I also use YNAB and it’s been life-changing for me. I now know what I’m spending and don’t overspend the way I used to (admittedly making more money helps with that also 
). It’s great to know, for example, that I have the next college payment or whatever saved in the bank (and/or know that I have to move it from another category). It was really interesting to me also the first year to see how much we really spend on groceries or gas or the pets. I’m really cheap about subscriptions but I keep upping YNAB.
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We also pay ourselves first. We max our 401k/457b and IRAs, then do monthly savings in a high yield savings accounts for 1/12 our property taxes, homeowner’s, and car insurance annual costs. Then, we save a specific amount for sinking funds for health care costs, home maintenance costs, car maintenance costs. We never cap these funds and they just grow. We have cds for large home projects (we have one right now for A/C and furnence replacement). We then save a specific amount every month for college, taxable savings for retirement, and vacation. I use an excel spreadsheet to keep track and sync it every weekend and pay any bills. We use one rewards cc, put everything on it, and pay it in full religiously. It is kind of autopilot at this point in our lives and careers.
When we were one income with small kids, we budgeted by me telling DH how much he could max spend per trip to Costco and doing the same as the above.
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OK, dh and I have set up the free trial of YNAB. He really likes it thus far – he’s big on anything techie. I like the adaptability of moving things around easily. The spreadsheet he had been using was not confidence-inspiring.
We have never tracked spending in our lives. We always have lived simply and just made sure to not spend more than we have. We are now in retirement and moving from that saver to spender mindset. He’s been mostly retired for two years now, and we are meeting with a financial adviser Tuesday (we had met with one before dh retired who gave us a roadmap and assured us we were good). Well, in preparation for meeting with this new guy, we are relooking at our expenses, and by my dh’s accounting we are in the hole thousands of dollars each year. That didn’t seem correct to me, and I’m the one who handles the money. Anyway, I am just finally putting my foot down that we need to know where the money is going and whether we really are in the hole hundreds of dollars each month. If so, I can start taking my pension a few years early to more than make up that difference, but I don’t want to do that if we don’t “have” to.
Thanks, all.
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Great progress. I had to look up YNAB. One comment mentioned there is a bit of a learning curve, but it sounds like it could be a useful too.
I just remembered that last year I did create a spreadsheet showing our “regular expenses” - utilities, medical insurance etc … surprisingly high. Also have a tab for subscriptions, also higher than I’d like.
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I am always a tad worried about the cash flow and such when DH retires (I am already retired). He keeps reminding me that even if our investments grow only modestly each year, as long as what we spend is below the amount our assets will hopefully grow by (and additionally considering positive cash flow like social security) we won’t touch our capital. So he argues that we don’t need to worry about a budget.
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I’ve signed up for a webinar tomorrow to help figure it out. We’ve already set up our expenses and listed the amounts in our various checking accounts, etc. And there are lots of webinars on other topics. I def have questions on how things work. Props to @Mombbg23 for being the first to suggest it!
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Well, sadly I’ll admit to doing #3. But we’ve had a high income for a long time, and always saved well, despite being a #3 non budgeter. But now we’re retired, so we likely should try harder.
I do remember how to spend nothing, though. I was brought up fairly poor, and when me and my husband were both laid off, we only spent what was necessary for survival. Which means no heat, no dryer, no coffee or alcohol, no entertainment, nothing. Of course, coffee and alcohol are now necessary for survival.
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Both H and I know how to cut corners—no eating out, making do, making old vehicles last and last, only paying cash for vehicles and preferring older cars, etc.
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We keep our vehicles a long time too (his 2013, mine 2006). We do know we COULD save a lot of money by not eating out and by skipping vacation (the COVID era illustrated that!). For now, not needed…. but it’s nice knowing that our splurges don’t require monthly payments to the bank.
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I use Mint.
I think it is helpful to track actual spending for several months. Mint can help you to look backward in time and see where your money went. (You may have to amend Mint’s default categories. For example, Mint puts all Amazon purchases under “Shopping” and I go into my Amazon account to see what I actually purchased and reassign to Clothing or Pets or Home Repair or whatever.)
After seeing where the money went, you can set budgets going forward and Mint will help you see whether you are going over budget in any category.
In setting the budget amounts, I go through this process:
- Put aside 20% for savings off the top.
- Assign budgets to non-discretionary categories: housing, transportation, base food costs for eating at home.
- Don’t forget to budget for periodic expenses that don’t come up every month (quarterly or annual insurance premiums, annual software subscriptions, yearly dues, vacation budget, vehicle registrations, taxes etc.)
- Examine discretionary expenses for areas where you think you are overspending (like too many restaurant meals, concert tickets, extravagant gifts, subscriptions). Tighten the budget in those areas and check each week to be sure bad habits are not returning.
- Look for areas where you can lower expenses. See if a different provider could save you money on insurance or phone service. Take steps to adjust the thermostat or weather seal windows and doors, etc.
- Check the budget once a month to see if there are areas that need adjusting — if you keep going over for Food, maybe your grocery budget is insufficient. If you must increase, try to make a corresponding decrease in another category, like lowering the clothing budget.
