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4 Tips to good (or better) budgeting

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4 Tips to good (or better) budgeting

True story: On graduation day, Alice tells her dad that they need to quickly stop by the Tuition Office before going to the graduation ceremony. Once they arrive at the office, her unsuspecting father is told that Alice has an outstanding balance of over $2000 and won’t be allowed to graduate unless it’s paid in full on the spot.

Man FrowningBegrudgingly, her dad pays the bill. Frustrated, he asks her why she hadn’t managed her money better and paid the bill.

Alice remarks, “I don’t know how this happend. I kept a perfect budget all four years and I can tell you where every penny went.”

Her dad responds, “That’s not budgeting. That’s accounting.”

So what’s the difference between accounting and budgeting?

The distinction may be subtle, but is very important.

  • Accounting is keeping a record of everything you’ve earned and spent.
  • Budgeting is setting limits and keeping to those limits.

Budgeting is a very proactive activity. Budgeting is taking the time to decide in advance how you are going to spend your money and how you are not going to spend your money. A good budgeter will rarely end up in bankruptcy. A good accountant can still end up in bankruptcy because accounting focuses on the past instead of the future. Accounting just tells you what you did instead of planning for what you are going to do.

Have I made my point clear? I hope so.

Now, let’s talk about a couple of basic tips for good budgeting.

#1: Start with a budget of how you are currently spending money, then tweak

A common pitfall is to create a budget that is completely unrealistic. So your first draft should just document how much money you currently earn and where you are spending your money. With that outline as a base, start making changes and tweaks. For example, here’s a real basic first draft just writing down what I’m currently spending:

  • Income after taxes: $2500
  • Mortgage: $900
  • Groceries: $700
  • Gas: $100
  • Cable/Internet: $100
  • Utilities: $125
  • Credit Card Payment: $75
  • Dining Out: $200
  • Cell Phone: $150
  • Clothing: $200
  • Other: $50

If you add all of that up, you’ll find that I’m spending $100 more each month than I bring home. No wonder, my credit card balance keeps climbing. Now, here’s a revised budget based on that first draft (with the changes highlighted).

  • Income after taxes: $2500
  • Mortgage: $900
  • Groceries: $500
  • Gas: $100
  • Cable/Internet: $100
  • Utilities: $125
  • Credit Card Payment: $375
  • Dining Out: $100
  • Cell Phone: $150
  • Clothing: $100
  • Other: $50

Just by controlling how much I’m spending on food and clothes, I am able to put another $300 each month towards paying off the credit card! What’s really cool is that as soon as the credit card is paid off, that’s $375 a month ($4500 a year) towards savings. That’s almost a fully funded Roth IRA.

#2: Simplify your budgeting by using a tool (I like online tools)

Creating a budget and then tracking just how well you keep to your budget can be a time consuming task. So make your life easier by using some type of tool. Here’s a list of options.

  • Microsoft Excel provides a real basic way of tracking your spending. But requires you to enter all of your transactions and can be very manual. If you are interested in Excel, you can download some budget templates on Microsoft’s website.
  • Intuit’s Mint.com is probably the most popular online tool. You can create budgets and sync your bank accounts so that Mint automatically updates your budget. You will have to “teach” Mint how to categorize your spending. But that’s pretty simple. For more info, check out this review of Mint.com. Or visit Mint.com, which is free.
  • PocketSmith is another online tool that features cash flow forecasting. Basically, they guess how much money you’ll have for the next 6-12 months based on your budgets. PocketSmith’s big thing is that they are calendar based. The basic plan is free with options to upgrade for either $5 or $12 a month. Visit PocketSmith.com.
  • Your bank may have a budgeting tool. For example, USAA.com offers budgeting for its members through its online site.

I’ve outlined just four options. Though, there are lots of tools out there. So do some research and find a solution that works for you.

#3: Only use cash if you need extra control

Okay, so this tip really could go on the prior point of using a tool, but I think it warrants its very own section. There is a very old school method of budgeting, that Dave Ramsey advocates, called envelopes. Basically, after each paycheck, you divide your money up into envelopes marked Groceries, Mortgage, Clothes, Gas, etc. You then carry those envelopes around and only spend the money in the envelopes.

For example, if I have $50 in my Dining Out envelope, then I can’t spend more than $50. Once the money is gone, I’m done spending money. The concept of not spending money that you already have is becoming, unfortunately, a foreign concept in today’s world of easy consumer credit.

So if you know that you have a problem with overspending, then use this simple system to get it under control.

