How do you implement budget / tracking

[mrWinter]

I'm looking for suggestions on how to implement sticking to a set budget. Budgeting is simple in concept, but what methods actually work for keeping track of spending of a certain category, maintaining visibility of it, and restricting spending beyond a certain point?

I'm thinking of trying to set a budget for optional incidentals for things like dinner or drinks out, drinks at home, new clothing, house cleaner, new toys for the kids (although maybe that shouldn't be part of the same bucket), etc. but I don't see any plan to implement it to pitch to my wife that would go over well. If I just say, OK we need to spend no more than XXX on optional stuff each month, now track all optional purchases and sum them up and stop when you hit the limit, It's just not going to happen. I need to have some method in mind that is effortless but effective.

My best idea for now is to create a separate checking account, and automatically transfer funds to that account each month, then make all optional purchases either to a debit card for that account, or to a separate credit card that we set up to be paid by that account.

I still see the following problems with that plan though:

• That sounds like too much work to likely be really implemented, just the prospect of having to consciously choose which card to use for each payment seems likely to be ignored or forgotten. Maybe it would start out strong, but after many months be forgotten.
• It's easy for expenses to escape tracking by being purchased with the wrong card.
• if we go the debit card route then you could run into overdraft fees, or a problem where you are for example out and need to pay for drinks when the check comes but don't have enough money, so you need to use another card and either allow the expense to escape or somehow manually track and make up for it later.
• The credit card has no real constraint, we could rack up any balance despite how much is in the reserve account..
• Before deciding to make any purchase or not, I guess we'd have to log into our bank account app on our phones and check the current balance. This seems very likely to not be done before every purchase, but maybe would be checked once a week or so.

Maybe just establishing the visibility by putting optional purchases on a separate credit card would be a win.

I guess my fantasy setup is two separate 'optional spending' accounts, one for each of us. It would be awesome if we could have set budgets so we know we don't go over a limit, but every now and again when we see we have the money in the account could enjoy guilt free treat-yo-self purchases. I loathe spending money now, and never want to treat myself, even more so because I feel like I need to make up for my wife's spending by trimming my own.

We've got two toddlers at home and have just about 0 extra time on our hands so I can't see successfully trying to add additional chores to our life right now, but income may be diminishing soon so I'm trying to prepare for how we'd trim down if needed.

As I type this I'm thinking, of course, if my wife isn't on board with the whole thing then it just isn't going to work, so what system can we use that is the easiest to get on board with?

[OldShooter]

What is the problem that you are trying to solve?

[marko]

Here is what we do:
We have a fixed, core set of monthly expenses (utilities, cable, weekly cash allowance, car leases etc) Except for the cash allowance, most of them are on an annual payment budget so that the cost is the same every month.
All of these are paid automatically from our checking; we know exactly what our monthly expense is on these.

Everything else --variable and discretionary spending-- is paid for via one credit card (dining, travel, clothing, gasoline, boat, groceries). It turns out to average about the same amount of money every year, just on different things, even if the month to month might be lumpy. Of course we pay the balance in full.

We also set up a daily balance alert so that we know if we're ahead or behind our planned expenses at any point in time. We're fortunate that we don't stress it if we go over once in awhile but it does give us a sense of what we're spending, if not exactly what we're spending it on unless we do a deep dive.

We're fairly stable in our lifestyle/spending but if you have two toddlers and a spend-y wife, this may not work for you. You may also consider something like Mint which will give you good history and overall tracking.

[kgtest]

Quote:

Originally Posted by mrWinter I'm looking for suggestions on how to implement sticking to a set budget. Budgeting is simple in concept, but what methods actually work for keeping track of spending of a certain category, maintaining visibility of it, and restricting spending beyond a certain point? I'm thinking of trying to set a budget for optional incidentals for things like dinner or drinks out, drinks at home, new clothing, house cleaner, new toys for the kids (although maybe that shouldn't be part of the same bucket), etc. but I don't see any plan to implement it to pitch to my wife that would go over well. If I just say, OK we need to spend no more than XXX on optional stuff each month, now track all optional purchases and sum them up and stop when you hit the limit, It's just not going to happen. I need to have some method in mind that is effortless but effective. My best idea for now is to create a separate checking account, and automatically transfer funds to that account each month, then make all optional purchases either to a debit card for that account, or to a separate credit card that we set up to be paid by that account. I still see the following problems with that plan though: That sounds like too much work to likely be really implemented, just the prospect of having to consciously choose which card to use for each payment seems likely to be ignored or forgotten. Maybe it would start out strong, but after many months be forgotten. It's easy for expenses to escape tracking by being purchased with the wrong card. if we go the debit card route then you could run into overdraft fees, or a problem where you are for example out and need to pay for drinks when the check comes but don't have enough money, so you need to use another card and either allow the expense to escape or somehow manually track and make up for it later. The credit card has no real constraint, we could rack up any balance despite how much is in the reserve account.. Before deciding to make any purchase or not, I guess we'd have to log into our bank account app on our phones and check the current balance. This seems very likely to not be done before every purchase, but maybe would be checked once a week or so. Maybe just establishing the visibility by putting optional purchases on a separate credit card would be a win. I guess my fantasy setup is two separate 'optional spending' accounts, one for each of us. It would be awesome if we could have set budgets so we know we don't go over a limit, but every now and again when we see we have the money in the account could enjoy guilt free treat-yo-self purchases. I loathe spending money now, and never want to treat myself, even more so because I feel like I need to make up for my wife's spending by trimming my own. We've got two toddlers at home and have just about 0 extra time on our hands so I can't see successfully trying to add additional chores to our life right now, but income may be diminishing soon so I'm trying to prepare for how we'd trim down if needed. As I type this I'm thinking, of course, if my wife isn't on board with the whole thing then it just isn't going to work, so what system can we use that is the easiest to get on board with?

