How We Manage Our Finances

The Budget ProblemMoney 99

I’ve been trying to figure out how to manage a budget for almost a decade. When I was working through college, I purchased a copy of Microsoft Money 99 to categorize my income and expenses. I used it religiously, keying in receipts and importing downloaded transaction files. It worked pretty well: I knew what I was making, and where I was spending it. Microsoft issued Money upgrades every year and I faithfully bought every other version.

Getting married introduced a new level of complexity, but Sarah was accommodating to my system and stacked ATM slips, grocery receipts, and bills in my inbox so I could key them into Money. Microsoft shipped a feature to categorize my downloaded transactions, but it was often wrong — meaning I’d have to spend time reconciling transactions with my bank statements at the end of the month. This was my least favorite exercise and I often let data entry go a month or two before I would find a spare weekend to download and correct the data.

From time to time, I’d try to print reports from Money to show Sarah where we were financially. I was able to generate things like pie and bar charts, but the information never felt actionable and we would leave conversations about finances little more assured then when we started. Worse, printing reports from Money took reams of paper. Charts were always fit to a whole page, and inefficient tables produced pages of empty whitespace around a few columns.

Money 2006

Later changes in Money got me seriously considering a break-up. Money 2006 had a complete GUI makeover, using the same uglystick Microsoft perfected with Hotmail: what was once a refined user interface suddenly felt like it was designed by Fischer Price. Database corruption was common and, though quickly fixed with the Restore feature, got me wondering about the danger of proprietary lock-in — if that database was hosed, we were screwed. On top of all that, a pet peeve of mine was never solved over my eight years’ experience with Money: there was no real helpful way to categorize credit card payments as an expense AND a transfer.

A New Sense of Urgency

Last year we had our first child, and I had a whole new sense of urgency to solve the household budget problem. My wife left work in January and I didn’t know if our lifestyle was sustainable on a single income. After more than a little prayer, I set out to find the One True Metric of any household budget: income vs. expenses. It’s a number — income minus expenses — that tells you whether you’re breaking even at the end of the month. If it’s positive, you’ve got money in the bank; if it’s negative, then you’re breaking out the credit cards.

So, inspired by a simple graph of donations in my church bulletin, I produced a bar graph to show income, expenses, and the balance on a month-over-month basis. The good news was that we were in the black. Further influenced by a coworker, I set out to create a one page dashboard of our entire financial story. Unlike Money, I took the approach of cramming as many data points into this page as possible while maintaining readability. The end result was a two-page document that describes our finances from both a high-level overview and a detailed expense report for the year. Every month, I update the spreadsheet and post it on the refrigerator so we can refer back to it from time to time.

The Budget Overview

The first page provides an overview of our entire financial situation: the first column contains a month-over-month snapshot of Income vs. Expenses, followed by Key Expenses, and then Investment values. That’s followed by the second column which shows a month-over-month view of Debt, Savings, and Retirement. Trends quickly become visible at a glance.

Another iteration of the spreadsheet added a third column which shows year-over-year forecasts for Debt, Savings and Retirement — all of which are dynamically calculated from values I plug in right on the page. Across the top, I’ve provided our short- and long-term goals to remind us where we’re going.

The Budget Detail

The second page provides a month-over-month breakout of how every dollar flows in and out of our checking account. To the left, I’ve grouped categories by Income (green for good!), fixed expenses (yellow: not likely to change), flexible spending (orange: might change unexpectedly) and out of budget (red for bad!); I can also tell when a bill is coming due by the Day column. In the following columns, I can compare monthly average expenditures against our budget to anticipate where we need to adjust.

Following to the right, I’ve provided a “heat map” for each expense per month: red for over budget, gray for on budget, green for below budget (vice-versa goes for income categories). On the right, a Year to Date running total and percentages that tell me what portion of our income or expenses are made up of each category.

Finally, at the top right is the One True Metric: a percentage of expenses vs. income. If that number is positive, then we’re living within our means. If red, then I know we need to control spending somewhere before it becomes debt.

Sample Report

Link to an example of the two-page printout, populated with fake data, below.

I’ll provide a link to the spreadsheet itself and a technical overview later on how this report is actually generated, but I do have to say that producing this document would have been a lot more difficult — maybe impossible — without Wesabe, my financial management tool of choice. Their simplicity and openness really enabled me to pull this information together into Microsoft Excel in a very straightforward manner. Setting up an account with Wesabe is step 0 in this whole process, because you need to get a handle on cash flow before you can start to analyze your overall budget.

