Budgeting for Dummies: The Complete Guide

mint-leaf

New year, fresh budget.  Wait, you haven’t budgeted before?  If so then Budgeting for Dummies is for you since there is no better time to start then now!

If you didn’t already read the budgeting primer, Don’t be Cheap, Be Smart. Budget!, you might want to go check it out first.  In that post we set the stage for budgeting and a few loose ground rules.  If this whole thing is new to you, I would say you should plan to spend 2-3 hours setting everything up.  After that things will be on autopilot for the most part only requiring you to spend an extra 2-3 hours per month from then on.  I usually spend more than that per month because I like to micro manage but it’s absolutely up to you. Your life doesn’t need to be consumed with budgeting for you to be successful at it.

A Brief Argument for Mint.com

Budgeting for Dummies using Mint

Why are we using Mint.com in budgeting for dummies?  First of all, it’s free.  Second and more importantly it’s super easy, low maintenance and intelligent.  We’re going to spend some time with it telling it how we like our things categorized and Mint will learn and leverage the knowledge of all of their other users to make budgeting our finances as easy as possible.

Typically, there is really only one major concern with using Mint.

I’m afraid to give Mint.com the ability to log into my financial institutions.  I don’t think they are secure and I’m afraid my bank information will be exposed.

That’s a reasonable concern, but let me tell you why you shouldn’t be worried.  Mint.com uses 128 bit encryption which is on par with what financial institutions use to secure their online banking websites.  The major difference between your Mint.com and your bank is that Mint.com is read-only so if someone breaks into your Mint.com account, all they can do is screw up your budgets, they can’t actually steal any money.  You should be more concerned with your online bank’s security.

Further more, to actually break the encryption Mint.com uses is theoretically impossible.  I won’t nerd it out too much but if you’re interested in that kinda stuff, the Wikipedia article on brute force attacks explains it all (and they detail breaking 128bit).

Hopefully we agree that this is not plausible so lets start budgeting.

Create Your Mint.com Account

Total time: 8 seconds.

Visit their signup page and give them your email and password.  They won’t sell your email, not that it really matters since you probably put much more valuable information on your public facebook page for free.

Create a Mint.com account here: https://wwws.mint.com/login.event?task=S

Easy.  We don’t call it Budgeting for Dummies for nothing ;)

Add in Your Accounts

Adding accounts to Mint

Click there

Total time: 10 minutes.

Ok, you’ve created your account and you’re logged in.  Now we’re going to add in all of your checking accounts, saving accounts, credit cards, mortgages, investment accounts, 401k’s, IRA’s, etc…  Everything.  No stone can be left unturned, we want an absolute complete view of your financial situation.

Maybe your finances suck and are painful to look at but obviously ignoring it didn’t solve the problem so we’re trying something new here.

Occasionally you may have to come back to the accounts screen if your bank updates its security process like making you answer new security questions for example.  Generally speaking, you wont need to come back to this screen unless you open a new account (like Betterment).

Review Your Transactions and Set Your Rules

Editing a transaction in Mint

Choose the proper category for your transaction

Total time: 1-2 hours.

Yea, this is the most time consuming step.  If you set aside the time and just do this step right the first time, you’ll never have to spend this long in Mint ever again.

It might take a few minutes after you add your accounts for all the transactions to get imported so be patient and wait for those little spinning refresh animations to stop.  Did they stop?  Ok, great, Lets get started.

Click on Transactions up top and you’ll notice all of your spending, credit card payments, money transfers, 401k contributions, etc will show up here.  There is a lot of information here and it can definitely be overwhelming at first.  Don’t get lost in your head about how much work this is going to be, just put your big boy (or girl) pants on and get started.

If you look at the first transaction you will notice that Mint has already grabbed the likely name of the Vendor, a suggested category and the price.  Most of the work has already been done for you.  Lets use an example from my Mint account for how you should approach each transaction.

Setting a budget rule in Mint

Once you set your rule, you’ll never have to categorize a transaction like that again. Ever!

Click on the transaction which is listed as Uncategorized or is improperly categorized and then click Edit Details.  Click on the two arrows next to the category, browse to a high level category and then select a more detailed sub category.

In my Fandango example you will see that I first hovered my mouse over Entertainment and then selected Movies & DVDs.  That wasn’t too bad, right?

There is one more step that will make your budgeting infinitely easier into the future.  That’s creating a Transaction Rule.  As you can see, from your Mint.com transaction it automatically suggests a rule for you (image on the right).

Again using my sample Fandango transaction, you can see that Mint is allowing me to make all future transactions from Fandango fall into the Movies & DVDs category.  Better yet, it’s going to automatically change this on all my existing transactions.  Huge time saver!

Basically you’re just going to rinse and repeat.  Continue to do this for all of your transactions.  Do your best to put them into the most correct categories while not spending too much time worrying about any individual transaction.  If you think something is in error, make note of it and address it later.  Be very thorough here, you only want to ever do this once.

Examine Your Spending Trends

Spending trends in Mint

Look at spending over time for individual categories to pinpoint potential areas we can save money

Total time: 25 minutes.

Now that we’ve put all of our spending into nice understandable categories we’re going to look at our train wreck of a financial history.  Don’t beat yourself up over the past, we’re turning over a new leaf here and we’re going to start doing things right from now on.

Let these graphs be the proof of your crazy spending habits and the fuel for your future saving efforts.  

Click on Trends up top.

