Budgeting; Tracking Your Money

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Mr. Moneyaire has been tracking our expenses and incomes for over 15 years. He breaks down the way he sees it in this post. Photo by NORTHFOLK on Unsplash

Mr. Moneyaire here, again—hey! As Mrs. Moneyaire has mentioned on other posts, budgeting is a pretty big deal in the Moneyaire household. We meet semi-regularly to review budget status, have a specific review meeting in January to review that year’s budget, and have lots of informal conversations about budgeting throughout the year. Tracking where all our money comes in from and goes out is key to our budget process.

Why?

You might be asking why we do this? Here’s my answer; we do it because we want to try and give a job to every dollar we bring in. If you don’t know where your money is going, it’s probably going away. It only takes about $27 a day in miscellaneous spending to spend an extra $10k a year. If you don’t put your money to work, you’ll always be working for it.

How?

For tracking purposes, I have a macro-enabled Excel file with our budgets for every year since 2008, with all sorts of fun data points for us to look back on. As I’ll discuss more below, I’ve spent a considerable amount of time tracking our expenses across 10 major categories, with a total of 36 subcategories based on the consumer price index. That’s paired with a Quicken program that imports all expenses from dozens of accounts.

Like me, you’re here because you care about budgeting in some way. Let’s start with some categorizing, mostly because I like categorizing things.

Which kind of budgeter are you?

  • Beginner: I would categorize a “beginner” as someone who has an interest in budgeting, and who has probably even downloaded a budgeting application to try it out. You’ve likely tried a variety of methods but never found one that stuck. You know its important to budget (maybe because someone told you it was important) and you think there are some benefits to doing it, but how does anyone possibly do this for 13+ years without losing their minds? I’m hoping to answer that here.
  •  Yeoman: What the heck is a yeoman? It’s a thesaurus word for someone who’s not a beginner or an expert (I know this because I checked). For this article, you’re a yeoman if you’ve actually set a budget (using an app, pen/paper or a spreadsheet) and followed it for a period of time. Maybe you’re still using it but you’re starting to wonder “Why am I doing this?”
  • Experienced: You’ve set and (mostly) followed a budget for several years. You’ve found an app or program that you like to use, and you may have found a way of budgeting that works well for you and your family. You’re here to see what other ideas the Moneyaires have or maybe see how what you’re doing compares.

Begin at the Beginning

If you’re leaning more toward the Beginner camp, I would start with one very simple question—what is a budget?

I don’t mean that question in any kind of condescending way. A budget is obviously a plan for how you’ll spend money over a specified period of time. But what really is a budget? I think a budget is a story in facts and figures:

  • A story of priorities: what do you or your family need to spend money on? What do you want to spend money on? What needs to be paid for before you can spend money elsewhere?
  • A story of accountability: have you generally overspent in some areas to the detriment of others? Can you effectively save money in “dining out” to save more money for the future? Did you stick to the plan?
  • A story of history: are you spending more now than you did in the past? If so, where, and why? What are the specific trends in your spending over time, and do they make sense?

Starting your story; a beginner’s framework

How do you want to tell your story?  First, start simple – track what you’re already spending and where.  Pick just a few categories to start; then, as you get more comfortable with tracking, you can expand. 

Consider starting here:
  1. Think about areas where you might be spending too much money; an easy one is dining out. Try to identify 3-4 areas where your spending fluctuates each month—I would recommend dining out, clothing, and leisure (i.e., buying movies, books, games, etc).  Don’t try to capture all types of spending…just focus on a few.
  2. Write down a number for what you think is reasonable for each of those 3-4 areas in a month-long period. I recommend splitting that number into 4 (an amount for each week) to see if that number is still reasonable.
  3. Keep track of what you spend each week in those four categories, then total it at the end of the month. At this point you’re not trying to reconcile what you can afford, necessarily. You’re aiming for a simple tracking activity to exercise your ability to track this kind of info.

Use something like this:

CategoriesWeek 1 SpendingWeek 2 SpendingWeek 3 SpendingWeek 4 SpendingBudget for MonthVariance
Dining Out
Clothing
Leisure
Total
Start by tracking expenses. Don’t get overwhelmed or picky about categorizing things. Just pick a few categories you typically spend on every week and track your expenses for a month. Expand as you get comfortable tracking your expenses.

4. Your variance will be what you budgeted minus what you spent over the 4 weeks. The goal would be to have a positive number left over (i.e., underspending). Boom! Budgeting!

Yeomans!

If you think you’re in the Yeoman category, you are maybe reading this article for some inspiration to keep going with your budgeting. You have a history of data, great—now what? Has it really changed how you spend? Why keep it going? And why the heck have the Moneyaires kept up their ridiculous data collection for 14 years, other than to create some cool graphs?

For me, the goal of creating a budget is generally to hold myself accountable for our spending. We have plenty of unanticipated spending that happens throughout a year that doesn’t fit into the budget. We don’t always fit our food spending into the dining out or groceries budget, and our vacation budget can sometimes be a bit jarring (we spent WHAT on travel this year!?).

