Open Thread, August 1-15, 2012

OpenThreadGuy

If it's worth saying, but not worth its own post, even in Discussion, it goes here.

I have never really used a budget. I want to try, even though I make enough and spend little enough that it's not an active problem. I've been pointed to YNAB... but one review says "YNAB is not for you if ... [you’re] not in debt, you don’t live paycheck to paycheck and you save money fast enough. If it ain’t broke, don’t fix it." I have data on Mint for a year, so I have a description of my spending. The part I'm confused about is the specifics of deciding what normatively I "should" spend in various categories. My current plan is problematic because it has a large upfront cost which I keep putting off: going over all categories of where my dollars go, estimating the relative marginal benefit per dollar I get for each, and rebalancing spending appropriately. I have three main questions:

How can I get rid of the large upfront cost without feeling like I'm skipping crucial steps, or is that part required?
What does "rebalancing appropriately" actually mean?
How do I go about figuring out how much of my total income I want to spend versus save? Relative spending I feel like I can figure out, weighing disparate categories of spending like "bananas" and "giving to my future selves" feels far harder.

I use the steps from the book Your Money Or Your Life.

5Xachariah14y

You needn't do a utility rebalancing to get value out of a budget. My primary use of a budget is to prevent surprises. I know my inflow; I know my outflow; I know how long it will take me to save up for $ item or recover from a $ hit to my savings. When I first started doing my budget, there was no explicit utilons->dollar comparison. That came automatically in the form of "holy crap, I spent how much on games this month? I thought I spent almost nothing," or "wow, I spent way less on food than I expected this month." Note that online banking can make this initial phase really easy. All my expenses are in check or debit form (and cash withdrawals are rare), so all of my expenses show up on my online statement. It takes about 3 minutes in excel to have the month's budget broken down and ready to compare with the prior month. With this low of an upfront cost, you can do the initial phase, then you'll have more data if a more intensive revue is worth it for you.

4TimS14y

From this outsider's perspective, it looks like your potential budgeting plan is a solution in search of a problem. The traditional problem budgeting is intended to solve is "outflow of resources exceeds inflow of resources." If that isn't your problem, then there is every reason to think the amount you spend on different things is a reasonable way of converting money into happiness for you. But if you're not sure you are converting efficiently, I wouldn't try a budgeting task. Instead, I would examine your spending for easy improvements in happiness/money ratio. Toy example: Starbucks coffee is too expensive for the happiness it gives? Buy a coffee machine. If you are concerned you aren't saving enough, that's also a separate investigation from budgeting. My discussion assumes that you already have a moderately detailed understanding of where your money goes each month - as your post suggests. If you haven't done that, I suggest you try. Just keep your receipts for a month and then sit down for an hour or so with Excel.