Financial responsibility for dummies

February 29, 2012 7:37 AM

Hey Mefites! Please help me become more financially responsible. I don't think I live particularly extravagantly but I don't even know how to start budgeting. I live pretty much paycheck to paycheck. I feel really bad about this, and could do with some ideas about how to build up a money-tracking and budgeting plan from scratch.

The good news I suppose is that I am not in debt - I pay off my credit card in full every month as soon as my pay comes in, and all my other outgoings, including savings, are automated and come out at the beginning of the month.

But the bad news is I have NO system in place for tracking where my money is going, no idea of what a realistic amount to shoot for spending in different categories might be, and the only way I know what's happening is by checking my balance frequently and changing around my plans based on how much money is in my account. e.g. If there's nothing then I will dial back on the socialising for a bit or something.

I put big regular or big one-off outgoings on my credit card, and sometimes when I run out of money in my current account I will use the credit card as a stopgap until payday, whereupon I immediately pay it off.

Please help me build up a tracking and budgeting plan from scratch!

I am aware this question makes me sound stupid. I'm not stupid, and I am actually quite organised in other aspects of my life. But with money it's always been a case of "figuring it out as I go along". It's worked for me so far, in that I am still solvent and don't owe anyone anything, but I realise I need to put a system into place now.

Thanks Mefites!

posted by Ziggy500 to work & money (26 answers total)

mint.com
posted by MangyCarface at 7:42 AM on February 29, 2012 [2 favorites]

Here's what I did, starting January 1st. It's Phase One of my plan, and it's helped inform me of where my money goes:

Create a spreadsheet and track every cent that you spend. Don't spend any significant time categorizing beyond listing the same places (grocery store names, online shopping sites, food carts, etc.) with the same names, so they can all show up together when you want to figure out what the categories are.

Make sure this is for every. single. purchase.

You'll be amazed at how much passive spending you do. I was.
posted by xingcat at 7:43 AM on February 29, 2012

Track everything you spend for a couple of months, then build a plan around that. This is really simple if you have a smartphone, but otherwise just keeping a notebook with a tally that you enter into a spreadsheet every night (do it every night, if it builds up you'll abandon the project most likely).

Something I'd recommend is setting up a high interest account, and funneling money toward that every paycheque. It sounds like you're spending in such a way that you probably wouldn't notice if a couple hundred dollars were out of your account every month, and it's a great way to save in general. The next time you get a raise, add whatever extra money you're getting to the savings account - so you're still working with the same amount of money, but saving more.
posted by backwards guitar at 7:48 AM on February 29, 2012

The key to your problem is right here:

I have NO system in place for tracking where my money is going

This is actually a really, really good place to start. It's a good first baby-step.

And there's an easy, but kinda boring and home-worky-feeling, way to do it:

1. Starting tomorrow (why not strike while the iron's hot, eh?), spend the whole of this coming month writing down EVERYTHING you spend money on. And I do mean everything: the check you write to pay rent, the things you charge to your credit card, the 25 cents for a bag of chips, EVERYTHING.

2. Then, when the month's over, take that whole list and split it up into categories like "rent/mortgage", "food", "toiletries", "gas", "utilities", "entertainment," stuff like that.

3. Then when you've gotten the categories sorted out, then add up how much you spent on each category over the course of a month.

Even just doing that all by itself will tell you a LOT. It's how you make weird discoveries like "holy shit, I spent $200 just on BOOKS last month?" or "wow, those coffees at the Starbucks come out to $75 a month."

Some of those things will automatically jump out at you as things you will want to cut back on ("Yeah, $200 on books is nuts, even just being careful of that is gonna make a big difference,") but the point of that exercise is to help you plan your budget for NEXT month. You need to know how much money you ARE spending on stuff before you try planning a budget; if you just arbitarily pick a number for some things ("I shall spend....$300 on food each month!"), you have no way of knowing whether that number even makes sense. Knowing in advance what you tend to spend in a typical month will help you plan a better budget ("hmm, I spent $600 on food, so just picking $300 for a montly food budget isn't gonna work...but maybe I can tweak that down to $500 if I cut a few corners?")

But writing down what you ACTUALLY spend in the course of a month, just once, is a good first step.
posted by EmpressCallipygos at 7:48 AM on February 29, 2012 [1 favorite]

Mint.com does what zingcat suggests, only it automates it. I even have a little app on my phone -- when I spend cash, I immediately enter it into the app.