We spend quite a bit on travel. No worries! Its been budgeted for! Photo by Annie Spratt on Unsplash

Motivation

My motivation to keep budgeting comes from a few different areas:

  1. Change Management. Our income generally goes up every year… except when it doesn’t. When we decided that Mrs. Moneyaire would stay home with Baby Moneyaire, we lost her salary. Our budget clearly delineated what would happen if she stayed home, and we were able to tell exactly where spending would need to be cut. It enabled faster decision-making because we had both the history of our spending and the tools to see if we could survive a big change.
  2. For the joy of it. It’s trueI enjoy budgeting. Not everyone enjoys tracking what they spend, and I’m at the far end of the spectrum when it comes to information synthesis and analysis. But you don’t need to love data analysis to enjoy budgeting. You can find joy in budgeting from seeing the results—having more money to save, allocating more money to stuff you enjoy and less to things you don’t, and most of all to having as little debt as possible. Find what makes you happy about budgeting and figure out the best way to emphasize that.
  3. Growth over time. Budgeting is the clearest way to see how our lives have changed over the years and how we’ve changed too. I made $40,000 15+ years ago and make quite a bit more than that now—how has that changed my budget? I have months now where I spend more on mortgages (i.e., for our house and rental properties) than I made in a month in 2005. We budget according to our needs now and not how we would’ve budgeted 15+ years ago. Sticking with budgeting as a life management exercise allows you to see in actual numbers how your priorities shift over time, and they tell their own story in a way nothing else does.

Experienced Budgeters

If you’ve read this far, you may be wondering what this article has to offer you, the budgeting guru. Maybe you have your own methods of tracking that don’t resemble anything I’ve discussed so far, or maybe you have a parallel Quicken/Excel combo that beats Mr. Moneyaire’s (if so, please comment below so we can talk!). To wrap up this article, I’m going to quickly cover a few of the more “advanced” budgeting tricks I use to both track expenses and keep us on track:

  • Consolidation: I keep a single sheet in Excel where I track year-over-year costs (tied to a more detailed sheet with monthly expenses) so I can see what we spend each month. With 14 years of monthly expenses, I can quickly see when we generally spend more money (April – July, usually), our yearly increase in spending by category (oy—for housing, you don’t even want to know!), and what our yearly percentage increase has been in spending overall. Deciding on a single platform for managing this information in a budget can help you gain better insights into your data, and make building a budget easier.
  • Automation: I use Quicken to automatically ping our accounts and download transactions. Quicken will then pick a category of spending for each transaction (with maybe 50% accuracy) and that helps me categorize later once I’m done with manual updates. For this reason, we really try to stay away from using cash for any purchases since cash can be really difficult to track and categorize. Plus, you miss out on all of the fun credit card rewards if you’re constantly using cash. Once I have all of my transactions in Quicken (which really does have perfectly acceptable analysis tools that I just choose not to use), I transfer key stats like spending per category over to Excel. I let Quicken do the hard work of gathering all of my spending details and information, and then I spend more time on the analysis part of budgeting.

Visuals

  • Visualization: I created a couple of graphs in Excel using our budget information that help to show key metrics:
    • Total expenses and income
    • Trends by category

I like to be able to customize graphs to show exactly what I want to see, and Excel provides great flexibility for this. Sometimes a visual tells a clearer story than rows of data and I highly encourage all budgeters to make your budget information as visually engaging as possible. I’ve included a couple of sample graphs (with the dollar amounts removed) below for reference.

Graph #1

Is a subset of our total expenses, deductions, income and savings from 2007 to 2021. As you can see, we generally had a couple of bonus periods each year, and even a couple of periods when we had negative savings (doh!). The general trend of the graph is increasing income and expenses over time, though we’ve generally been able to keep the total expenses below monthly income. For the curious, the big income spike this year was a payout for an investment condo that was purchased by a real estate developer (woot!).

A visual view of your tracking data can help you understand trends and outliers.

Graph #2

shows spending by category (in dollars) over a similar time period as graph #1. I’ve removed the actual dollar amounts to focus on trendlines. Most noticeable is the big increase in housing spending and leisure/travel over the years. As we bought more investment properties and had more money to travel, those categories showed the biggest overall impact. Most categories are fairly minor expense categories in comparison to these.

  • Standardization: I used the consumer price index categories to build our original budgets and I’ve stuck with that format since the inception. Rather than try to come up with my own categories, it was easier to just use what the CPI does to standardize. Standardization for how you budget will allow you to clearly see trends over time and it will reduce the amount of time it takes to track your expenses in a detailed manner.
  • We budget according to the follow categories and all tagging done in Quicken corresponds to these:
    • Food
    • Housing
    • Clothing
    • Transportation
    • Healthcare
    • Leisure/Travel
    • Education
    • Insurance
    • Miscellaneous
    • Baby Moneyaire (*new in 2020!).

Mr. Moneyaire’s Sunday Morning Ritual

Before Baby Moneyaire, I would usually spend 1-2 hours every Sunday updating our finances. Since Baby Moneyaire, I usually only do this maybe once or twice a month, but the process is the same. I start by synching all accounts in Quicken, then reassign spending categories as needed, then transfer key data points for the spending categories to Excel for further analysis. It sounds like a fair amount of work, and it does take a while to set up originally. But once you have a process that’s repeatable, it becomes a routine that takes less time. It gives me clear visibility into what we’re spending money on (and how much) so we can review any issues before things spiral out of control. I’ll dive more into this review process in a future post.

Budgeting is Fun?

Budgeting is fun!!! Or, at least try to find the joy in it 🙂 Photo by Hello I’m Nik on Unsplash.

As it is with all things, find the joy in budgeting if you plan to stick with it. I find it fun to figure out what we’re going to spend our money on, and then check in to see if we’re following the plan. I enjoy hearing how Mrs. Moneyaire’s goals may differ from mine, and seeing how that translates to actual dollars every month or year. I most enjoy tracking our net worth increase each year because we’ve made good decisions and tracked our spending effectively. Find the joy for yourself and then, most importantly, stick with it!

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