So you have a major financial goal in mind, but have a hard time with managing your money? Been there- or rather, Sally has. One of the best tools available for wannabe savers is the free budgeting tool inside of Mint.com. Mint is a personal finance application that allows you to connect all of your bank and credit accounts in one place, import your transactions, and budget based on those transactions. I’ve talked to many people who have tried to keep budgets in the past and have failed to do so. Usually there are two main reasons for budget failure:
- The budget was way too complicated
- The budget did not reflect reality
So for all of you budget wannabees out there, I have one simple cliche rule: KISS.
Keep It Simple, Stupid.
Everything I discuss in this post will follow KISS. If you keep your budgeting simple you will more likely follow your budget and more likely be able to fund your financial goal!
There are plenty of resources out there for showing you how to set up a budget in Mint, including on Mint itself, which will take you through all the steps of setting up an account and importing your transactions within the application. This post will focus on best practices so you can actually use Mint effectively.
Setting Up A Realistic Budget
When you first go to set up a budget, Mint provides literally hundreds of options of categories for your budget.
Time to go back to our first budgeting rule- DO NOT fall into the trap of over budgeting and creating too many categories. While the categorizations look nice, and are definitely an impressive feature of the app, overdoing them is one of the biggest mistakes you can make when creating your budget.
Good luck trying to follow a budget that looks like this:
When you have too many categories in your Mint budget, you end up with a lot of miscategorization, and categories that are over budget, and others that haven’t inched past $0.
Another important way to keep your budget as simple as possible is to stop tracking any expenses that are the same every month, such as your rent and car insurance. Those are important for your savings goal, but they are irrelevant to your monthly budget since they do not change from month to month.
If you see above the rent I paid makes my total look like I’m right on budget for the month for all my categories, but in fact I have lots of room in most of them since I’ve only eaten out and paid rent this month! This distortion makes it difficult to change your actual spending habits.
Instead of setting up a budget with a lot of categories, I focus on creating a budget with about 5 major categories that encompass my most common expenditures and that do not change from month to month. My actual budget categories look like the below:
As you can see I have six major categories, which is all I need to be able to keep an eye on my expenses. A category like Food & Dining encompasses both food that I make at home and on eating out. Since eating at home is much cheaper, if I’m over spending on that category in a month I’ll cut back on eating out spend more time cooking food at home. If I’m underspending, I’ll reward myself with a nice dinner at one of my favorite restaurants.
I also do not include any expenses that pop up randomly and only occur rarely in my budget, instead I delete them out of my Transactions when I get them. I do this because these unexpected expenses can throw off morale and make your ability to keep a budget from month to month highly variable. Instead, I make sure that my budget is low enough so I have extra money left over at the end of the month for anything extra that may occur. If nothing unexpected happens I have more money to save!
Sticking To Your Budget
At the end of the day what you want is a budget that is not super easy to follow because that defeats the purpose of the entire exercise. But you also don’t want a budget that is demoralizing and overly difficult to follow with no leniency.
Getting gung ho and setting a strict, cold turkey budget for yourself is not the way to start budgeting, and is a surefire way to failure. That leads us to our second budgeting rule – make sure your budget reflects reality.
If, for example, you spend $500 a month eating out and decide to cook all the time instead I’m willing to bet that you will fail in your first month! A better way to cut back your spending is to take it in steps. For example, when I first set up my budget three years ago I was spending $600 a month on Food & Dining. Every month I would cut back my budget by $10-15 so that all I would have to do is make the conscious decision to bring lunch to work or make dinner one extra night a month instead of eating out. Over time I was able to build this habit and now I eat out only 4-5 times a month (remember, you don’t want your budget to be too strict).
After a few months I’ve been able to create a budget that makes me answer questions like “do I really need this?” or “if I eat out tonight am I ok with eating rice and beans the rest of the week?” a few times a month, but doesn’t leave me in budgetary despair.
Setting Up A Savings Goal
Another great tool Mint offers is the ability to set up savings goals for various milestones. Whether you want to save for long-term travel, a down payment on a house, or an African safari this tool helps you manage your expectations.
When deciding what my savings goal should be I take my monthly income, subtract my budget, subtract all my fixed expenses, and then subtract some sum of money (in my case about $200) for any unexpected expenses that may occur throughout the month. The amount left over is what I use to create my savings goal.
One great feature in this tool is that Mint will forecast when it expects you to achieve your goal based on your savings plan, or inform you of how much you need to save per month to achieve your goal in the time that you set. It will also show you your monthly progress and give you a forecast of your projected completion date based on how much you’ve actually saved.
This savings goal tool has been a great resource in helping me stay motivated for all of my financial goals. I can see when I’m behind and then I can work harder to make or beat my budget so I can save a little more. Or I can see how well I’m doing, and save a little more to reach my goal that much sooner.
It’s a great tool for motivation and a must if you have a specific savings goal in mind for your budgeting.
This is just the beginning of everything you can do with Mint and there are many resources that will help you make the most of it, a couple of the ones I’ve found most helpful are listed below:
Got questions or suggestions on creating a Mint budget? Leave them in the comments section!