Budgeting

RG2015

I am in a fortunate position where my pension currently exceeds my expenditure. I have projected forward a few years to include inflation but I do not foresee any financial problems. I regularly review my expenditure for possible savings to ensure that I am on good deals.

Posters on this board frequently cite YNAB and other software as being essential budgeting tools but I find Excel is fine.

Am I missing something in my planning process or by regarding budgeting software as unnecessary?

Bridlington1

Personally I never use budgeting software and do the whole lot on an open office calc spreadsheet without issues.

At the end of the day there's no right or wrong answer to this one, so long as you do a budget and it works out alright for you then I'd just leave it at that. 

mr_stripey

I'm a YNAB user, but I certainly wouldn't regard it as "essential" for everyone. It certainly works for me. But I guess the most crucial thing about any budget (whether it be in Excel, YNAB or a notebook) is that it reflects actual, realistic spending.

Many budgets I think fall down by simply reflecting Income - Bills = Money left over. On paper (or Excel) it looks like I have plenty of money. But car repairs, holidays, christmas etc creep up on us. We know they are coming but a basic budget doesn't look at these things.

So if you know you're going to spend £1000 on Christmas, you should be saving towards that now and every month. Same building a sinking fund for car or house maintenance. 

For me YNAB works by setting these targets and also I can look at where I actually spent money last month. So I budget £250 on groceries but I actually spent £350 so maybe I either need to cut back or add more to the budget.

But, whichever method works best - just make sure you are "saving" for future known expenses.

blue.peter

There's no such thing as "essential" software. Different things work for different people. I'm sure that some people find that YNAB helps them, but it doesn't follow that it's right for everyone. If you've got a system that works for you, stick with it.

Ebe_Scrooge

mr_stripey said:

Many budgets I think fall down by simply reflecting Income - Bills = Money left over.

I have to agree with this.  No software is essential, but something like YNAB or the SOA (as used over on the Debt-Free Wannabe board https://www.lemonfool.co.uk/financecalculators/soa.php) can at least give you a starting point.  It categorises the most common forms of expenditure, and perhaps makes you think about things you might otherwise overlook.  Even that is not perfect, but I reckon it's a good start.

It's often the "annual" things that catch people out - Christmas, for instance.  It happens pretty regularly most years, and you probably know roughly how much you spend (£x on food and drink, £y per child, £z per grand-child, nephews & nieces, that sort of thing).  So put money aside each month to cover that, and you can afford it without resorting to credit when the time comes.

Same for car running costs, holidays, birthdays, insurance, etc.

There's nothing wrong with doing it yourself, whether on spreadsheet or a notepad and pen, but the tricky part is trying to make sure you have every single item of expenditure accounted for.

RG2015

mr_stripey said:

I'm a YNAB user, but I certainly wouldn't regard it as "essential" for everyone. It certainly works for me. But I guess the most crucial thing about any budget (whether it be in Excel, YNAB or a notebook) is that it reflects actual, realistic spending.

Many budgets I think fall down by simply reflecting Income - Bills = Money left over. On paper (or Excel) it looks like I have plenty of money. But car repairs, holidays, christmas etc creep up on us. We know they are coming but a basic budget doesn't look at these things.

So if you know you're going to spend £1000 on Christmas, you should be saving towards that now and every month. Same building a sinking fund for car or house maintenance. 

For me YNAB works by setting these targets and also I can look at where I actually spent money last month. So I budget £250 on groceries but I actually spent £350 so maybe I either need to cut back or add more to the budget.

But, whichever method works best - just make sure you are "saving" for future known expenses.

I see that my use of the word essential was ambiguous. What I meant is that some posters said they found it essential for themselves.

I would though challenge the bit I have highlighted in your post. Insert the word annual and this is fine.

Annual income -annual expenditure = money left over.

mr_stripey

RG2015 said:

mr_stripey said:

I'm a YNAB user, but I certainly wouldn't regard it as "essential" for everyone. It certainly works for me. But I guess the most crucial thing about any budget (whether it be in Excel, YNAB or a notebook) is that it reflects actual, realistic spending.

Many budgets I think fall down by simply reflecting Income - Bills = Money left over. On paper (or Excel) it looks like I have plenty of money. But car repairs, holidays, christmas etc creep up on us. We know they are coming but a basic budget doesn't look at these things.

So if you know you're going to spend £1000 on Christmas, you should be saving towards that now and every month. Same building a sinking fund for car or house maintenance. 

