One day in 1991, a package arrived at my doorstep. Inside were thick paperback user manuals, and a shrink-wrapped bundle of floppy disks. I carefully sliced open the shrink wrap and inserted the first disk into my desktop computer. I then typed the letters “Q-U-I-C-K-E-N” at the command prompt, and recorded my first financial transaction.
My path to financial independence had begun.
Most of us in the early retirement/financial independence community view budgeting or expense tracking as a fundamental prerequisite for a healthy financial life. In my first book Retiring Sooner, I wrote that “You can’t possibly retire early and safely, without a deep understanding of your expenses. There is simply too much risk that you’ll run out of money otherwise. ”
I went on to note that “…a prominent financial advisor and leader in retirement research writes that there isn’t even any point in trying to do retirement planning if somebody can’t figure out his or her basic expenses!”
But the opinion isn’t universal. I also noted that “A prominent blogger and author writes that most people won’t even bother to read books that tell them they need to track what they spend, because it makes them feel guilty.”
Which side are you on? Do you track your spending to the penny, or stuff receipts in a shoebox and sort them out once a year, if then? Or are you something in between?
In this post I’ll review budgeting software in general, and discuss my own journey from a dedicated penny-tracker in my early years, to gradually easing up on my financial controls here in later retirement….
Budgeting vs. Tracking
Let’s start with clarifying some terms: The general loathing of “budgeting” probably stems from the use of “budgets” in business and government. These are cheerless documents that prescribe sums of money you are allowed to spend in certain categories before incurring the wrath of your boss, or voters.
Almost nobody wants to live their private life under those kinds of controls. That’s why, though I throw around the common term “budgeting,” what I most often mean, and generally advocate, is simply “tracking expenses.” Yes, in my experience, keeping track of your regular spending and sorting it down into categories on a periodic basis so that you know where your money is going, is vital to financial independence.
As I wrote in Retiring Sooner, “Many spending decisions are emotional – they can reflect our deepest desires and fears. Tracking your money helps to create awareness, which leads you to the essential reasons you spend, and control over your emotions. Once you become aware of your spending, you can begin to make intelligent choices about whether it fits in with your personal ideals, financial priorities, and long term goals – or whether you are letting emotions override your own best interests. Over the long haul, being aware of your spending is one of the most important actions you can take to build wealth and retire comfortably! ”
Finally I described the real point of a budget: “In my opinion, 90% of the value lies in the actual spending data, and only 10% in your stated goals. Awareness is key. My approach is to track spending carefully, understand what it costs you to live each month in all important categories, and keep in mind your goal to live below your means. The rest will happen naturally, without draconian adherence to an artificial “budget.””
How to Track
In my experience, there are two possible approaches to tracking expenses, depending on your level of commitment, and the accuracy desired. In the past I’ve called these Real Time Tracking and One-Time Analysis.
In Real Time Tracking, you, or a computer, are recording every single expenditure, more or less as it happens. Then, on some regular basis, you run a report that sums up all the expenses into categories for your review. Even if you rely on a computer to do the heavy lifting, this does require a continual commitment on your part, both to ensure the data is entered correctly, and to review it regularly.
The alternative is to only look at your expenses occasionally, maybe after you’ve experienced a life change, or you sense that your finances are out of control. You can take a monthly snapshot: Sit down with your receipts and statements and try to reconstruct an approximate monthly budget for yourself. Or you can take an annual view: Start with your salary, then subtract taxes and savings and debt payments, to arrive at an approximate annual expense figure.
I noted in Retiring Sooner:
“Central to any budgeting effort is a list of spending categories. The ideal list and organization will be a personal matter. It doesn’t make sense to track categories that are too small to be meaningful, or too large to be actionable. Aim for categories that constitute at least 1% of your monthly outlay, and no more than about 15%, if possible. ”
For more ideas on systems for budgeting, see the excellent summary at CNN Money.
Now let’s take a quick look at some of the budgeting tools available to automate this process….
I’ve always meant to do a comprehensive review of budgeting tools here at Can I Retire Yet? But, given the time commitment required — my retirement calculator reviews were man-weeks of work — I’m not sure it will ever happen.