The Catch

I was very hesitant to share this spreadsheet. The more we used and refined it, the more excited I got about it. But, I’ve fallen victim to false hopes in software and process before (as any number of Palm devices I’ve owned could tell you). We’ve now been using the spreadsheet for a year, and I’m assured that it works. We get actionable, meaningful information about our finances that we can plan on and talk constructively about. My wife and I feel more confident in our finances than any other time in our marriage.

The problem is: it’s really wonky to use. You have to really know how to use Excel features like Conditional Formatting and Pivot Tables, and have a firm grasp on formulas. Adding new budget categories is simple, but not trivial; tweaking forecast charts requires fiddling with complicated amortization tables; and God help you if you want to plot new credit cards or savings accounts you don’t know how to use charts. I do this stuff for a living, so it’s straightforward, but still takes me a couple of hours at the end of every month to churn.

My hope is that I can invoke the lazyweb (or, better, the well-funded-capitalist-web or even the clearly-self-motivated-web) to take up making a real system of this idea. I want to be able to hand something to my family and friends and have them derive the same benefit with a tenth the technical learning curve it takes now. If you’re interested, getting in touch is good, but downloading, hacking, and posting your results on the web is better.

Getting this right could really change the lives of lots of people for the better.

Paying Off Credit Cards

We’ve been working aggressively to pay off our cards over the last year or so. Running the numbers on our situation has led to some surprising insights about the potential of a debt-free existence.

Let’s say you’re carrying the American average of $10,000 debt on your credit cards, but, rather than pay the insane 29% interest on most consumer cards, you were smart about it and moved the money to a 0% card. And let’s say you’re paying that money off at $400/month. That leaves you 25 months to pay the sucker off. Should you try to pay it off sooner?

Well, let’s take a look a what life would be like without the $400/mo payment. 400 times 12 months equals $4,800/year — not an insubstantial chunk of money. And, you’re paying taxes on that money for the privledge of sending it to the credit card companies every month. Assuming that’s around 30%, you have to earn $6,854 per year just to give it away to Uncle Sam and the bank.

Let’s say you make $65K per year: paying off the card completely would be like giving yourself a 10.5% raise! But let’s take that a step further: what if you paid off the card and invested half the monthly payment into a retirement account like a 401(k). You get to pocket $200 every month ($2,400 a year), but because a 401(k) is a pre-tax investment, you’re investing $285/mo in your future.

Knowing that many companies match retirement contributions — some match a dollar for every dollar you contribute — that means you could be saving as much as $570 a month, or $6,840 a year!

Now you’ve given yourself a 14% raise ($2,400 pocket money + $6,840 in savings), all by just paying off your credit cards as quickly as possible. And, note, that’s assuming that you’re not paying any interest on that debt — that adds a whole new level of urgency to paying off your cards ASAP.

A “friend of mine”: calls the difference between his expendable income and his credit card debt his “shovel to hole ratio” — in other words, his ability to dig himself out of debt. Paying off your cards and saving the money for the future takes this analogy to a new level. Once you’ve got the hole filled, now you can start stacking bricks on it and really build something.

It’s a wonder more people aren’t doing this.

Engage Indignant Fury

Dialed 800-528-4800 for American Express and spoke to Ash (ID#: 52899) about our account because I noticed finance charges in the hundreds.

Apparently, missing the payment deadline in January jumped our interest up from a 0% APR to _29.24%_.

Oh noes!

moar humorous pics

Engage indignant fury. Asked Ash to reverse it.

Hold music. Was told that he could submit a request to review the situation. Asked why we didn’t pay the bill on time last month.

Because your friggin’ website doesn’t have automatic bill pay.

Actually, we do offer electronic funds transfer by phone and online.

Yeah, I know: the EFT by phone costs $30, and the website is still not an automatic bill pay, right?


It’s not _scheduled_ bill payment, right?

Oh, yes, you’re right; will note on the account. Should hear back about the resolution and reversal of charges (if approved) in one to two billing cycles.

Can also note that we set up bill payment through our _own_ bank and you’ll receive payment in-full, on-time going forward.

Okay, sure.


Didn’t ask if it’s the 21st century and maybe have you heard of this thing called the internet?

Didn’t explain that every other bank we’ve had in the last five years has auto billpay, because at the end of the day, all I really want to do is just send you my money, will you please just let me send you my money?

Didn’t imply that an institution founded in 1850 might have the dignity of notifying customers of such a drastic account change and will you maybe consider the impact this might have on your brand?