And I agree -- you will be astounded by how quickly those pop-in trips to the grocery store to just pick up one thing add up.
posted by AmandaA at 7:49 AM on February 29, 2012

I have used a lot of methods over the years, but just this last month I got started with You Need a Budget, and it is the best thing I've ever used for keeping track of spending, seeing where you are in terms of your budget goals, and being very simple for setting up a (flexible) budget and responding to the unexpected. I thought the price--$60--was a little steep, but now that I've been using it for a month, I think it was worth it for me. They have excellent tutorials and support forums on their website, too. You can start with a 34-day free trial.

I also tried mint.com, which has the advantage of being free and having a very robust system for importing transactions from banks and credit cards, but despite the steeper learning curve, YNAB seems like a much stronger and more useful tool to me.
posted by not that girl at 7:49 AM on February 29, 2012 [3 favorites]

Ziggy's posts indicates he's in the UK, so before 900 other people say it, he cannot use Mint.

Ziggy, like xingcat says, you need to spend one month tracking all of your expenses. You can do it with a spreadsheet, an online app or a phone app. 1 March is the perfect time to do this!

Then you look at your expenses, and go "Holy shit I spent €XXX on takeaways last month!" and you can begin organising appropriate budget targets from there. Here are some budget categories and here is some useful info on drawing up a budget once you have a month of data.
posted by DarlingBri at 7:51 AM on February 29, 2012

The thing I don't like about Mint and other such programs (and I've tried them) is that they desperately want to make categories right away, and until you can say what each type of expense is (I have a particular grocery store that I call a "meal out" because I buy a bagel there every morning, for instance), I get trapped in being annoyed at the automated categories and having to change them.

As simple as possible works for me.
posted by xingcat at 7:56 AM on February 29, 2012

I quit carrying more than $10 in cash on me, and use the atm/ debit card everywhere I shop. If they don't take atm/debit, I use the credit card-as-debit option, so it comes right out of the checking account. My bank has an e-statement that stays right up to the minute at all times, and I can print it out by category at the end of the month. This gives me a record of every dime I spend without any extra logging or time spent.

I use a "round-up" feature which takes the remaining cents from a transaction (in round dollars) and sends it to savings automatically. If the bill is $3.56, then .44 goes to savings. Same as saving 10% most months, easy to track. The interest rate is less than stellar, but I can transfer it to a higher rate savings if I want to, because I didn't spend it.

It also means that I can curb the urge to overspend on a night out, because there is the total in black and white, instead of, "where did $50 go last night?"

If I spend cash, I have to save the receipt and log it in before I can get any more cash out. I have had the same $10 bill in my pocket for three months now, because it's a hassle to have to log it in.

Caveat: we have frequent power outages, so I do have emergency cash stashed. I just don't carry it with. Most merchants will do a manual CC transaction if it's an extended outage.
posted by halfbuckaroo at 8:13 AM on February 29, 2012 [3 favorites]

Maybe the simplest method is the best — I am good with money and I just use pen and paper.

Sit down with a pen and paper and make a budget. Write down your monthly income. List all the regular and necessary expenses first: rent, utilities, phone, internet, groceries, transportation, car, home, health or renter's insurance, etc. Write them down to the penny if you can, but if they fluctuate somewhat, come up with an average, or a slightly "rounded-up" number.

Add all these numbers together and deduct the total from your monthly income. Now, take whatever number you have left and figure out how much you'll allow for spending money and how much you'll designate as your savings. Your spending money will pay for all those other necessary things you only need occasionally, and for the nice extras: clothes, haircuts and personal care products, anything you need for your home, cable, gym membership, going out to eat or to shows or concerts, books, magazines, movies and music, hobbies and travel, so allow enough to cover all of those things.

Then what I do is take out $100 from the bank machine once a month so as to have some cash, and the rest of my expenditures I generally put on my Visa or on Paypal. I track those purchases and stop spending when I get to my total monthly spending limit. I also make a list at the beginning of every month of things I need or want to purchase that month and make sure to reserve some spending money for those things.

So here's a sample, fictional monthly budget for a single, childless person who rents, has universal health care and takes public transit (obviously most people's budget will involve more items):

Monthly take home: $2500

Rent: $850
Renter's insurance: $40
Phone and internet: $55
Hydro: $40
Transit pass: $110
Groceries: $175
_________________
Total regular monthly expenses: $1270

Spending: $500
Savings: $700
Leeway (in case your hydro or phone bill should be unusually high): $30
posted by orange swan at 8:21 AM on February 29, 2012 [1 favorite]

I bought a budget from a friend. He makes them in excel based on what you know (rent, pay etc), and then tweaks it as you learn from what you track. I'm still not great at staying On budget, but at least now I know exactly where I tend to run over. Using my debit card as much as humanly possible helps a lot; I just log in to my bank a few times a week and log what I've spent in my spreadsheet. It's simple enough that I've used it faithfully for a couple of years now, after not having every balanced my check book in the first 35+ years of my life.

