Budgeting: Where I'm At Now

I’ve figured some things out about budgeting. I’m not awesome at it, but I’ve learned some stuff. I hope it’s useful. It might be more useful if your monetary position is kind of like mine (always made enough money to survive and save for retirement/etc), and less so if you have to figure out how to make ends meet each month.

gosh I tried to make this into a structured post but nope it’s just gonna be a series of thoughts.

1. there are tiers

of knowledge about your money.

  1. I don’t even know what’s happening with my money. My savings keeps going up, or maybe I’m broke, either way, I don’t know why.
  2. I know where my money goes. I spend x% of my budget on y, etc. I can’t really do much with that though.
  3. I know where my money goes, and I make changes based on that, and my savings reflects my changes.

I’ve spent the last ~10 years climbing from stage 1 to stage 2. I’m not yet at stage 3. In theory, stage 3 is “budgeting” while 2 is just “knowing where your money goes” but I’m gonna call this all “budgeting”, for simplicity.

It’s still worth it to be at stage 2! For example, I could decide this year that we can afford a nanny. If I were still in stage 1, I’d have to shrug and go “well, I don’t know, that’s expensive.”

2. this shit’s hard

look, I’ve been a Math Guy since I was a toddler, I’m pretty organized, I have enough time and resources to think about it, and it’s still hard. Like I said, only stage 2.

3. everything should be decision-oriented

You might say “why even make a budget?” I think the biggest reason is to be able to make decisions about your life. Decisions like:

All budgeting should help you make these decisions! Everything you do, every bit of data, should help you with that. Draft CABs1.

4. categorizing should be easy

If categorizing is hard, you won’t do it. Everything should be clear what category it fits in. If it’s not, perhaps you have too many categories (e.g. Mint comes with one for “Entertainment” and one for “Amusement”, wtf). Or perhaps your categories are unclear to you: what does “professional development” mean? If I buy a new desk chair, is that “professional development”? The answer doesn’t matter, but it matters that you have a clear answer. Tweak your categories until you always do.

5. you have to build your own categories

Mint and Ynab and your bank will helpfully auto-categorize your transactions. Chipotle is “restaurants.” United Airlines is “Air travel.” Then you’ll look at an end of year report and be like “uhh I spent a lot on Restaurants, maybe I should bring that down?” and you’ll have no idea how to do it. They won’t understand that, for you, Chipotle is where you buy lunch for your whole office on Tuesdays and get reimbursed, Home Depot isn’t home improvement but instead where you buy instruments for your washboard-and-jug band, and United is usually for visiting your family but sometimes for vacationing to Hawaii.

Because everything should be decision-oriented, and because categorizing should be easy, you will have to make your own categories.

Imagine you had a category for “lunch at work”, a category for “fun nights out with friends”, and a category for “restaurants/bars to support my other hobbies”. You might then see that “lunch at work” takes $5000/yr and think “it would be worth $2000 for me to pack a lunch sometimes”, or “fun nights out with friends” takes $5000 and think “why don’t I invite them to my place once a month and shave off $1000.”

6. start budgeting before you need it

Because you have to build your own categories, it takes a while before your budget is useful. If you are a Young Professional making bank, you probably don’t need a budget yet. But someday you will want to make some of the above decisions, and it’ll really help to at least know what your expenses are, and you’ll be glad you put in the 3-5 years to make good categories first.

A million dimwits online have written articles like “daily starbucks costs $5/day! if you do that every day, it costs $1500/year! if you instead saved that money, you could buy a house…”

This is dumb. It’s easy to think about, which is why people write it. (much harder to write: “visiting your family 5x/year probably costs about $4000, including all your costs; what if you only do it 4x?") But it’s not how things work (you can’t go from daily starbucks to no starbucks, easily), and if you tell people what they should spend money on, they’ll fight you, and this whole exercise will feel forced and useless.

100% of this exercise should be empowering, not shaming.

Anyway.

7. categorize in real time

I used to try to categorize all my transactions at the end of every year. This was frustrating. First of all, a bunch of transactions are to “Amazon” or “Venmo”, and good luck categorizing those. Second, I trusted Mint with auto-categorization when possible, it was wrong a lot, and I’m sure I missed some of them.

Now I do them in Ynab whenever I think to, every few days, and there’s maybe 5 or 20 transactions, each pretty easy to understand, and I can even do stuff like open up Amazon and see what exactly I bought there. This is nice.

Mint/Ynab/etc also generate a lot of noise because they just track “all transactions”. For example, if I pay my $500 credit card bill, it’ll record a “-$500” on my bank account and a “$500” on my credit card account. Obviously neither of these is meaningful, I just shuffled money around. So I tag these as “transfer” and then just ignore all “transfers” in any report. Easier to do if I don’t wait until the end of the year.

8. here are my categories

They’re not perfect by any means but they are better than the defaults!

  1. “CAB (Cards that Affect the Board) from MtG is such a a useful concept. The idea: draft mostly cards that are creatures or stop their creatures. Newbies otherwise end up with lots of “cool” cards that draw cards, deal damage to ppl, set up some cool effect but don’t help them win. ↩︎

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