For me YNAB works by setting these targets and also I can look at where I actually spent money last month. So I budget £250 on groceries but I actually spent £350 so maybe I either need to cut back or add more to the budget.

But, whichever method works best - just make sure you are "saving" for future known expenses.

I see that my use of the word essential was ambiguous. What I meant is that some posters said they found it essential for themselves.

I would though challenge the bit I have highlighted in your post. Insert the word annual and this is fine.

Annual income -annual expenditure = money left over.

Yes. I would agree.
Speaking from experience I can recall countless times I sat down to "budget" and the obvious starting point is to take monthly salary and deduct your monthly bills. And in almost every case, my "budget" looked very healthy Because I wasn't factoring in the expected and unexpected annual bills like (as already mentioned) Christmas, holidays, birthdays, car service/MOT, house maintenance etc.

Nebulous2

We've never really budgeted, partly as my wife has never seen the point.

I screw down costs whenever bills become due, close down any payments that are no longer needed and we're careful with expenditure, shopping around for good deals. Purchases are considered carefully to see what benefit they would bring. 

My pension plus part-time earnings have exceeded expenditure in the last 20 months, at a time which should be the tightest budgetwise, before state pension kicks in. 

I record investments, savings, and any debt on a spreadsheet on the first of every month, so have a regular 'state of the nation' which would pick up if anything was going awry. 

It wouldn't suit everyone, but works for us. 

nyermen

I'm a massive fan of envelope budgeting (which is what YNAB enforces).   But it still needs discipline (they have "budgeting rules" which you can apply to your thinking with or without their software) as well as sensible setting of the budget (is everything in there?  Does it start correctly, such as every annual bill isn't in 12 months time, so some envelopes will need funds to cover what should have been saved already, etc).

I've used it for a long time, both the old app and the new "subscription".  It does force a way of thinking which is good - when you look at X in your account, envelope budgeting helps you think "Thats not X to spend this month until payday, it's Y to spend (X minus what i've accrued for all those non-monthly bills such as car insurance).

With envelope budgeting done correctly, the concept of "difficult months when the big annual bills are due" goes away.

Disclaimer: I've tried to not focus on YNAB, rather the concept - in fact I'm about to scrap the YNAB subscription as we have warning of large redundancies at my company, and so looking to trim my budget just in case.  Plus the old app still works fine for me which was one time purchase, not subscription.

RG2015

Nebulous2 said:

We've never really budgeted, partly as my wife has never seen the point.

I screw down costs whenever bills become due, close down any payments that are no longer needed and we're careful with expenditure, shopping around for good deals. Purchases are considered carefully to see what benefit they would bring. 

My pension plus part-time earnings have exceeded expenditure in the last 20 months, at a time which should be the tightest budgetwise, before state pension kicks in. 

I record investments, savings, and any debt on a spreadsheet on the first of every month, so have a regular 'state of the nation' which would pick up if anything was going awry. 

It wouldn't suit everyone, but works for us. 

This is what many would call budgeting. It is what I do although I also project forward.

Just because we don’t set limits on areas of expenditure it doesn’t mean we don’t budget.

It comes down to how we define budgeting.

RG2015

nyermen said:

I'm a massive fan of envelope budgeting (which is what YNAB enforces).   But it still needs discipline (they have "budgeting rules" which you can apply to your thinking with or without their software) as well as sensible setting of the budget (is everything in there?  Does it start correctly, such as every annual bill isn't in 12 months time, so some envelopes will need funds to cover what should have been saved already, etc).

I've used it for a long time, both the old app and the new "subscription".  It does force a way of thinking which is good - when you look at X in your account, envelope budgeting helps you think "Thats not X to spend this month until payday, it's Y to spend (X minus what i've accrued for all those non-monthly bills such as car insurance).

With envelope budgeting done correctly, the concept of "difficult months when the big annual bills are due" goes away.

Disclaimer: I've tried to not focus on YNAB, rather the concept - in fact I'm about to scrap the YNAB subscription as we have warning of large redundancies at my company, and so looking to trim my budget just in case.  Plus the old app still works fine for me which was one time purchase, not subscription.

The bit I have highlighted is critical to how people budget.

I do not think this way, so envelopes make no sense to me. I have some savings so the payday cycle has no influence on my spending decisions.

If I get an unexpected windfall my wife asks me what I am going to spend it on. I say that if I had wanted to buy something I would buy it. Having extra money available is irrelevant.

You’d think after almost four decades she would know me by now.

PS When I win a million on the Premium Bonds I may splash out just a little.