What do I want? What do I need? Why do I want it? What's in it for me?

January 21, 2012 8:03 PM

Some general and specific questions about bringing your budget classification terms in line with published guidelines. In your personal budget, how do you classify fees like overdrafts, ATM fees, ATM refunds etc? What about taxes paid and refunds received? How do you determine wants and needs?

I have a spreadsheet where I have one sheet for budget and one sheet for transactions. This way I can correlate my budget with actual transaction data so it's realistic when I make decisions and so I can see how I'm doing.

So each transaction and budget line item has two columns, budget label and budget category. Budget label is specific stuff like "ATM refund", "Overdraft", etc. In the other column I had it these under "fees", which is all well and good - when I do my calculations, I can see how much I spend overall on "fees".

The problem is that I'm realizing that these terms don't fit in to the usual recommended budget categories/percentages, such as in this thread. I was looking to see if my budgeted allocations are more or less in line with the recommendations.

I also tried to add a "need/want/savings" designation to each category, to figure out if my spending fit into the "50% needs, 40% wants, 20% savings" structure but I have a hard time distinguishing needs from wants at that high level.

I'm also not quite sure where to put taxes, my husband's expenses, What do you think? Any recommendations or observations?

posted by bleep to work & money (10 answers total)

I think these percentages are usually calculated on post-tax income. So you should keep tax as a separate category, and run your calculations as "(expense divided by (income minus tax))*100."

ATM fees are a need, not a want, unless you are incurring them by being lazy and going to ATMs that your bank charges extra for because they are closer. Then I'd class them as a want.

Refunds are refunds on expenses, right? So they should always cancel out. I tag expenses that will be (or have been) refunded as "to refund" and refunds as "refunds". Then I just check that these balance, and ignore them otherwise.

Overdrafts are trickier. I would say it shouldn't matter what the source of the money is, for the sake of your spreadsheet - only what you spend it on. So you are taking money from your overdraft for a specific purpose, right? So classify it as that purpose. The only problem will be if using your overdraft means your spending is coming in at more than you earn post tax, which will make your percentages not work out. But if that's the case it's good to know, and you have to fix it.
posted by lollusc at 8:34 PM on January 21, 2012

Oops, I was imprecise in my language, by "ATM refunds and fees" I meant the ATM fee transaction and the accompanying refund from my bank (they put an amount equal to ATM fees I racked up back into my account every month). I'm thinking of adding a category called "Bureaucracy" or something.

As for overdrafts I get them frequently because it's several transactions coming in at once that overwhelm the amount currently in there (this is part of why I'm starting to pay close attention to my transactions..) so it's hard to allocate them that way, know what I mean?

Also, I already have all my income as post-tax. Like under "Income" I have, for example, $600 which is the amount in my paycheck, as opposed to $800 which is my pre-tax amount. I just consider that lost money, and my tax refund as found money.
posted by bleep at 8:46 PM on January 21, 2012

I classify overdraft fees as 'want', because I know that if I managed things properly they would not happen. If you know that no matter what you do, you will end up with an overdraft on your last bill of the month, I'd call that a need. The ATM fees I'd call a want, and then when you get the refund, you have more 'want' money available again.
posted by jacalata at 9:03 PM on January 21, 2012

I have a category just called "bank charge" for things like that. One of my many goals is to get that number to net zero. (That is, ATM fees are positive numbers, ATM refunds are negatives.) It makes it easy to see if any money is being lost to the bank and where.

Re need/want, I keep the categories sharply defined. Example: something like "food" would be too broad; it would include groceries (need) and take-out pizza (luxury). So I have "groceries" and "dining." I also have "entertainment," which is normally like movie tickets, etc., but if I stopped by the store for some beer on the way to a friend's to watch a game, I'd chuck the grocery receipt into "dining." I try to keep the categories few (so I don't have to work while categorizing) but no fewer than required.
posted by introp at 9:04 PM on January 21, 2012

As for overdrafts I get them frequently because it's several transactions coming in at once that overwhelm the amount currently in there


Ouch. I think I would focus on making this the "Never" column. Use your tax refund to build a cushion in there so that this doesn't happen anymore. It's nice to know your checks are covered, but you're giving them $30 a pop for absolutely nothing.
posted by halfbuckaroo at 8:08 AM on January 22, 2012

I don't use any commercial budgeting software, but my system works for me. I have a category called "fees and penalties" and in there go any overdrafts, bank fees, and even things like parking tickets. Almost anything in this category is preventable, so like introp my goal is to keep it totally free of charges. I'm lucky that my bank, a local one, charges no access fees to any ATM in the world, so I don't incur any of those charges.

As for overdrafts I get them frequently because it's several transactions coming in at once that overwhelm the amount currently in there

Agreed - remedy this! You really should never have to pay an overdraft charge. Every time I find I'm paying one it's because I just plain messed up - I didn't predict my expenses well, I tried to play the 'float' and failed, I forgot to note a check I had written and so my balance was off from what I thought it was, etc. These are all solvable and should be a high priority. $30, $60, $90 -if you do it more than once it a blue moon, that quickly becomes real money.