What we’re going to do is look at specific categories and decide what kind of waste is in there.  I included a picture of my monthly grocery shopping as an example.

As you can see, I was spending quite a lot for my fiance and I on groceries.  Fancy expensive chicken, over priced oils, too much beef jerky, you get the idea.  About halfway though the year I caught this terrible habit and went on a grocery spending diet.  If I were to continue on my trend of $500 a month for groceries, I would have spent an additional $1,150 in groceries just through to November.  Instead I added that into my savings pile, a pile that is on it’s way to buying me my first house.  It’s the little things that count.

Go find savings across the board and make note of your goals.  Don’t be too crazy, we will tune this in time.  We don’t want you to get overwhelmed and exhausted causing you to bounce back to your bad spending habits.

Patience my friend, Rome wasn’t built in a day.

Ok, NOW we can Start Budgeting

Setting a budget in Mint

Set a budget you can meet. Once you successfully beat the first month’s budget you can get more ambitious for the next month

Total time: 25 minutes.

By now you’ve hopefully located a few areas of potential savings so we’re going to save these goals and work on it through out the month.  Click on Budgets.

If you want some general guidelines on what are acceptable budget numbers, check out my earlier post: Don’t be Cheap, Be Smart. Budget!

Be sure to budget for all your main spending areas.  I’m not going to know all of them but for example, if you spend $200 on coffee a month, that might be something you want to put into your budget.  Little spending leaks like that are what destroy your savings because they are multiple tiny expenses that are hard to keep track of.  If you were buying a flat screen TV every month, I think you would know and be able to keep track ;)

One cool thing Mint includes on the Create a Budget screen is your historical spending vs the US National Average.  Meeting or beating the US National Spending Averages should in general be a good goal to start with.

Budgeting for Dummies Monthly Homework

Total time: 1-2 hours monthly.  I break it down into small chunks to make it more manageable.

Ok, great job, you’ve successfully set up your Mint.com account, trolled through all your spending since what seems like forever, made a budget and survived!  The hard work is done, now you just need to keep things going.  Over the course of the month, just log into Mint really quick and check things out, make sure you’re still on track.  This is just something you will need to develop as a habit, as it will never be “complete”.  Get the Mint.com app for your iPhone/Android phone, it’s great.  On the apps, you can do a thorough review in like 5 minutes and then you’re good for at least a week.  It isn’t called Budgeting for Dummies because it takes no effort, just it’s very easy once you learn how.

Your next steps are based around optimizing your spending.  If you aren’t already, you can follow the path to financial success at the Need Money Now Strategy.

What do you think, will you be able to stick to budgeting your money?  Have you used Mint to reform your terrible spending habits?  Tell us about it in the comments!

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  • http://solvingthemoneypuzzle.com/ Jane Savers @ The Money Puzzle

    My Canadian bank is developing their own Mint style software that will see me covered under the bank’s online protection. If I use an outside service I risk not being protected if fraud or theft occur.

    I have a pencil and paper budget and it is stuck to the fridge. Although it is labelled the 2013 budget it is hardly static and changes happen frequently. The first change will be to the property tax category when my city announces how much I will owe them this year.

  • http://www.debtroundup.com Grayson @ Debt RoundUp

    This is quite the guide to using Mint.com. I have used this app for years and I enjoy it. I am not a fan of its budgeting system, but it works well enough, especially if you have never had a budget before.

  • http://centsandsensibility.ca/ Lindsey @ Cents & Sensibility

    Hi there
    I’ve heard really good things about Mint.com, however I tend to be a little squinty-eyed and suspicious of “cloud” type arrangements involving my money. Right now I use Quicken which I think does many of the same things but Mint does offer portability which is a great selling feature!
    Things to ponder, for sure!
    Cheers
    Lindsey

    • http://www.listenmoneymatters.com Andrew

      Hi Lindsey, thanks for commenting. May I ask why you are suspicious of the “cloud”? Could it be because you don’t understand it?

      The “cloud” is simply a buzz-word used to describe the ubiquity of a service on the internet. Your website may reside on a single physical server, however with the “cloud” you have a virtual set of resources that sit across multiple servers protecting you from any single server failure.

      Did you know that Quicken and Mint are made by the same company and both pieces of software connect to your bank to grab your financial transactions? Services like Mint have read-only access to your financial data, just like Quicken. However, if you are concerned about data security I find it very strange that you’ve chosen Quicken over Mint.

      Mint is hosted on a set of servers with incredible layers of security. Quicken on the other hand is stored locally on your computer at home and I’m willing to bet a pretty penny that you do not have comparable methods of protecting your data against hackers as Mint does. If you are truly security conscious you should store your data on Mint’s servers as they are absolutely more secure than your home computer.

      However, most important of all is that because Mint has read-only access to your data, hackers can’t actually do anything harmful. The greatest level of access a Mint hacker can achieve is the ability to read your transactions and budgets. Pretty boring.

  • Path to Greatness

    I had never heard of mint.com before this article but sounds like it can save us all some time!

    as I mentioned I am not familiar with mint.com, but is there any direction as to ‘savings’ and how to use the savings once we have them?

    I wrote a blog post on budgeting after some request and that seemed to be the main concern – what do I do with savings? do I get that jet ski I always wanted?

    I am a firm believer in using money to make money and that is what I tell everyone that asks what to do with their savings! I go into more detail into my article (if you don’t mind me plugging myself sorry!): http://www.path-2-greatness.com/how-to-budget/