A Better Life Through Budgets—Really!—Using Mint
Budgets are hard!
Yes, budgets can be hard. Even if you make enough money to cover your expenses, tracking everything can be annoying. Fortunately there are ways to eliminate or at least minimize the annoyances and the benefits are very large.
Don’t think I’m just sweeping away the difficulties. Budgeting takes commitment and dedication. You will have to track expenses and you will have to set realistic goals. This can be extremely frustrating when your resources simply aren’t enough to meet your needs and sometimes you will have to make unpleasant choices. But this is life, it’s reality: unless you are extremely fortunate, managing money is something you truly need to do and your life will be better if you can get good at it.
To Trust or Not to Trust
There are programs, apps and services that can make budgeting easier. For example, I use Mint. The picture just above shows part of my December 2018 budget as displayed by Mint.
What is nice about Mint is that it pulls expenses and income from my banks, my investment accounts and my credit cards. This saves me from manually entering all of that into a spreadsheet or other tool.
What is not so nice about Mint is that it cannot pull from every account I have. It can also be confusing and cranky at times. Finally, there is the issue of trust: I’ve given one company access to almost every single aspect of my financial life. That’s something that could make many people not want to have any part of Mint or anything like it.
I do trust Mint. You can read “Are Budgeting Apps Like Mint Safe to Use?” by Karoun Chahinian for the full picture, but basically Mint and other tools like it are “read only”. They cannot withdraw money from a bank account and put it in another account. Moreover, any passwords you initially provided to read the accounts are not ever displayed again, not even to you.
So even if I handed you my password, all you could do is see how much money I have and how much I owe. You wouldn’t be able to steal from me.
That might not be comforting enough for you. If so, you will need to use one of the many budgeting apps that require (or allow) manual input. I could do manual input with Mint; in fact I have to for a few accounts that it cannot access.
Or you could roll your own solution with a spreadsheet. If you are quite skillful in that area, you might even be able to design something much better for your needs than any app solution. I have been tempted in that direction myself, but so far have been too lazy to actually do anything about it.
How I Use Mint
Take another look at the picture of my budget above. You see some green, some yellow, some red, some positive numbers, some negative - what does it all mean?
Let’s look at the first Green item, which is Food and Dining: Groceries. It says “$594 of $800”. The $800 is what I budget each month for my wife and myself. I include going out to eat in that number; I don’t bother to budget that separately, although I could.
The $594 is how much we had spent so far that month. That was as of the week before Christmas, so we were well within our budget. The entry shows Green because we have not spent all of it yet.
Look at the next line, which is Home: Mortgage and Rent. I budgeted $720 and we’ve spend $683.00. The line is Yellow because the budget is close to used up. Why do I budget more than we actually owe? I’ll get to that later when I talk about Reserves but for now just think of that as money put aside for a future need.
Oh, the next line is Red! And I spent more than I budgeted! That’s not good, is it?
Well, normally no, it isn’t good. In this case, however, it was deliberate. The stock market took a dip recently and I wanted to take advantage of some bargain prices, so I spent more than our budget. You’ll see how that all evens out soon.
What are those negative numbers?
Look at the very first item, Health and Fitness. There are at least three unusual things about this item. First, there’s no color. Second, it says I’ve spent a negative amount of money, which is weird. Finally, it seems a bit odd that we are nearly at the end of the month and it looks like I’ve had no medical expenses.
I assure you that I did have expenses: insurance and a doctor visit copay, in fact. So what’s that all about?
How much to save and what to do with extra money
There are budget items where I want to save a lot of reserve money and others where I don’t care so much. I can, for example, cut back on Entertainment if we need to, but there are things where I will definitely need reserves.
There is also the matter of extra income. Our income is somewhat variable. I budget assuming that we will have the bare minimum, but we actually almost always make more. I don’t want to just throw that in the bank without earmarking it for a purpose, so I keep a spreadsheet to help me with all that. I’ll tell you more about that shortly.