#4: Have a Blow Money category

Let’s all just be honest and acknowledge that you are not perfect and will probably buy something you shouldn’t have. The thing is, it’s not a mistake if you plan for it. Give yourself a small allowance of discretionary money. Meaning, money that you can just blow on whatever you want.

If you are just starting out, then your Blow Money category may only be $20. As you remove debt and increase your savings, then you can increase your discretionary or blow money.

If you have any tips that have helped you budget, then please let us know in the comments. Also, follow Rabbit Funds on Twitter if you haven’t already.

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REVIEW: Mint.com and the new Goals feature

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REVIEW: Mint.com and the new Goals feature

For the purpose of this post, I am assuming that you already believe in budgeting. Meaning, I intend to review Mint.com as a budgeting software solution and not attempt to persuade you that you should be budgeting (though you should be).

Before detailing my experiences, let me start by saying that I love Mint.com. I had been a hardcore Microsoft Money user for years and was devastated to find out that they were discontinuing the product. Looking for a cheap, straightforward alternative, I decided to attempt Mint.com.

Here’s a brief outline of what I like and don’t like.


  1. Free – If you are just starting to budget, then Mint is a good way to get your feet wet with a strong tool that is user friendly and free.
  2. Auto-updates my accounts – This feature is fairly standard to most budgeting software but still worth mentioning. You use an obscure bank or credit union, then auto-updating may not be possible.
  3. Offers – Mint.com makes money through third party offers such as credit card companies and brokerage firms. First, the “advertising” is not obtrusive to the user experience and you usually have to go looking for the offers (“Ways to Save” tab). Second, although I am opposed to credit cards and the like, I believe that consumers with credit card debt may benefit from lower interest rates or better terms. So I believe there is value in helping compare offers.


  1. Only simple reports – Having used Microsoft Money for years, I had fallen in love with being able to quickly and easily create custom reports to analyze just about any part of my financial house. With Mint, you are restricted to a small set of non-customizable reports.
  2. No debt management tool – Ok, so that statement is a little misleading. Until the recent addition of Goals, Mint offered no way to systematically eliminate your debt using techniques such as the debt snowball. Though, I outline my experience with the tool below.
  3. Mint.com Budget Left OverDoes not take into account savings – I really like the Budgeting feature. It is straightforward and easily accommodates custom budgets and helps you save for non-monthly expenditures (i.e. it tells me how much to save each month in order to pay for my wife’s salon trip every 4 months that always costs more than she says it will). However, I tried to add a budget for what I stick into my Roth IRA account, which is tracked by Mint, and the budget disappeared. Meaning, that investment amount isn’t subtracted from my spending and it appears that I have more money to spend than I actually do (see image to the right). I tried adding a ‘dummy’ Savings budget so I’d know not to spend the money, but then the investment isn’t tracked correctly.

The new Goals feature

Let me start by saying that it’s about time!

I’m honestly a little surprised that it has taken the team at Mint.com this long to add a goals feature. Either way, we have it now. When you click on the Goals tab, you are presented with a number of “off the shelf” options or a create your own goal option.

Mint.com Goals Feature

“Get out of Debt” goal

Excited to see how the debt elimination feature worked, I decided to see how I could payoff my mortgage sooner. To my surprise, the only debt I was allowed to eliminate was my one credit card (which has a balance of $176). Dismayed, I selected my credit card and hit Next. Mint then analyzed my discretionary income (or extra income after expenses), the minimum due on my credit card, and the interest rate. Mint’s advice was to pay the minimum, only $15, for one year despite sufficient discretionary income to pay it off much sooner. Like now. Simply put – Mint’s debt management program failed.

“Take a Trip” goal

Though, I believe everyone deserves a fair chance. So I attempted to create a different goal. My little family will be headed out to Washington D.C. next Spring to see her family. Below is what I entered. This time, I felt everything worked very well. We were able to give the goal our own name and upload a pic to motivate ourselves – very cool.

Mint.com Trip Planning

Despite the drawbacks of the debt reduction goal, I definitely give the Goals feature two thumbs up.

Last question, is it safe?

Let’s be honest. If I am sharing my account information with a site, I want to know that it’s safe. In a video posted to YouTube, Mint’s CEO Aaron Patzer explains how Mint approaches security. I’m pretty paranoid about my identity being stolen and take a good number of precautions. So far though, I have felt completely safe using Mint.

My recommendation is that if you are not currently using any budget software or if you are unsatisfied with the one you are using (this includes Microsoft Excel), then check out Mint.com.

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One Trillion Dollars Visualized by Mint.com

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