I don't get more granular than "Kids' category in my budget. I did/do separate diapers and daycare, along with healthcare costs. All of which theoretically decrease under a future ER budget.
Which leads me to next point, I have a current budget, last years budget and next years budget. then I have ER budget. All are in a pie graph next to each other so I can see how they compare visually. I color code essential spending like taxes and insurance in RED and things that can be reduced in BLUE and Money saved in GREEN. The bigger the green and the smaller the red, the better.

[COcheesehead]

I am more like Marko.
I use a google docs spreadsheet and I track only 6-7 categories with the big catch all category being "credit card" which includes groceries, gas, etc. I let the expenses fall where they may and use a balancing category called mad money.
In the mad money category we throw all our credit card cash rewards, eBay sales, any "found" money. Then if we go over our planned expenses that month, I take funds from the mad money account to balance things out. If we under spend, I put the excess into the mad money account. If the mad money account grows to over $5000, I invest some of it.
I have been doing this for years. It has helped us to save a lot (over 50% of our income), keep us on track, but not drive ourselves nuts with tracking minutia.

[mrWinter]

Quote:

Originally Posted by OldShooter What is the problem that you are trying to solve?

Problem 1 hasn't really manifested yet, but if our income does end up diminishing as I'm afraid it may soon do, then given our current spending we will have problem 1) spending more money than bringing in.

Problem 2) (already happening) is that I have little sense of whether or not I or we are okay to make any given purchase. I always need to save more, and spending hurts. I could relax and enjoy things more if I knew I could make a purchase and still stay on our financial plan. Can we get a sitter this weekend and go out for a nice ($150) meal for the two of us? Or do we need to go somewhere tasty but less fancy and drink beer instead of cocktails? Or do we need to wait and schedule that for next month? Can I buy some more boxers, or do I need to just keep tearing off ragged edges as they appear, slowly converting to loose pairs of briefs? Should I check with my wife to make sure she's returning the majority of that stitch fix box that just showed up (and piss her off in the process)? Or can I put my feet up while enjoying marital bliss knowing that it's all part of the plan and if that's what she values spending money on that's fine with me.

[24601NoMore]

Quote:

Originally Posted by mrWinter Budgeting is simple in concept, but what methods actually work for keeping track of spending of a certain category, maintaining visibility of it, and restricting spending beyond a certain point?

Sounds like you're attempting to address multiple issues (including getting a handle on discretionary spending), but to the point above - the single best way IMHO to track spending by category and have visibility to it is a tool like Quicken.

Quicken has a built-in budgeting module, that allows you to set expected spending (and income) by category and even sub-category (eg: Auto/Gas, Auto/Car Payment-His, Auto/Car Payment-Hers) by month, and even across years.. it comes with default categories "out of the box" but you can customize and add or turn off categories to your heart's content.

We've come up with a pretty detailed list of categories over the years and enter EVERY penny we spend - be it our one credit card, checking, savings, cash (which many others programs don't track), etc.

Then, we run a report (also out of the box but you can customize as much as you want) on income and expenses, by category over various time periods (usually monthly, but quarterly, YTD and custom time periods are also supported).

The hardest part about this is entering everything. Quicken does support auto-download but in my experience the best way to ensure everything is categorized correctly is do it yourself. If you dedicate a little time to it every week (say, first thing Saturday morning), you can keep up with it pretty easily.

On the final part of your question ("restricting" spending) - that's something only you and your wife can do. But having INSIGHT into what you actually DO spend, down to the detail level makes those conversations infinitely easier as you can see where all your hard-earned $$s are going, and what (if anything) is left over at the end of the month for savings and other investment purposes.