The negative numbers come from budgeting more money than I actually spent. At the end of the month, that unspent money optionally becomes rolled over into the next month and is shown as a negative number.
Let’s say that number started out as negative 1200 dollars. If I then spent $300, that number would become negative 900 dollars. If that was all I spent in the month, that unspent $900 and my next month budget amount would be added together and we’d start the next month with a higher negative number.
It‘s just unspent money. It is reserved money that I pile up in case I get sick and cannot work for a few weeks or longer - I will still be able to pay my bills without dipping into stocks and our 401K accounts.
It’s OK to overspend a budget
As you saw above, I overspent our investment budget this month in order to take advantage of a stock market dip. Because of that, it may show Red for several months. As money will be budgeted and not spent in future months, the Red will slowly fade away.
As long as I have the cash to do that, it’s fine. I’ve overspent on vacations and technology more than once because of unusual opportunities. I do have to be careful of my cash flow, keeping enough in the bank for upcoming bills, but Mint will also show me what’s coming up and when.
Adjustments and changes
Sometimes things need shifting around. I might want to spend less on Entertainment this month and put more into Investments. So, I might reduce one budget item and increase another.
There might already be so much unspent money piled up that I can set the budget to zero for this month. That’s a good feeling!
But when I mess with the amounts, Mint thinks that I want all future budgets to be that new figure. If I set Entertainment to zero, Mint will start the next month with zero for Entertainment and that’s unlikely to be what I want.
So, I keep a spreadsheet that I call my Model Budget to help me set a new month back to what i want it to be.
The Model Budget
Each month I will set the new Mint budget categories to the amounts my Model Budget calls for. In the spreadsheet, I set the Reserve amounts to whatever they actually are as shown by Mint at the end of the previous month.
Then I look at the “Extra % and max“ column. For example, the budget for Internet is $275 and I had $187 in Reserve at the beginning of the month. Entertainment says I don’t need more than $50 in Reserve (“<50”), so I will change the Mint budget (not the Model) for that month to $150. If I spend $275, that should leave me with $52 in reserves to start the next month with (187 plus 150 minus 275).
As I make extra money, the Model Budget tells me where to put it. So, if I make an extra $100, it says to put 50% into Auto, 30% into Health and so on. I just increase the Mint budget by that amount.
And on it goes
Month after month, I follow this pattern, adjusting the budgets as income goes up and down, as new expenses or opportunities arise, as I meet goals for reserves.
As I have been doing this for many years now, it’s fairly easy. I don’t have to guess what we will be spending on this or that; I have a very good idea and very few things catch me by surprise.
So what’s the payoff?
Yes, budgeting takes work. That’s obvious. So why do it?
When I was much younger, budgeting was very hard. I had a family to feed and clothe and I didn’t always make enough money to meet every needed expense. I had to rob from one budget line to pay another and that usually meant cutting out recreation and, when things were tight, cutting out saving any money at all. When things were really tight, I even had to sell off investments before I wanted to.
Those days are long behind us now. We don’t have piles of money coming in, but we are comfortable and because our children are grown and gone, we don’t have as many expenses. We can save and invest for the future.
It is budgeting that let us do that. We know what our expenses are, we know what they are likely to be in the future. We can set realistic goals for the things we want and have the money for the things we need. It’s a good feeling to have all this under control.
So how do you reach this promised land?
My advice is to start by not setting any budgets at all. Just track your expenses and categorize them. Of course you still have common sense: if you are earning $4,000 a month, you aren’t going to buy a $70,000 car, right? Just spend as you usually would, observing only the mental limits you already have.
After six months of this, you’ll have a better idea of most of your budgets. I actually let Mint run for more than a year before I started setting budgets and thinking about reserves. That gave me an excellent view of where I could allocate money more intelligently.
You rule the budget
Remember this: you rule the budget, it doesn’t rule you.
The purpose of all this is a better life for you. It lets you plan, yes, but it should also let you dream. A budget is a tool, not a merciless taskmaster. Always remember that.
I hope this helped you see the advantages of budgeting.