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Easy Budgeting for Non-Budgeters

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Clever Way to BudgetBudgeting isn’t fun. Very few people look forward to tracking all of their purchases, cutting back when they’ve overspent, and adjusting their budget from month to month to meet changing conditions. However, it’s a necessary chore, like cleaning your house or apartment, that you should do because it’s good for your financial health. But so is exercising and according to the Department of Health & Human Services, we as a nation aren’t doing such a great job at that.

When I first started working, I was a very diligent budgeter. I recorded every single expense in a document called a Budget Bible, built from a template my friend Melinda sent me. I budgeted to the penny, the most labor intensive of the five budgeting systems I once wrote about. I kept it up for about six months but eventually I grew tired of it. It was important to budget to get a better handle on my finances, but once I had a handle the daily routine was unnecessary. I went from the most diligent of budgeters to a non-budgeter!

So how do I get back on the wagon? How does a personal finance blogger reform?

Use a personal finance tool. The most time consuming aspect of budgeting is in the tracking of expenses. With personal finance tools, that part of the process is almost automatic if you’re willing to provide your login credentials. I stopped budgeting because it was too time consuming to enter in all my transactions. With that part of the process practically gone, there’s no reason why I shouldn’t start budgeting again.

Unfortunately, the process of recording transactions isn’t 100% automatic. There will still be some transactions that the tools are unable to category or frequently mis-categorize. While they’re slowly improving their categorization algorithms, based on user feedback, the reality is that there are a lot of merchants and it’s often difficult to determine, with 100% certainty, what category something should be in. So, you will still have to do some work, you just won’t have to do quite as much!

Quicken, Mint

My two favorites are Quicken and Mint (there are about a dozen others, but those two are the only two sites I have an account). Mint because they’re so gosh-darn pretty and because they were one of the first and Quicken because it does a really good job of projecting your cashflow. If you’re living paycheck to paycheck and need help getting to the next level, I think Quicken is the best option for you because it tries to predict future expenses and warns you if you may have a shortfall. Mint is for the more personal finance savvy, people who are on solid footing and not in danger of drowning, and are looking to find leaks, make thing more efficient, and generally climb up to the next rung. For example, Mint will track your loans, investments, and property whereas Quicken will not. However, Quicken will try to predict whether you’ll spend more than you earned, where Mint won’t. If you don’t know where you fit, both are free so you can take a test drive to see which one is a better fit for you.

Let’s break down the budgeting process and look at how we can use a personal finance tool to make it quick and easy:

  • Setting Up Your Budget
  • Tracking Expenses
  • Adjusting Your Budget

I’ll show how you can do it quickly in both Quicken and Mint, that way you may not even need a test drive.

Mint

Setting Up Your Budget

In my post about How to Budget, I discussed two ways to set up your budget. The first way is to simply guess at how much you should be spending in each category. The second way is to start recording your spending for a month and then use that as your baseline. Personal finance tools will do this for you as long as your spending was done on a credit card. Cash transactions, obviously, will disappear into the ether, so your budget won’t be 100% accurate. It’s accuracy will depend on how reliant you are on credit cards.

In theory, what would take your hours each month can be done in mere minutes as the tools sync up with your accounts. Here’s what the “Your Budget” screen looks like in Mint:
Mint Budget Overview

I didn’t have to do anything to get that overview. Mint picked some standard categories, estimated my budget, and created that screen. I can, by clicking on the dollar amounts in blue, change what my budget is for a category:
Mint Set A Budget

On that “Set a Budget” screen, you can see not only your historical restaurant spending but the US average as well. While comparing yourself with the US average isn’t going to be particularly helpful (a family of 4 probably spends more on food than an individual), it might alert you to something in a different category. (if you’re curious why my dining is so high, I routinely pay the dining bill with my Citi mtvU card and take the cash contributed by others)

Tracking Expenses

Tracking expenses is a cinch with these types of tools. You just provide your login credentials and they pull your transaction data. Periodically, especially in the beginning, you’ll need to categorize some transactions the tools don’t understand but eventually they learn. The categories are important because they ultimately roll up into your budgets.