I'm a big believer that everyone needs a budget to know what your spending actually is. Some prefer to just look at their accounts quarterly, yearly, etc and net it out from there, but I prefer a much more granular level of detail so that I can know by category where our $$s are going. We never would have been able to ER (me mid 50s, DW early 60s) without that level of financial insight.

Hope that helps..

[scrabbler1]

I am a lot like Marko and COcheesehead. I keep track of the easily identifiable expenses such as housing, utilities, insurance, car maintenance, and medical costs. I have a few catch-all categories such as cash and credit cards (after diverting other unique items from the CC) but I don't split them out any further.

[24601NoMore]

Tracking the big ticket items (cars, housing, utilities, medical, etc) does cover a good chunk of monthly spend for us, but sounds like OP has an issue not knowing where his DW is doing her discretionary spending, or even if given that discretionary spending they're good on the next expenditure.

Unless the issue is only "can we spend X$ more" and still stay within our monthly total spending plan, it does sound like knowing where the $$s are going at a more detail level is going to be needed in this case..a "mad money" account is just going to show a potentially big pile of $ every month with little to no idea what the $$s got spent on unless broken out and tracked at a more granular level..

We have all of our recurring (Auto, Housing, Insurance, Medical Premiums, etc) categories in Quicken, and one top-level category ("Shopping") that has sub-categories like Clothing-His, Clothing-Hers, Computer Hardware, Software, Hobbies, Fitness, etc. This is our "variable" category and we can easily see what discretionary $$s we're spending every month beyond our "core" housing, medical, etc..(for example, I just bought a new pair of running shoes to work out in, so that went under Shopping/Fitness). Most of our core categories are pretty constant month by month, and it's only our Shopping (and Food) categories that have that much variability. And we break Food down further by Grocery, Restaurants, Libations, Coffee Houses, etc..but, then again, I'm a bit of a data geek and that approach isn't for everyone. But I do really like seeing where our $$s go every month, especially now that I'm ER'd.

[24601NoMore]

One other quick thing - once you know your core and discretionary spending levels, you can put this into your long-term financial plan by year. I include both of these as an offset against expected income (eg: from CDs, eventually SS - neither of us have pensions), and increase by expected inflation percentages yearly. You can and should also include expected "lumpy" spending (new roof, new car, etc) in both your annual budget and long-term financial plan..

[CRLLS]

Back years ago when I actually made a budget, on paper none the less, I got paid every 2 weeks and knew what that paycheck was expected to be used to pay, whether we had the bill yet or not. I knew we had enough to cover expenses on that budget. 2x a year, I got a 3rd paycheck that we could use to splurge on whatever we want.

Today, I have a budget that I do not use to actively manage cash flow with. I use it to help know our expenses and to plan for our future "needs and wants". For example we have every insurance premium, every recurring bill, and annual RE taxes identified. We also have a big category called travel which is not itemized. I just finished my 1st full year of full retirement and looking from the 10,000 foot level, we came in very close to expectations. I really don't care if Category A was 1,000 over or if Categories D and F were 500 less each. trying to track food, clothing and personal health items when we get 1 combined receipt from Walmart is too much work and error prone to be bothered with for us. Throwing everything into one big miscellaneous category isn't good either. It all sort of worked out as expected.

None of this will help you to get your wife "on-board". IMO, having 2 separate personal spending accounts may not work either if you both go out for that $150 dinner! I do know only 1 couple that has separate banking accounts. They split all expenses down the middle. Each paid 1/2 the mortgage, 1/2 the electric bill etc. Not something that I would try to get my SO to buy into.

[RunningBum]

Maybe you want to look over these old threads for ideas, easily found by doing an advanced search on "Tracking" in the title only:

http://www.early-retirement.org/foru...ing-94116.html
http://www.early-retirement.org/foru...ing-89758.html
http://www.early-retirement.org/foru...ing-78039.html

[davebarnes]

"How do you implement budget / tracking?"
I don't as it causes too much marital friction.

[W2R]

I don't have a budget, but just track my spending very carefully. I don't know if my method would work for the OP, but it might.

I have an Excel file with a worksheet for the present year's spending. Every time I spend anything, I enter the date, the amount, the category, and exactly what it was for, within a day or two. Every few days I double check my credit card, bank accounts, and wallet, to make sure everything balances and that I didn't forget to enter everything I spent. All of this takes very little time, maybe 5-10 minutes on most days, and I enjoy doing it.

At the end of each month I total up my spending for each category and enter the totals on a summary page for that year's spending. At this point, I spend some time scrutinizing my spending and get a good feel for whether I am spending too much or too little, and what categories I should work on adjusting. I also do this if/when I am considering an unusually large purchase, such as my Dream Home.

