The Joys and Sorrows of Budgeting
I don't know what endless loop you get caught in on a Saturday morning, but I guess mine is poring over my tax analysis spreadsheet. I use it to calculate all of the deductions from my pay and project outward to hypothetical scenarios in the future. For instance, if we were to move to Seattle and my partner started working, what would our take-home pay look like? What would be the difference between now and then? The issue I then come upon is calculating what we're actually living on now, with a good part of our "income" coming from student loans as well as several gifts in the last year coinciding with our marriage and the birth of our first child.
Sometimes I feel like asking "what's my budget?" is similar to asking what the meaning of life is. There are a million ways to look at it, and every time I look at mine, I seem to come to different conclusions.
This morning, like many of the mornings I get lost in the numbers of my life, I was scrolling through my transactions on Tiller. Tiller is a budgeting software that imports your expenses into a Google Sheet where you can then use their templates or create your own. I opened that hypnotic sheet one Saturday and two years disappeared.
I had switched over from You Need A Budget (YNAB), which is a software that is fun and easy to use and helps you think of your dollars as a fixed resource that you can move from category to category, and helps you avoid spending more than you make. I had switched to that from just typing out my spending manually in an excel doc and constantly realizing how off my numbers were without automatic import. I had switched to that from writing everything down in pencil in a little ledger since my high school days. Before that, of course, I scratched my spending onto the wall of my little cave.
YNAB was by far the most enjoyable and functional budgeting software I have used, but it was quite difficult to get the big picture on how much I was spending and how much I had.
Clients often come to me for help with their budgeting. Difficulty getting a handle on these numbers on average is practically but not totally universal for my clients regardless of if they are making $50,000 or $500,000 a year. If the number my clients say they spend is equal to the number they make minus deductions, taxes, and savings, I spend the next several minutes showering them with compliments.
No matter which method one uses, it’s not easy to get a clear picture of one’s financial health. For me, even keeping consistent categories is a tough one. Make them too vague and you get little detail; make them too specific and you'll have to change them every time your life changes, and then it's impossible to look back. I suspect hiring a full-time data scientist would help, but then what would I do with my weekends? For the time being I've just set my categories to “fixed bills” (i.e., always pay the exact same amount every month), the fixed amount that goes to my partner Katie and my individual accounts as "allowance," and then “household” (everything else). I then keep a spreadsheet where I enter the actual amount spent each month next to the amount expected for the next year, to give a sense of where we'll be at the end of the year if we go on like this.
Making an ideal budget is easy; it's where that budget meets with reality that's the problem.
In my dreams, I could budget, say, $500 per month for eating out and then that's what I’d actually spend. When I was single and a real hard-ass, that kind of thing sort of worked for me. Once upon a time I paid off $40,000 of student debt in under four years while making about $50,000/year. There are definitely ways to harshly limit spending to create the initial security that you need.
Now it's much more of a dance with the way things are. I base very broad spending categories off of what we have actually spent on average not what I would like for us to spend. The information that I glean from this process in some ways steers the spending choices we make, and sometimes helps me to project into the future. I catch it whenever there's a subscription I didn't mean to continue, or an erroneous charge. But mostly it's an (obsessive) mindfulness activity. It's humbling to look at what you actually spend and where you spend it, but also quite interesting to see yourself more clearly.
When creating a retirement plan, one of the key inputs is spending. After sending out so many budget spreadsheets that ultimately caused clients to decide they were happy to have us shut up and just manage investments, and having so many spreadsheets returned that clearly did not account for all of their spending, I've almost given up on the practical utility of budgeting. Yet it persists in the cultural conversation around being financially responsible. Maybe that is why so many people are walking around feeling like financial failures.
Does the Budget really exist? Ceci n'est pas un Budget. There are only shifting goals and patterns in a constellation of data points that make up our days.
Anyways, when in doubt, count down from your net income and remember that "miscellaneous" is often the most significant category. When you have the time, count up from your budget and try to make the two figures to meet. There is no "that was a one-time expense" in a world of one-time expenses. And for building wealth, savings is really much more significant and reliable to track.
Finally, remember that you are okay. Nobody really has a budget.