Meanwhile, I’ll point you to an excellent effort from The Finance Buff circa 2015.
That article is dated now, but it gets at some of the key issues for the major options. Particularly, the Finance Buff points out the important concept of “source of truth.” This boils down to how much you trust your financial institutions to feed you a legitimate record of transactions for you to verify. As someone who has historically checked every single transaction, I can vouch that our banks are very accurate these days. And the occasional instance of fraud is usually easy to spot, if the bank hasn’t already caught it for you. (But, fraud still happens, just read about the $40K theft from my savings account a few years ago.)
So what follows is a brief list of what I’m aware to be the major options in budgeting software these days. If I’ve missed something that you use or favor, please add it in our comments later:
- GOODBUDGET — App based on envelope budgeting method. Sync spending to multiple devices and web.
- mint — Granddaddy of online account aggregation/expense tracking. Bills and money in one place. Alerts, budgets. Free, easy to get started.
- Moneydance — Online banking and bill payment, account management, budgeting and investment tracking. Reminders. Windows/Mac/Linux desktop, with add-on apps.
- mvelopes — Envelope budgeting method. Focused on debt elimination. Variety of plans, some include coaching.
- Personal Capital — A prime competitor to mint for account aggregation. Sophisticated investing analysis features. Goals, retirement planning. Personalized portfolio management/financial planning from an advisor available. A favorite in the financial blogging space.
- pocketsmith — Calendar and event-based. Account aggregation. Budgets, planning, forecasting.
- Quicken — Granddaddy of desktop budgeting programs and probably the most powerful personal finance software overall in depth and breadth of features. Cloud features and user interface are not as polished as newer contenders.
- tiller — Based on your own, customizable spreadsheet. Automatically updates Google Sheets or Excel with your daily transactions and balances. Reviewed here.
- YNAB — Focused on debt elimination. Teaches a method for managing your money, prioritizing and planning. Forward-looking: “Give every dollar a job.” Account aggregation. Goals. Web, apps.
Though convenient and popular, the cloud services have their drawbacks. Neither Chris nor I like giving out access to our accounts. I refuse to concentrate all my financial credentials in one place. Though the risks of compromise are low, they certainly aren’t nonexistent in today’s world. The thought of a criminal getting access to all my financial accounts at once is horrifying.
Instead, I’ve settled on a desktop solution, Quicken, that maintains most of my financial information locally. At least two other highly competent personal finance bloggers I know, use simple spreadsheets with categories to track all their expenses. Though there is a bit more manual labor involved, a simple solution can work perfectly well.
How Much to Track?
Even with software support, tracking your expenses can still be a lot of work.
The task comes naturally enough to us hyper-organized, technical types. But the rest of the population is about as interested in tracking each of their financial transactions as they would be in alphabetizing their cereal boxes.
So what level of budgeting or tracking is appropriate and manageable for most people? And does that change over time?
How about after financial independence, or later in retirement, when you’re pretty darn sure you have enough money to go the distance? Does it still make sense to methodically count every dollar going out of your household?
I can’t answer those questions for everybody else, but here is my story….
As noted at the start, I began using Quicken in 1991 when it was a bare bones checkbook reconciliation tool, and I stuck with it doggedly over the years as an astounding array of other features were added to the program, most of which I ignored.
Being the careful type, I generally collected receipts and entered them into Quicken over the course of the month, before statements would arrive. I liked to monitor our cash flow in real time, and have this additional check against potential fraud or bank errors.
But, eventually, that manual process became entirely optional. People began downloading their transactions to their computer, or reviewing them over the Internet, bypassing the data entry chore.
But I remained a steadfast fan of manual entry.
In 2009 I stopped upgrading my Quicken program due to the potential for bugs and support issues as the parent company struggled. For a decade I continued to enter transactions, even stock prices, manually into my ancient version of Quicken.
Then, finally this year, in view of our relative financial security and the increasing demands on my retirement time, I said “enough!”
Big Leap: Quicken 2019
I needed to simplify my household budgeting. It was no longer worth hours of monotonous data entry each month to precisely track our finances.