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The most important thing to nail down is essentials vs discretionary expenses. Once you figure out the essential expenses—shelter, taxes, insurance, etc, you can see what’s left for discretionary and divvy that up. We have kept cars for 20-25 years. Having no car payments is a great savings.
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We do a combination of @Data10 and @tsbna44.
Put away max of 401k, watch our spending (no Starbucks, bring lunch from home - both adults and students, no eating out unless it is an event), limit impulse shopping, try to buy big items and necessary clothes on sale (and do comparison shopping) and earn more than spend. Kept cars for years (no loans), always paid credit cards in full. In last 20 years we did not use any special software, spreadsheets etc and had no problems balancing our books. This year will be challenging with 3 students in college simultaneously - we will have to dig into our savings, but we should be fine. We will have to minimize discretionary purchases.
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This is all such good advice. DH will be retiring within 5 years and we need a more precise spending record than what we do now (we record outflow, but that’s not a budget). I had never heard of YNAB.
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If you’re starting out from scratch I’d suggest simply tracking all of your spending for a quarter. Track every dollar, put it in a spreadsheet and notate things as being discretionary or not (dinner out, that morning coffee run versus mortgage, electricity, etc). The idea of setting a budget of $X for something is irrelevant if you don’t know what you usually spend.
If you’re a household with a stable income (salaried or consistent hourly) at the end of the quarter you should be able to put together a chart that shows 3 buckets - Fixed/Required, Discretionary, Savings (hopefully this is a + number).
Savings can be used to fuel retirement, vacations, emergency fund and other one-time unexpected costs. You can look at Discretionary and figure out if everything in that bucket is reasonable or not. The stuff that’s in Fixed can be variable longer-term (should you downsize housing, lose a high-cost vehicle, etc).
Once you get to a current baseline of where your money is going you can set up a categorical budget if you like but personally I would only ever use this as a guide and not allow it to make a decision for me “I’d love to join you guys for dinner out but it’s the 28th of the month and our budget says we can’t”.
There’s lots of “expert” guidance around how much you should have in different buckets and such but a lot of it is going to come down to your comfort level and goals.
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Align it to inflow and yes, that’s a budget.
If you’re recording everything are you categorizing it into essential, discretionary, etc?
Are you thinking the budget should be dictating to you where you can/can’t spend?
If DH is 5 years from retiring seems like you got along for a good long time doing whatever it is to this point (for good or bad) why the thinking that suddenly that needs to change?
My 29 year old daughter lets Bank of America do this work for her. She has her accounts and credit cards all linked in one online account. When she goes to their spending/budgeting page it does a great job of showing her spending by category for 12 months. It also includes her income (since that is direct deposited). It doesn’t include any earnings which goes directly into retirement accounts (401 K, etc.), or her spending for health premiums, since it uses her net pay (take home). Another gap is any cash withdrawals, but she uses so little cash that this is negligible. On occasion, she needs to manually adjust an expense to be in the correct category (for example, if she Venmos a friend to pay travel expenses.) It somehow even does her checks properly (she pays her electric bill by check and it puts it into utilities like it should).
I am really quite impressed with their tool and would use it if I had BofA as my main bank (I don’t).
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I don’t officially do either any more (though, I have a pretty good idea of what is going on in general, and know when to rein in spending), but years ago I took the following steps to get a handle on our finances:
For three months, I recorded all spending, and at the end of the month categorized it (now pretty much any credit card app does this for people, but back then it was done in excel). This gave me a sense of how much we were spending on various things, and based on that, I then set a budget. I continued to record and tweaked the budget accordingly. I felt very strongly that it was better to have a reality-based budget than an aspirational one.
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Mint does the same thing for free. Sometimes it miscategorizes something (guesses wrong), but you can manually ho in and change the “rule” so it correctly categorizes going forward.
This is our approach, too, but I think it works best when both parties generally agree on what is reasonable. If you tend to have wildly different assessments, there may need to be more upfront discussion to set an agreed budget and agree to stick to it.
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I agree with CMA. No software or financial advisor in the world is going to be able to reconcile a core difference in how a couple/family wants to live/spend/save.
My spouse loves technology… loves tinkering with /Quicken to get it to give us “lookbacks” on what we’ve spent historically, and do projections on various retirement scenarios.
I am not so excited about a Sunday night spent with spreadsheets- but since we agree on mostly everything (and each have our own checking account for the discretionary stuff) it doesn’t really matter HOW you track. What DOES matter is staying on top of the really big stuff (a mistake in choosing a health care plan can cost tens of thousands of dollars if someone has an accident/bad diagnosis) and paying attention to the little stuff (gym memberships, stupid TV channels you bought to watch one show- and after two episodes agreed- “this is dumb” and yet you’re still getting billed for the channel). My philosophy is that if you are diligent about the big stuff and reasonably careful about the little stuff you are probably ok.
I see so many families where they are making potentially catastrophic financial decisions (no life insurance for the breadwinner but a rider to insure a fancy new watch- which has already depreciated by 50% when you wore it home) so I’m in the camp that if you focus on the big stuff- and at least pay attention to the little stuff- you’ll be ok.
Fees- they matter. Whether you are churning a brokerage account, using the wrong card at the ATM, or routinely having overdrafts-- you are likely paying a lot more for “convenience” than you think.
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