as defrosting or throwing something in a crock-pot, that will make your evening tasks much easier and save you a lot of money. If nothing comes to mind immediately, I will often throw keywords like zucchini, tuna, bread crumbs into a search engine. Same approach works for other projects.

[IlliniDave]

What you describe really isn't budgeting, it is just expense tracking. Personally I found that exercise to be extremely helpful, and I've put a fair bit of effort into it over the last 6-8 years. I use Quicken because I have an old copy, and I don't download transactions because for me it is harder to edit/modify them to fit the way I like to track them than it is just to enter each one. The value in the exercise is two fold. First, I think a person owes it to themselves to understand where their money is going. Most of us trade a portion of our life for money, and it seems prudent to have some accountability. It's a form of self-respect. Secondly, once you build a good data record over a few years you can make educated projections about your future spending which is invaluable when determining the point of financial independence.

Budgeting is a planning process. People see it as a system of restraints but really it's nothing more than a spending plan--you deciding what you are going to do with your money ahead of time rather than trying to figure out what you did with your money after the fact. While I err on the meticulous side in tracking my spending, I'm a little looser on my budgeting. I have a notional budget that includes all the spending categories I track (the first cut was just based on actuals), but there are only a few categories that I really try to enforce. Things like my savings/investing contributions, my sinking funds for taxes/insurance and similar, and total spending. Occasionally I have gone through periods where I do try to adhere to each line item, and found that during those times I spend less, though YMMV. During those periods I do curb spending when I hit a limit for a line item, as long as it makes sense to do so. That would be categories like entertainment or dining out. I wouldn't do that for medical expenses, though I'd try to compensate for a surge there by backing off in a more optional area. I usually "beat" my budget slightly on an annual basis, but I probably "blow" it on at least 1 month out of 3.

Some people are intuitively able to handle money efficiently. Actually I'm probably one of them. Just "pay yourself first", take care of the required living expenses (rent/mortgage, food, utilities, insurance, transportation, etc.), and don't spend any more than what's left on everything else. So formal budgeting probably isn't necessary, nor is detailed expense tracking. For me they have led to a modest increase in efficiency so I stick with them. Once I got a system in place that I like, it takes about 15 minutes every weekend to keep it current. So I'd assert that budgeting being onerous is a myth. I think people chafe against the implied judgement in the process. The trick is to jettison that attitude and just treat it as what it is, a planning and data gathering exercise. You don't "lose" if you miss a target here or there. You just learn a little more about what your chosen lifestyle costs you on an ongoing basis.

Since you seem to feel you need to "get a grip on" what happens with your money I'd suggest you bite the bullet for a year and at least track your expenses in detail (every dollar). With a year's worth of data you can sit down with it and decide if there would be any benefit to being more proactive (i.e., budgeting), or continuing to track expenses, and if any benefits are actually worth the effort.

One bit of advice--life is full of "one-time" expenses. There's actually a fairly steady stream of them, and they can be large. I actually make allowance for that (around $400-$500/mo for me) based on data collected over several years. Most come from owning real estate property and an automobile.

If your app is insufficient you might look for other ones, or revert to last millennium and use a spreadsheet or even a notebook and pencil.

[vexed87]

I categorise and track every single expense, so one trip to the supermarket (one receipt) might be broken down into several food categories;

Fruit, Veg & Other Staples
Meat
Discretionary purchases e.g. Chocolate, Soda, Crisps, Biscuits etc
Alcohol

Also I am careful to deduct miscellaneous items from the food categories and categorise them appropriately so they don't inflate my food expense category so I have a realistic representation of spending.

E.g. things like, kitchen supplies, bathroom supplies and toiletries go in their respective categories.

This takes some effort, but I do I do this accounting only once or twice a month with a big mug of coffee. It's a bit of a ritual of mine now and helps me identify areas where I can make real savings. I've cut most expenses to the bone now, so my focus is now stop buying books as that's the last of my silly spending as of late!