What I do to avoid overdrafts is that I have my savings and checking accounts linked, and when I balance my account (I keep a running balance and check it several times a week) I make sure there is enough in checking to cover outstanding payments. If there isn't, I just transfer a sufficient amount from savings to provide my own sort of overdraft protection. Then when I get the next paycheck I transfer that amount back so there's no net loss to savings in the long run, assuming I can do that that week.

I get refunds on my debit card use and interest on my checking account. I pop those into my "income" category alone with salary, payments for small gigs, windfalls, etc.

All my accounting is done post-tax as well.

AS far as need/want, I learned a good tip on MeFi which works for me. I have a "grocery" category which is for all food purchased to eat in the home. This also functionally includes snacks I keep at work to get me through the day and prevent splurges on junk food, and often snacks to eat in the car in place of a meal or on a road trip. This category also includes alcohol purchased to drink at home. The rationale is that food and drink at home are less costly than, and an alternative to, food and drink out, and if they're part of our household provisions, they go inthis category. I have a three-line entry in all my categories, so I enter the date, a tag ("Grocery" or "alcohol"), and the amount. At the bottom of the column I tabulate how much went to each, each month.

But food and drink consumed out are really a different thing than food and drink used for daily sustenance. They are an indulgence and a luxury and an entertainment. For this reason, I have a category called "Discretionary." It includes tags for the following things: dining out, drinks out, tickets and fees for entertainment events, media (books/CDs/magazines/software/DVDs and rentals/games), and stuff I purchase for hobbies or projects. I really like this system. At the bottom of the column I can tabulate how much we spent dining out, how much we spent on media, how much on tickets, etc. And month to month and year to year, I know how much I'm spending on luxuries that we don't need to get by. That makes this category super easy to cut from when things are tighter. Just reduce spending in "discretionary" overall each month, and there's some savings.

For reference, my budget lines are: Grocery, Household, Discretionary, Pet, Health/Personal care, Clothing, Gifts/Holiday, Credit Card payments (I'm working on eliminating debt), Fees/Penalties, Auto/Transportation. I've been using this basic pattern about 5 years and consolidated it down to this. The tagging makes it a thousand times easier. Entering expense by line, I can also bold or highlight certain expenses that I'll either claim on my tax deducation or use to get my FSA reimbursement or similar. It's easy to pull out expenses that cross categories like that.

The whole thing ends up with an "income" and "Expense" line for the month, which I compare to see if they're over/under and compare to same time last year, and a "savings" line. If you've come in under budget you can pop that into savings and/or use it for a savings goal like a new purchase or even as a windfall to have a little fun with.
posted by Miko at 9:24 AM on January 22, 2012

Okay I've re-shuffled it up based on y'alls input (mostly the realization that I can't really go by need/want just because it's not precise enough for me - does looking professional count as a need or a want?) and here's what I have:

Survival: 50%
- Food (I can't penalize myself for eating out, otherwise I would just not bother budgeting)
- Health
- Transport
- Living space (rent, gas, electricity, home improvement..)
- Non-reimbursed work expenses

Not survival: 30%
- Modern living (Cigarettes, dry cleaning, taxes, internet bill, cellphone bill, media consumption..)
- Super fun (Travel, Christmas, classes, etc)
- Penalties (Fees AND refunds, overdrafts, interest, late fees etc.)

Investment: 20%
- Saving
- Charity (This will be my goal for 2012...)
- Stuff that zeroes out
posted by bleep at 2:58 PM on January 22, 2012

I don't see: Personal care (haircuts, manicures, massages, gym membership, etc); household expenses (unless they're in 'living space' - light bulbs, TP, cleaning supplies); medical bills/copays/medications/dentistry, or clothing.

Not saying you have to budget these as their own lines but they're the kind of thing that, if you're overlooking them, you're going to end up buying as an unpredicted expense and not knowing where to log them. Basically, you want to make a home for every possible kind of expense you might have over the year. Expenses you don't budget are going to act like surprises that send you over the limit but leave you wondering why, since they don't seem 'real' somehow.
posted by Miko at 9:09 PM on January 22, 2012

Personal care=modern living (necessary requirements for modern living such as looking professional etc) ("personal care" is not precise enough for me), household expenses=living space (or more likely "supermarket", under food, because i don't usually buy that stuff separately), medical,dental,fitness=health, clothing=modern living
I know I have to have a label for everything, that's why I posted the question in the first place. It was just that my homegrown labels didn't sync up that well with published guidelines. Now they do though.
posted by bleep at 6:12 AM on January 24, 2012

I budget with a significant other who finds budgeting not just a chore but an anathema. We get 80% of the way by grouping expenses as "household", "kids", "groceries", "individuals", where individuals were each person. After three months of budgeting, 98%+ of expenses were clearly identified, and I'm fine to throw any new ones in the pool. You don't need to know to each cent where the money goes, just where it ends up proportionately.
Just to help with your budget - we spend 20% on house payments, 10% on food, 20% on utilities, 10% on a car, 10% on kids (sport fees, music lessons etc.), 20% on adult's discretionary, 5% savings, 5% eating out, and that leaves no room for misc. If I was setting up a budget, i'd leave 10% for misc.
posted by bystander at 5:27 AM on January 25, 2012 [1 favorite]