The workbook starts with three sheets: budget, monthly template, and This Month. Both the budget and each month are broken out into large categories (food, medical/fitness, utilities/rent, daily household, and luxuries). There are separate categories for credit cards and savings or unexpected expenses. At the end of the month I make a copy of the monthly template and rename it as the new month, then tweak the budget estimates as necessary, and keep going.

If you're not handy with excel, a friend can probably help you build something similar (or feel free to memail me for my friend's info - last I heard he charged something reasonable like $25USD).
posted by ldthomps at 8:46 AM on February 29, 2012

I'm pretty good at this, even though I am a naturally spendy/messy/disorganized person. I am early 30s single, make around 40k.

First, I simplified my bills. I moved to a place where everything was included in the rent. So that, then bundle services when you can, and then automate the rest of your recurring bills. I like to schedule mine to come out of the opposite pay period than my rent.

Second, I immediately move money to a savings account from that second pay period, the one rent doesn't come out of. Think about it, if you are living paycheck to paycheck, presumably, once a month a big chunck comes out and the rest of month, it doesn't. You can use that money to save. I don't save all of what would be rent, but like $500.

Third, I got involved with someone who is a cheap ass fucker who is also into not driving. Ha. Now, I just KNOW that I am going to be eating out maybe once a week, not 4 times a week. I KNOW that he will have enough produce at the house that I can cook a good solid meal at anytime.

Lastly, know your limits. You can't over budget to the point where its not fun, it has to be fun, it has to be a game. I like to save all my spare change for the truly goofy things, plus I give myself about 100 a week to play with. That's pretty generous, but you know what? I've saved just about $4500 dollars in six months. Doing all this really simple stuff.
posted by stormygrey at 8:56 AM on February 29, 2012

I started using You Need A Budget (linked above) in December and it has been AMAZING for me for just this sort of thing. I've already converted a family member into using it as well. The combination of the desktop program and the phone app have made it easy for me to get used to tracking what I spend, and has given me a level of awareness of where my money is going that I never had before. Their 34-day trial is great because it gives you a little over a month to try the system out and see if it works for you.

I've tried using automated systems like mint before, as well as the more traditional packages like Quicken, and YNAB is the only one that I've ever actually consistently USED for more than a few weeks at a time.

The key thing with YNAB is, it focuses on looking at the money you have RIGHT NOW and deciding what that money needs to do by the time you get paid again. This feels so much more concrete than the traditional "how much will you spend on this this month?" budgeting, especially if you get paid more than once a month.
posted by oblique red at 9:11 AM on February 29, 2012

The very first thing you ought to do is write down a list of your monthly and yearly expenses and how much you earn. You don't need to be explicitly accurate, but if something like your phone bill is always £20 you note that, plus the date you always pay it. Tally up the numbers and you should get a rough estimate of how much you spend and how much you bring in.

The next step would be to use a spreadsheet or some kind of register to keep track of your spending. Most spreadsheets break down the columns in the following order: Date, Payee, Type, Debit, Credit, Total.

"Type" is a generic reason for the purchase. You can be as specific as you want, but if you want consistency it's best to keep things simple, like "Food," "Gas," or "Phone." On preview, use the link DarlingBri provided for examples.

"Total" is a formula that takes the previous row's amount and adds its row's debit and credit values. A very basic Excel example, where f1 is the previous row "Total" and d2 is a negative value in "Debit" and e2 is a positive value in "Credit": =f1+d2+e2

The next part is the fun part. Take your monthly/yearly expenses and income and enter them into your spreadsheet. Since these are always recurring events, you can "project" them out for the remainder of the year. That means your spreadsheet should have estimated payments and income from March through December (and beyond, if you're so inclined).

Update your "Total" column and you'll see what your savings will be like in the near or far future. However you must remember that these are just estimates. If your spending for one month is higher than another, it'll change your totals. If your monthly bills fluctuate based on usage, you'll have to take that into account and update your spreadsheet accordingly (best to estimate high for these).

For daily or one-off spending, keep all your receipts until you get home and enter them into your spreadsheet. Do this every time you spend money, and update your totals to see how your future values are affected. You'll not only see how money you should have this month, but through the rest of the year. Provided you remain diligent in updating the spreadsheet, of course.