[Scott 2]

Tracking your spending is painful. Maybe good to see where the money goes if you have no idea, but that's about it. By the time you've spent the wrong money, it's too late. Cutting off the flow of cash when you hit a predetermined ceiling will lead to highs and lows, a financial binge and purge cycle. Unpleasant at best, likely to fail at worst. Also tedious.

I've had good luck with modeling my spending ahead of time, then committing my surplus to investments via automated transactions. I spend based on the values in my model (ie one video game a month) and ignore the details. If I run out of money, my model is inconsistent with my lifestyle, so I change one of them.

With this approach, it's easy to take the next step, and use excel to project net worth and financial independence, Taking it a step further, you can then evaluate behavioral changes based on their impact in the model.

As money accumulates, this is essential, IMO. The size of an individual transaction you need to care about changes dramatically as your wealth increases. At first something as simple as a weekly coffee moves the FI date. Later on, blowing a couple hundred bucks a month barely even registers.

[GandK]

G and I use cash and the "envelope system" for all our irregular spending, for the purpose of controlling those expenses. (Food, gasoline, spending money and incidentals). Every few months we re-evaluate these amounts to account for the fluctuating prices of food and gasoline. On the first of the month we take out the appropriate amounts of cash for each category, and that's it. When it's gone, it's gone.

This works extremely well for us. It's impossible to blow more money than you intended if you don't have more money than you intended in your possession.

[Cerberusss]

What you describe really isn't budgeting, it is just expense tracking.

It's the expense tracking that needs more attention, and then I'd like to try my hand at budgeting.

One bit of advice--life is full of "one-time" expenses. There's actually a fairly steady stream of them, and they can be large. I actually make allowance for that (around $400-$500/mo for me) based on data collected over several years. Most come from owning real estate property and an automobile.

Yeah, that's one thing that occurred to me as well. Then there's car repairs, then there's the bike that needs new tires, then there's the house that needs a fresh layer of paint, my SO who'd like to do something fun for the weekend, all one-time expenses. Drives me nuts

Today, a colleague mentioned he worked with a yearly budget rather than a monthly. Once a month, he simply copy/pastes his bank statements right into a spreadsheet, roughly categorizes each item and then some spreadsheet magic tells him per category whether he's in the green, orange or red budget-wise. Could be interesting as well.

[Cerberusss]

I've had good luck with modeling my spending ahead of time, then committing my surplus to investments via automated transactions.

Ahead of time, is that per year, per quarter, per month?

[Cerberusss]

All other comments: much, much appreciated. There's so much knowledge and wisdom here, it's quite overwhelming

[Scott 2]

My model is annual, reviewed when a significant financial event arises. One time expenses are roughly estimated for the year. I leave a a couple hundred dollars gap between the automated investments and my expected spending, which allows me to handle fluctuations without moving money around. I usually end up with some extra money to save at year end.

Setting this all up, I thought about it a lot. For years now it's mostly been on auto pilot. I spend maybe an hour a month managing my money.

[JL13]

I use very broad categories, and it sounds like the ones you're describing go into my "miscellaneous" category.

The Misc category for me includes:
1.) Purchases and sales of durable goods (Books, clothes, computers, furniture, LED lightbulbs)
2.) Expenses required by and directly related to job (dry cleaning, work cell, gifts for employees)
3.) Any other one-off items that aren't part of my lifestyle (example: home inspection on potential purchase)

These are items where the cost is non-recurrant, time is not the driver, at least not on the monthly or annual scale (durable goods last many years and are don't appear at regular intervals). Therefore these items should not be included in the post-FIRE monthly expenses. They aren't looked at as closely.

The other broad categories that I use are:

-Car (gas, maintenance, insurance...)
-Travel (airfare and lodging)
-eating out
-groceries
-entertainment (sports registrations, movie tickets...)

These are items that have a pattern and are part of my lifestyle, they exist monthly whether I'm FIRE or not. These are what I focus on.

If my car were used for work(not commuting, but actual work), I would include it in miscellaneous probably.