Whether you’re looking for ways to make extra money, or trying to manage and save money, automation can be your best friend. Once you have a system in place, putting repetitive tasks on autopilot gives you more time to focus on the rest of your life. Automation can also be an integral part of maintaining a budget. Below are two real-life examples of how people automate the tracking and savings of their budget. After everything is in place, you can often get away with just spend an hour or two a month on maintenance and reviewing your goals and spending.
Tracking Your Money Can Lead to Valuable Insights
There is something to be said for a hands-on approach to creating and managing a budget, especially when you’re just starting out. Having the experience of recording every transaction and going over week- or month-long summaries can provide you with deep insight into where your money is going.
Sometimes this is met with resistance – after you see how much you spend on alcohol or work lunches you might be tempted to stop tracking your money. But, if you can work through the resistance the data can be tremendously helpful. Try to identify what makes you happy and how you want to spend your money, and compare that to how it’s actually spent. With the data in front of you, you can try to make adjustments to your lifestyle and work towards getting the most worthwhile value from your money.
For several years, I tracked my daily expenses using an iPhone app. Every time I made a purchase I’d manually add it to the app. At the end of the month I’d upload all the information to a spreadsheet and review my expenses. I was living in New York City, and it was quickly apparent that going out on the weekends was my largest discretionary expense. It made sense at the time as everyone I knew lived in small apartments and a bar or restaurant was the most convenient way for us to meet up. Not wanting to forgo meeting up with friends, but also looking for a way to save money, I spent time finding the bars and restaurants with great happy hour deals and cheap food or drinks.
Over time, I noticed my spending shifted towards food from alcohol. Partially this reflects my changing preference to socializing over a meal or hosting potlucks (easier to do now that I live in a house in California) rather than meeting people at the bars. I’ve altered my budget to account for this change in spending and preferences. I put less money in my “personal” category (where I categorize alcohol), and more into food. I have to cut back on some personal expenses – entertainment, shopping, etc. – but now I can go on a big grocery run and throw an occasional barbecue while sticking to my budget.
Tools to Automate Your Budget
I no longer pull out my phone every time I make a purchase. Instead, I use software (Quicken) that automatically records my debit and credit card purchases. There is, however, a Quicken app that I use to record cash purchases. At the end of the month, I pull all the data and plug it into a budget spreadsheet I created and continue to refine.
I recently spoke with Daniel Mollino, a New Jersey resident that suffered a traumatic brain injury (TBI) in 2010, made a remarkable recovery, and recently biked across the country to spread awareness of TBI. Dan’s story was featured on personal finance and news sites, and I was particularly struck by the automated system that Dan had in place. It allowed his wife to handle the finances – usually his responsibility – while he was in a three-week coma and inpatient care for the following three months.
The Vital Two Components of Every Budget – Two Systems Compared
My budget system is slightly different than Dan’s, but I’m more surprised by how similar they are given our different lifestyles. Dan is married, has a home, and owns a car – I don’t live or share finances with my girlfriend, rent, and use public transportation (and get rides from friends).
By sharing how our two systems work, I hope you can start to formulate one for yourself as well.
1. Tracking Income and Spending. The core of any budget is tracking income and spending. Both Dan and I have dabbled with different options over the years. I tried a cheap app for a time and Dan recorded everything by hand on columnar pads. We’ve both settled on Quicken. You need to pay for the software (although I’m still using the 2013 version and it works fine), but it has a boatload of features. I just use it to track and categorize expenses; Dan likes to generate reports showing estimates for future income and savings.
Dan also uses Mint, free software owned by the same company that makes Quicken, for tracking expenses and keeping an eye on his budget while on the go. He recommends Mint for those looking to start out.
I use Google Docs to manage and track my actual budget. I record my income on the spreadsheet as I make money. Since I have variable income things can get tricky, but I partially get around this by usings the current months income to determine the next months budget. In other words, if I make $1,000 in January that will get split up and assigned different tasks for February. At the end of each month, I plug in the expenses reported by Quicken, compare that to my budget, and roll over extra the difference to the next month.
If you’re just getting started, or looking for something different, I’d also recommend You Need A Budget (YNAB). It’s more hands-on than Quicken or Mint and I’ve heard great things from users.
1. Automating and Categorize Savings. Dan is on top of his automation game. He and his wife use Capital One 360 savings accounts. The bank lets account holders have multiple savings accounts and nickname them. Dan has savings accounts for vacations, healthcare, home improvements, personal savings, etc. There’s even a special account for summer savings since his wife is a teacher and has the summer off.
All the family’s income goes into one account, then automatically gets distributed out into the different savings account. Dan and his wife each get a personal savings account, money goes into the nicknamed savings accounts, and there’s a joint checking account for shared expenses. There’s a buffer in the checking account as well, but at the end of each quarter, anything above the buffer amount is moved into savings.
My system is a little messier, perhaps because I don’t need to share the data with anyone else. I put most of my money into a high-yield savings account that gives me 3 percent interest and split it into categories on paper – or rather on my spreadsheet. Like Dan, whenever I deposit money it automatically gets divided into categories. I split mine into long-term savings, short-term savings (medical, travel, gifts, and networking), charity, household expenses, food, and personal. Some people prefer to have the money actually split into different accounts, but I don’t mind checking my spreadsheet when I want to know what’s available.
One valuable lesson I learned from speaking with Dan is the importance of creating an accessible and easy-to-use system if you share your finances with someone else. Although we didn’t dive too deep into the topic, he and his wife created a system where money gets split between shared goals and responsibilities and individual wants or needs.
In future posts, I’ll get more in-depth about creating budgeting systems and tracking your income and expenses. It was interesting to see the differences and similarities between Dan and my system. We both value keeping a budget and automating part of the process, but have taken a slightly different approach and use different tools to do so.