The nice thing about using a spreadsheet is that you should be able to generate a chart on "Type" and see a breakdown of where your money is going.
posted by CancerMan at 10:23 AM on February 29, 2012

I bought the book by the guy who runs iwillteachyoutoberich.com, and have recommended it to my friends when they ask about personal finance. Author guy writes like a hyper self obsessed nerd coach, which can occasionally be grating, but the advice and techniques are sound. If you are in the UK there may be some US specific info that does not translate.

He also goes over some basics - what percentage of your money you should spend where, as a general rule (e.g., 20% for savings, 30% for rent, other 50% for whatever else).

Nthing the tracking of expenses in excel. I know to the dollar what amount I can spend without having to check my account very often, and can do so just from having kept a close eye for about a year.
posted by skrozidile at 10:32 AM on February 29, 2012

I used to be so crappy with money, I could make it, I could spend it, I could pay bills and maintain, but I seriously did not know wtf I was doing beyond those four things.

All the advice above is very practical and concrete, and that's awesome. I can't do spreadsheets, I am not even THAT disciplined. So I will only say this:

In order to get yourself in the mind frame of ACTUALLY DOING THIS, I strongly suggest you think of your personal self as a business.

Ziggy500 Inc.

Now, as president and sole employee of Ziggy500 Inc, you would not just haphazardly flail around with "the company's" money. You would not tolerate an employee of Ziggy Inc. wasting the company's money, or its resources, or its time. You most likely wouldn't let Ziggy Incorporated go paycheck to paycheck. So don't waste money, time, or your resources. (unless you are getting a "return" and that is defined by you.)

For instance:

Shutting off the lights or unplugging the coffeemaker saves Ziggy500 Inc. money = GOOD.

Someone yakking your head off on the phone for three hours about nothing when you may have other things to do, (thus wasting Ziggy500's Inc. time) = BAD.

Not getting a handle on the Ziggy500 Inc. budget= BAD

Saving as much money as possible for the future endeavors of Ziggy500 Inc. = GOOD

So, basically, you're thinking WWZID?
posted by Grlnxtdr at 10:50 AM on February 29, 2012 [1 favorite]

I can heartily recommend a program called You Need a Budget, a cross-platform app with mobile companion apps (which are phenomenal for tracking spending).

The things that set YNAB apart are its focus on awareness, the rules that come along with it and the amazing, incredibly helpful forums. It uses a form of zero-based budgeting they call the Four Rules and it really, really helps you to get your head around where your money is going and take control of your spending.

I've been using it for four years or so and have weathered two moves, a job change, getting married and paying off thousands in debt in the process. We'd be totally screwed without it.

I recommend this app and the system that goes with it in every single budgeting thread, because it's really, honestly an amazing help. It's got a thirty day trial now, give it a go.
posted by Happy Dave at 12:26 PM on February 29, 2012

You are doing an awesome job, and you have a long way to go, but you're on the right track. I say this from experience, because I was in exactly that place several years ago.

After years of really studying and trying different things and basically working hard to improve my financial IQ, I'm kind of a financial ninja, if I may say so myself. The things I do with this tiny income, you would be amazed!

Here is my advice: everyone has a different system. Some of them might work for you. Some might not. Try them out, but don't be discouraged if it doesn't work for whatever reason. What works for me is completely ass-backwards from the usual suggestions, but hey, it works for me!

First and foremost, you need to grapple with the larger issues. "Money" is a big topic, and there is a lot of emotional stuff tied up in it, a lot of lessons learned in childhood, anxieties, fears, denial, etc. It's a lot more complicated than "spend less than you earn."

Before starting any of the awesome suggestions in this thread, I suggest you read the classic Your Money or Your Life. It deals with the conceptual issues, and starts from Square 1.
posted by ErikaB at 12:32 PM on February 29, 2012

My workplace had a banker come to speak to us about personal financial planning and he gave us this guide [PDF], you may find it helpful. It contains the following basic guideline for a simple budget:

Know Where your Money Should Go:

Based on your after-tax income, use the following percentages as guidelines:

1. Housing (35%) — Rent/mortgage, utilities, maintenance, taxes and insurance.
2. Transportation (15%) — Car loan, gas, parking and upkeep, as well as public transportation.
3. Other Debt Repayment (15%) — Not your mortgage or car loan, but student loans, credit cards and other debts.
4. Savings/Emergency (10%) — No questions asked. Non-negotiable.
5. Life (25%) — Everything else: clothing, travel, health care, fun.