Nope, saving that material for another round in four to eight weeks.

On the Radar: Giving the blog some love again

* ??Mark Glaser?? for ??PBS??: “Should Community-Edited News Sites Pay Top Editors?”: (via “Digg”: → “Kevin”: → “Jason”: Aside from the Digg vs. Netscape drama that’s been erupting over the past couple of weeks, Calacanis raises some interesting questions about how people in the *attention economy* are compensated for their time and hard work. The next 18 months as these two players in community-driven news hash it out should be really interesting.
* ??John Gruber??: “Magic 8-Ball Answers Your Questions Regarding Microsoft’s ‘Zune’”: That 8-ball. He sure knows a lot about the *digital music* industry.
* ??NPR??: “Avoiding the Housing Market ‘Dead Zone'”: and “Location, Location: What to Buy, and Where”: The nesting instinct kicks in: these interviews were pretty insightful about the state of the housing market right now. Of course, there are derivations for where you are, but the overall buyer’s recommendation is to wait until some of the *already-present market pressures* (housing surplus, higher interest rates, and exotic mortgages held by peers) bring prices down — perhaps even way down.
* ??Everything Newark??: “‘Newark is an Emerging Market””: The ??New York Post??, of all places, has a practically beaming article about Newark’s comeback. Booker’s enthusiasm, that Newark is a place of *untapped potential*, hangs on the very critical results of his stopping crime in the city.
* ??Washington Post??: “Religious Left Gears Up to Face Right Counterpart”: (“via Digg”: Favorite quote: ‘I’m an evangelical Christian who thinks that justice is a biblical imperative,’ said Wallis. ‘The *monologue of the religious right* is finally over and a new dialogue has just begun.’ I really hope Wallis is right.
* ??The Motley Fool??: “Opportunity Knocking for Citigroup”: Citigroup may (or may not) be on the rise if the Fed stops raising interest rates to counteract inflation, which would be nice for shareholders given the “latest anxiety”: over rising costs. A thought for Mr. Prince: consumer banking is sucking wind because *the customer experience is just awful*. The ATMs are nice, and the marketing is fun, but customer service just pales in comparison to banks like Wachovia.
* ??37signals??: “Writing Words vs. Writing Software”: I love these guys: Everyone and his cousin is working on a web app. But how many are actually finishing? That’s why we argue for biting off less. Write a short story/small app instead of a novel/massive app. *Shrinking scope means you actually finish*. And finishing is huge. When you finish something, you show up. And, like Woody Allen said, ‘Eighty percent of success is showing up.’
* ??Rosecrans Baldwin?? for ??The Morning News??: “The Maine Attraction”: Never been, but this sure was funny: Crystal Meth is easier to obtain in rural Maine than it is back home. So are crystals, and posters of *wolves kissing dolphins* in outer space.
* ??Paul Ford?? for ??43folders??: “Are there ‘good’ distractions?”: Paul’s struggle between accomplishing something with his life vs. “swimming in a sea of data” really touched a chord. I’ll have more thoughts on this later, but, if you read only one of these linky-things, make it this one. When I’m not getting enough done I get unhappy and depressed and think about the billions of years I’ll be dead before the heat death of the universe erases everything. I want to feel like *I did something during my brief life* besides check my email.
* LAUNCHED: Sarah goes independent with “Side by Side Dog Training”: The quick-and-not-so-dirty site brought to you by the wonders of “WordPress”:, “Quilm”: theme, and the “DreamHost”: “1-click install”: Feel free to pass the site along to your friends with dogs — especially the ones that accessorize their dogs with *Louis Vuitton dog carriers and DKNY collars*.
* ??Jon Katz?? for ??Slate??: “The Loneliness of Rose”: Rose is not cute. She is a working dog, a farm dog. She herds sheep, keeps the donkeys apart from the other animals during graining, alerts me when lambs are born, watches my back when the ram is around. *She battles the donkeys*, the ewes who protect their lambs, and stray dogs who approach the farm. She and I take the sheep out to graze two or three times a day. On Sundays, we sometimes march the flock down to the Presbyterian Church to hear the organ music and present ourselves through the big windows. ‘Hey, Rose,’ the kids sometimes shout after the service is over. With Rose, we don’t need fences. As my friend Peter Hanks said, Rose is the fence.
* ??Washington Post??: “US waives sanctions on Saudi over religious rights”: (“via Angela”: The United States has extended a waiver that avoids imposing sanctions on Saudi Arabia because it has made efforts to *improve religious tolerance* in the kingdom, U.S. officials said on Wednesday. The US ignores the religious freedoms of millions to suck up to one of its few allies in the Middle East.
* ??New York Times??: “What Shamu Taught Me About a Happy Marriage”: (via Angela over IM). If you read _two_ of these linky-things, make this the other one. 🙂 It was only a matter of time before he was again tearing around the house searching for his keys, at which point I said nothing and kept at what I was doing. It took a lot of discipline to maintain my calm, but results were immediate and stunning. His temper fell far shy of its usual pitch and then waned like a fast-moving storm. I felt as if *I should throw him a mackerel*. Incidentally, this is how Sarah trains Dina (and maybe me).