Recording your transactions is one thing, tracking how you’re spending is keeping in line with your budget is another. Here’s where Quicken does a better job than Mint. With Mint, you are simply told where you are in the month, how much you’ve spent, and you’re left to do the rest. As you’ll see with Quicken, they try to predict potential shortfalls based on your historic spending.

Adjusting Your Budget

This part of the process is tool agnostic. How you adjust your budget will depend on your needs, though the tools can provide you with some valuable information to help you plan for the future. For example, you should adjust your budget for seasonal changes. It sounds obvious right? If it’s in the winter, plan for higher heating bills. If it’s in the summer, plan for more vacation and travel. But how much is “more?”

Mint does a better job at this. Click on Trends in the top menu. Here, you can adjust the time period of the “Where you spend” pie chart by adjusting the slider below the pie chart. If you want to know how much you spent a year ago, just adjust the period to July 2008 – August 2008. I wish they would adjust the “SpendSpace” chart underneath to be a full year (or let it be adjustable) but they don’t.

Quicken

Setting Up Your Budget

Setting Up Your Budget isn’t as quick as it is in Mint. After setting up your accounts, you’ll want to click on the Goals tab at the top.
Quicken Goals Overview

You add your goals by selecting from the menu below and nothing pops up. There’s no historical data like in Mint, it just appears with the option to edit the dollar amount. All the dollar amounts roll up into the Overall Goal. You can click on Back and Next to see your historical data, if you are tracking anything, but it’s not like Mint where it automatic sets things up.

Tracking Expenses

Recording expenses works just like Mint. It automatically pulls in the data, you’ll have to massage it a little to get the categories right, but for the most part it works the same. Quicken does a better job at trying to predict your future expenses. If it sees that you have a regularly schedule bill come in every month, it will warn you that you may have a shortfall. Quicken uses a lot of reminders and alerts to make sure that you can avoid things like overdrafts and late fees. This is one of the reasons why I think that it’s a better tool for the personal finance novice.

Quicken Spending Outlook

See how the spending outlook gives you an idea of whether you might be spending more than you earn?

Adjusting Your Budget

A few months ago, the amount of historical data offered by Quicken Online was limited. Now, they’ve moved a lot closer to Mint in terms of offering up historical and actionable information to help you adjust your budget. Their “Money Trends” screen looks a lot like Mint now, with a pie chart, the ability to change the time period, and historical information you can use to adjust your budget. While it would be nice to see some of this information on the Goals screen, having it here is better than relying solely on the “average spending” statistic offered on the Goals screen.

Here’s what the Money Trends screen looks like:
Quicken Money Trends

Summary

I looked at how easy it was to set up a budget, track your expenses, and adjust your budget on two of the more popular personal finance tools. Hopefully, if nothing else, it’s shown how easy it is to budget nowadays. No more struggling with Excel spreadsheets or reconciling credit card statements, these powerful and free tools do it all for you.

The great thing is that budgeting is just scratching the surface of these tools. Many of them offer alerts and reminders, such as when you may be spending close to or exceeding your budgets, while others offer the ability to track you investments and give you detailed information about how diversified you may be (or simply think you may be!).

One word of caution though, you are giving a third party access to your financial accounts. It’s a security risk to do so and while many of them claim to have stringent security measures in place, one can never plan for every contingency. I think the risk is worth the benefit but I also recognize that if there is a security breach and my data is stolen, I was the one who gave it to them in the first place. Unless you can accept that, you should avoid giving out such sensitive information to anyone.

(Photo by kevincortopassi)

{ 13 comments, please add your thoughts now! }

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13 Responses to “Easy Budgeting for Non-Budgeters”

  1. CuriousAG says:

    I am using Quicken Online for a while, it has been one of the best and with their new trends graphics it’s getting better everyday. Only thing I think should be added is to refresh all the account at once at a button click, currently we need to refresh each account individually.

  2. Jon says:

    I just started using Mint and I am liking it. I haven’t finalized a formal budget using it yet, but when I get motivated I can tell it will be fairly easy to do.

  3. ckstevenson says:

    Unless Mint has chaned (read: FIXED) their budget tool, I can’t recommend anyone use it.