You can change these percentages, but be sure they add up to 100 percent!
You can also borrow from one category to another, except from savings.

He also really stressed stressed balancing your checkbook weekly to be aware of fees you are being assessed (iow if there are too many you should switch banks), mistaken charges and fraudulent charges, and also to avoid overdraft fees.
posted by ghostbikes at 2:54 PM on February 29, 2012 [2 favorites]

I've spent the past year using a plan I found online...I can't remember whose idea it is, but you can google it really easily.

Essentially, it's 50 / 30 / 20 :: Need / Want / Save

50% of your take home pay each month should go to things you NEED. Like housing, transport, electricity, basic groceries.

30% should go to things you WANT. Like, nights out to dinner, movies, trips, etc.

20% should go to savings. Calculate it out, and figure out exactly what 20% of your monthly income is - it will likely not be a simply round number.


Putting that exact amount into a savings account has been huge for me, since I never really saved before, as I never knew how much I should save. I opened a high-yeild account for this purpose that I never touch. The only month I did not put this amount into my savings was December, for holiday shopping. I continue to be surprised that I have been able to save quite a bit in a small period of time.
posted by PuddleWonderful at 5:32 PM on February 29, 2012

Oo, to help me track my daily expenses, I've found it super-easy to use www.TheBirdy.com. Every day at 7pm, TheBirdy sends me an email, and I reply with what I spent that day, including tags if I'm so inclined:

$6 sandwich #lunch
$53 gas #transportation
$4 coffee #coffee #work

And hit reply. When I want to check out my spending patterns, I log into the main website and it is automagically categorized and searchable for me. Other than that I don't touch the main site (and the site doesn't touch my bank accounts, link Mint). AND it was easy to build into my regular routine because it's included in part of a routine that I already have-- responding to regular email. SO EASY!

Ziggy5000, I swear you and I have the same questions...
posted by samthemander at 7:30 PM on February 29, 2012

Don't buy dumb crap. That's pretty much what it comes down to. Tracking your finances is good but all that does is possibly help you identify places where you are spending too much money, in order for this to be of any use you actually need to make a decision not to buy something that is not an efficient exchange of money to happiness. You usually don't have very much control over how much money is coming in but you have a very high amount of control over how much is going out - you tighten that up a lot by not spending money on dumb crap.

Common ones off the top of my head:
Bottled water - my ex was egregious about this, she'd spend $40 bucks a month easily on something that is free from the tap.
Coffee from a coffeeshop - 4$ each per weekday is 100$/month
Subscriptions you don't need or are significantly underutilized, e.g. cable package when you only follow a few shows you could watch online, cell phone plan with high minutes you never come close to using, gym membership you don't use
Bars/going out - usually between 20-60$ per person in my area - a house party with a case of beer is 1/4 the price and usually a lot more fun
New tech gadgets - rarely justify the cost
Car ownership - highly location dependent, definitely justified and useful in rural areas but is a huge source of expense in an urban area. Extreme depreciation if you buy new.
Rent/mortgage - the market is the market, but if you are on the high end moving down a bracket will save quite a bit.

Aggressively chip away at things you are not using and don't need, and you will be very surprised at how little you miss them.
posted by spatula at 9:12 PM on February 29, 2012 [1 favorite]

I have to nth You Need a Budget it's a great approach, you can import 'quicken' type files so you don't have to manually type in debit / credit transactions, cash of course is manual. I reccomend you use the free trial. Start today.
Also, I put the savefile in dropbox, so that it can be updated from various computers (the licence covers installation on all your personal machines)
posted by defcom1 at 6:58 AM on March 1, 2012

Bottled water - my ex was egregious about this, she'd spend $40 bucks a month easily on something that is free from the tap.

This is a good way to illustrate the priorities will vary per person. I do not think spending $40 a month on bottled water is crazy. I do think spending $40 on a bottle of wine is crazy, or $100 a month on beer, or whatever. The point is that it doesn't matter what I think about how you spend your money; its yours. The important thing is that your budget reflects your actual expenditures and priorities.
posted by DarlingBri at 9:28 AM on March 1, 2012

I love Pear Budget - super intuitive and free.
posted by parma at 10:07 AM on March 1, 2012

Thanks people - I have started tracking my outgoings for this month with a view to seeing where I can cut down from next month! Appreciate all the resources, advice and encouragement! :)
posted by Ziggy500 at 6:36 AM on March 2, 2012