On the Radar: Digg Dug Edition

* ??Chris Welch??: “Misconception: Renting is for Suckers”: (“via Matt”: Many of my friends are reaching that point in their lives where they’re considering buying a home. However it’s unfortunate that so many choose to buy over rent, especially in this expensive market, because many well-intentioned people are buying homes that are actually damaging their finances.
* ??Fresh Pursuits?? “Canvas”: Canvas brings the freedom to express yourself through design without needing to know CSS or PHP. With Canvas and Ink for WordPress, you can easily rearrange, reconfigure, and colorize your entire blog without ever touching a line of code.
* ??Michael Barrish??: “Hell Freezes Over”: Revamped and redesigned, it uses haikus in place of business copy (I couldn’t bear to write business copy) and features a new weblog about making websites (you’re soaking in it). Wondering what “Michael”: is up to, I find his new, angsty, neurotic web design company website. Brilliant work.
* I’ve really begun to dig “digg”: lately. As usual, I’m behind the curve (“digg just launched version 3 of their site”:, but I think I’m just one of those people that has to see something working well before I can grok it. For the uninitiated, digg is a news site that has its content submitted by users. I had initially dismissed it as another “mob rule by the masses” type app (you know, enhancing the “echo chamber”: effect of blogs), but it regularly produces some interesting results. Check it out, and “add me as a friend”:.
* ??Granite Consulting??: “Late Binding in Microsoft Access”: In essence: if you’re exporting to Microsoft Excel from Access programmatically, just use late binding.
* ??Joshua Porter??: “The MySpace problem”: Joshua gives some thought to what aspect of “design” MySpace really excels at. Hint: it’s not the graphical type. Instead of wondering what MySpace could be, let’s learn from what it is. Let’s assume (forgetting visuals for a moment) that MySpace is well-designed instead of condemning it as a visual failure. Let’s ask the obvious questions: why is it so popular? What makes it so successful? The answers to these questions might make us rethink our basic assumptions, but will make our future designs stronger as a result.
* ??Jason Calacanis??: “The new publishing model”: (“via Matt”: Here is the new model: 1. Start a blog with adsense and make spare change. 2. Scale a blog to 250k to 1M pages a month and become big enough for Federated Media, AdBrite, and Blogads to care about you (i.e. sell you’re inventory)–now you’re making a living. 3. Scale over 1M pages a month and become big enough that you can afford your own sales group and fire Federated Media for taking 40% of your money because your cost of sales will be 15-20% as a stand alone business.
* YouTube: “Pirates of The Caribbean Ride”: (“via Mike”: Johnny Depp meets an animatronic version of himself as Captain Jack on Disney’s new Pirates ride. Very cool.
* ??Lifehacker??: “Windows Vista Beta: A tour in screenshots”: Wow, not bad, Microsoft. I mean, after some five years of development, you’d hope that Vista wouldn’t be incredibly atrocious. There’s quite a bit of OS X influence in the finder here (nudge–hey Apple: time to get past “brushed metal”: in “the finder”:, by the way), and I’m glad they’re getting away from the “Fisher Price”: school of design.
* ??Angela Wu??: “So much rage”: I’ll agree to this mission if I can be assured that your rage level (which was off the charts that unforgettable night which still haunts me) will stay at a reasonable level. It’s true: I’m hosting Anglela’s website because she strong-armed me into it. Fear the rage.
* ??Jen Poley??: “1966 Plymouth Fury II”: What can I say? Jode and Nathan wanted a car to work on….we found this in Lincoln, and bought it. We hope to restore it, but if you can believe it, for now we are just really enjoying driving it around town. I can just imagine how much Jode is enjoying this.


Update: if you loaded this page in the last hour or so and saw a bunch of garbage — yeah, that was me. I was trying to set up the “FlickrRSS” cache so this site would load a little faster. I think I got it working; the the site is loading a lot faster!