    Previously, you’d get the auto-budget amounts (based on a historical average). I’d dutifully adjust their amounts to what I wanted them to be, go off and live my life and come back. Loe and behold, the next time I logged in (every single time) the budget amounts were DIFFERENT.

    Mint was auto-changing the budget amounts based on averages. Everytime I categorized an old purchase, or a new one came in (they have great auto-categorizing rules, clunky to learn the first time though), boom my budget was off.

    Can anyone confirm this has been fixed? There literally dozens upon dozens of angry posts about this on the Mint forum about this feature not working correctly. The typically response was “We’ll fix that later.”

    Without a functioning (and real) budget tool then Mint is nothing more than a repository of information.

    The worst part about the auto-budget in my eyes is that if you have a spending part this average is going to be the amount of money you are spending that got you into trouble. Where’s the value in that? If nothing else it should take the average, then subtract 5%, at least that way you’d be spending a little less (and putting that 5% into savings transfers).

  4. Nice post!

    You can budget on the back of a napkin . . . the real challenge is to do it!

  5. Martin says:

    I started with Mint several years ago, but then left it alone.

    I like Quicken but think that is because I am used to the Quicken interface.

  6. Caitlin says:

    Ok, seriously, don’t these programs/sites have an upload feature? Every time one is talked about, one of the things that comes up is the potential security risk of giving them your bank login information. I don’t see why anyone would have to worry about that if they didn’t like the risk, unless they specifically prevent you from uploading information yourself (as in those files you can download from your bank website – not manually adding in every transaction).

    Or do they offer this upload feature, but reviews simply focus more on the ability to give it your bank login information?

  7. jamesdpx says:

    I’ve used both Mint and Quicken Online. I can’t comment much on Mint because I had an account with them for over a month and they still couldn’t find my checking account – even though I gave them the log-in address and everything – so I could never get an accurate picture of my finances.

    Quicken Online found all of my accounts right away and the budgeting tools have been helping, but even they have issues that interfere with my ability to use their service completely. Whenever I put in a paycheck – and I only get paid once a month – and label the deposit as a paycheck, it still won’t recognize it as income. I basically use Quicken Online on my iPhone as a one-stop shop to track my accounts, but I can’t use it accurately as a budgeting tool so I rarely use it at home. I’m contemplating just getting a full version of Quicken.

  8. Craig says:

    Full Disclosure: BudgetPulse.com is a great manual personal budgeting software where we strive on simplicity and functionality. Users who are scared to sync their personal financial information up can use our tool because we do not sync at all, reducing security concerns. If you are an international user who would like to budget, you can use our tool as well since it is internationally compatible. We focus strictly on budgeting. Please feel free to contact me if you have any questions.

    Craig Kessler
    Marketing Director at BudgetPulse
    craig@budgetpulse.com

  9. Craig says:

    @Caitlin Our tool budgetpulse is a manual tool, but we allow users to input their financial bank statements like you have asked for. We don’t sync with any personal account information reducing any security thefts. For someone who is more concerned, they may be interested in trying out our tool.

  10. Hi Caitlin,

    This is Chelsea from Quicken Online. Just wanted to clarify, you can’t import your files into Quicken Online. What we do offer is automatic syncing with more than 8500 financial institutions – and when you do add an account- you’ll get about 3 months of backdated data so you can get helpful financial insights right away. You can export transactions into a spreadsheet for use later if you’d like.

    For everyone else, we posted a deep dive on the newly designed Trends feature on the Quicken Blog a few weeks back. If you’re interested in more about how the product works, check this out: http://blog.quicken.intuit.com/2009/05/27/fresh-clean-and-redesigned-quicken-online-trends/

    Thanks!

    - Chelsea, Quicken Online

  11. Damon Day says:

    Great Post Jim. I didn’t realize that quicken online had dropped the 3 dollar monthly fee. I use Quickbooks myself but for most of my clients I recommend Quicken online. Unless you need the extra functions, there is no point dropping $300 dollars for quickbooks, if you just need basic account tracking and budgeting, free is always in the budget.


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