I considered going “cold turkey” with a simple spreadsheet system. But when I thought about the number of ways I relied on Quicken reports, particularly for running this blog business and filing my income taxes, I decided I owed it to myself to evaluate an upgrade to Quicken 2019 first.
I’m glad I did, though the transition process was not without its problems.
The great appeal of a Quicken upgrade was that it should automate the manual drudgery of transaction input and stock price updating for me. But there were potential downsides: There might be new bugs to deal with. According to reports on the web, bank account synchronization seemed unreliable for some institutions. Then there was the issue of unknown support for the program going forward. Intuit had sold off Quicken to a private equity firm, and its future was, and still is, uncertain.
But, in reading reviews, it was clear that Quicken remained the best choice if I wanted to store my financial data offline. It continued to sport the most features of any personal finance app. At PC Magazine it had recently won an Editor’s Choice award. And both PC World and DoughRoller reported favorably on it.
So I took the leap, purchased the upgrade, and imported my data from the creaky 2009 version. Encouragingly, that first step went perfectly. Quicken 2019 brought in my decade-old data without a glitch, and that gave me the confidence to persevere through the learning curve.
After several months now using the new program, I can say it was definitely worth the transition.
Like most of the rest of the world, I now download my credit card transactions each month, which, after some minor confusion over which credentials to use, has been relatively seamless for the two major financial institutions involved. This saves me several hours monthly in manual data entry. Though, I still must semi-automatically categorize my transactions, and I feel like Quicken could do a better job memorizing my preferences in that department. But reconciliation when I get my statements is almost fully automatic now.
The program runs a bit sluggishly on Windows. And there is a compatibility/register refresh issue when using a second monitor that has only a partial workaround. I’m not brimming with confidence that Quicken and its new owners will always be there for me. But for now, it gets the job done well enough.
Out of Control?
I’ll admit, as a control freak about my money, letting the computer automate some of my transaction tracking has been a leap of faith. I no longer have an up-to-date and accurate snapshot of my account balances at any point in time.
Turns out you can live without this, as many people know! But, it’s required some adjustments on my part….
For example, all of our bills are payed from our main checking account via automatic debit. But I no longer have perfect visibility to our credit card balances, so when the statements come each month, the totals are always a bit of a surprise. Rather than do a transfer at the last minute to make sure bills can be paid, I prefer to just maintain a larger balance in that checking account now.
I also see a slightly greater risk of my missing fraudulent transactions on our credit cards. (In our experience, a credit card gets compromised at least every year or two.) It used to be, with my Quicken balances as the “source of truth,” if a transaction showed up in the bank’s records that wasn’t in my computer, it had to be fraud. Now that’s not the case. Since I haven’t already pre-loaded all of our transactions, when I download them every month, I have to be extra vigilant to spot any that aren’t ours. It’s more likely that a small fraudulent charge at a familiar merchant could slip through.
Is the interest lost on our larger checking balance, or the slightly greater risk of fraud, worth the several hours of my time saved each month? Yes, absolutely!
My time is very valuable to me, especially here in later retirement. I’m willing to spend some money to buy myself more free hours every week, especially if it frees me from a task I don’t particularly enjoy anyway!
The Bottom Line
So I have given up a little control over our money to buy myself more time in retirement.
But I still have enough control to monitor our financial security.
Every month I run a simple budget report in Quicken to review our cash flow. So I can see the grand total of our spending every month, even if the details aren’t as accurate as they once were. If we have a spending problem down the road, I can always drill into the line items, or dig out paper receipts if necessary, to see where we could cut back.
But I doubt that will be necessary. I’ve run enough retirement simulations at this point to believe we will be OK under virtually any scenario. And Social Security, Medicare, and more inheritances are yet on the horizon for us.
The bottom line numbers to track, the ones that matter most, in my opinion, are your expenses and your net worth.
I’ve monitored my own net worth as a key indicator since that day in 1991 when I first fired up Quicken. Despite occasional volatility — during the Dot-com bubble and the Great Recession, in particular — it has been a reliable metric: If our net worth is holding steady or going up over time, I can be reasonably confident in our financial security.
It is important, in my view, to keep a rough eye on your spending, and net worth, no matter your level of financial security. But the line-item details are less important as time goes by….
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