Once I know how I am doing, I sort of automatically adjust things as I go. I am not strict with myself about this because I don't need to be. Besides, I have been poor before so usually I underspend anyway because of those past experiences.

[OldShooter]

Quote:

Originally Posted by mrWinter Problem 1 hasn't really manifested yet ... Problem 2) (already happening) is that I have little sense of whether or not I or we are okay to make any given purchase. ...

OK, got it.

I use Quicken but there are several other better programs out there. I have all of our investment accounts plus my two checking accounts in there. (God forbid I would track DW's checking. )

In all cases I download transactions from the institutions. We'll forget the investment accounts, just talk about checking:

For each check and transfer it is possible to assign the cost to a category. You can have as many categories as you want and, as a check or debit card transaction comes in Quicken learns from you, then knows the payee and assigns the cost to the appropriate category. No real work involved except a few clicks for the download and a review of the automatic assignments.

The only work I do is to manually enter each Visa bill charge and assign it to a category. The Visa just comes in the download as a lump. YMMV though as to whether you need the additional detail that comes from breaking it down. (Debit card transactions download individually, so no work with those.)

After a few months of this, you'll have ironed out your categories and you'll start to see what your spending in each one looks like. You can look at spending reports for any period. IMO this would be a good way to decide on what level of detail you want to track.

I've never used the budgeting capability but I'm sure you can budget by spending category and have budget vs actual reports as you like.

I would suggest you stay away from Quicken. It's former owner, Intuit, is IMO kind of a slimy company. It is now spun off with some of the old management and they have gone to a subscription model where they collect from you every year whether they do anything for you or not. There are other similar but less costly programs out there; I'm sure a search here or on the internet will find them for you.

So, bottom line I'm suggesting that you use a few months of actual spending to figure out categories that work and spending patterns, then start to look at budgeting them.

As far as "restricting spending" I don't think software can do that for you.

[Dtail]

Like a few others on this forum, I develop a yearly/monthly budget and keep track of all expenses broken down into 18 categories on a daily basis, except if on vacation (then catchup later).
Seems like overkill, but it takes 5 minutes daily with automated roll up of excel sheets.

[Jerry1]

You sound a bit like you’re in panic mode. All the advice above is good and you certainly should have a budget. Personally, I’d stick to a few large categories, something like ten.

However, in panic mode and, reading between the lines, to get you and DW on the same page, I would start with a program I call forced savings. Force yourself to max out your IRA/401K. Force yourself into a 15 year mortgage or to double your current payment. Force yourself to put $X dollars in a separate, do not touch account.

What this does is gives you a chance to breath. If you can stick to those forced savings and pay the rest of your necessities, then at a minimum, you’re at least okay and probably better off than most, especially if the $X dollars saved in the do not touch account is more than 10% of your take home pay. Even 5% would be good.

Basically, secure the big things (forced savings) and then focus on the rest using the budget and figuring out how you and DW will come together on your finances.

[COcheesehead]

Quote:

Originally Posted by Jerry1 You sound a bit like you’re in panic mode. All the advice above is good and you certainly should have a budget. Personally, I’d stick to a few large categories, something like ten. However, in panic mode and, reading between the lines, to get you and DW on the same page, I would start with a program I call forced savings. Force yourself to max out your IRA/401K. Force yourself into a 15 year mortgage or to double your current payment. Force yourself to put $X dollars in a separate, do not touch account. What this does is gives you a chance to breath. If you can stick to those forced savings and pay the rest of your necessities, then at a minimum, you’re at least okay and probably better off than most, especially if the $X dollars saved in the do not touch account is more than 10% of your take home pay. Even 5% would be good. Basically, secure the big things (forced savings) and then focus on the rest using the budget and figuring out how you and DW will come together on your finances.

Yes, this ^^ Pay yourself first...until it hurts. Then spend the rest.

[COcheesehead]

The other thing that I think helps our marital financial situation is my wife has her own checking account. I never include it in any of our financial planning. She spends it however she likes. I don't question it. I assume in the big picture its worth $0, though she probably has a few grand in it. Happy wife, happy life.

[Montecfo]

When I was first trying to get a handle on things I analyzed 3 months of credit card bills to analyze spending. Thus was on paper back in those days.

Then we both reviewed it and our reaction was "wow we are spending a lot eating out!".

So we made conscious decisions to try to limit this to X so we could save y. We redid the exercise periodically.

The review process was to get her on same page. I did not dictate a budget. We found we did not need to budget specific categories in those days, just review the most discretionary.

Now we use Quicken but principles are the same. Good luck.