Making a Budget That’s Actually Helpful

You’ll often hear Mint touted as a good free budgeting tool within the personal finance community and in my opinion, it is a very nice free tool.   But I think to get the most use from it, requires a bit of customization.   Let me share my strategy for how to use budgeting software to actually improve your spending habits.

What’s Wrong with Most Budgeting

So I think the problem with most budgeting strategies, is that they attempt to break down all your spending into so many categories that it becomes over complicated and information that isn’t too useful.   Does it really help to break down your dining habits into Restaurants and Fast Food? Maybe we should also break down spending by protein, carbs, and fats.  If you’ve got over seven categories, you’re not going to process the information as effectively as a smaller number.

So how do you narrow it down to seven categories or less?  Well Mint has a nice budget view that let’s you see your spending in two ways.  The first is with a dashboard view that shows how close you are staying to your monthly spending goals.   The other view is a categorical breakout of your spending.

An Easier Way

So my strategy has been to focus on setting the goals only for spending you actually have influence over.  If your internet bill is $30 a month does it make sense to set it as a budget item with some sort of goal?  I’d say no as it’s just going to be $30 a month no matter what you do.

If you monitor your spending for a few months you’ll start to realize that some categories are the ones you should focus on.  For example, after several months of tracking my spending, I think it’s safe to say that I’m pretty good about not overspending on entertainment, and as such, I don’t really feel it’s helpful to track it.    In fact, I’ve narrowed my categories down to four that I should focus on because these are four I have a lot of control over and four where I tend to overspend a bit.   Groceries, Dining, Coffee, and Shopping.

Less categories means great focus on any problem areas

You can easily delete these dashboard measures if they aren’t something you want to view.   And you can create a budget for specific categories if you want to focus on them.  I felt it was helpful to have a coffee shop budget after realizing I’ve spent $100 on coffee in a month.

Having a dashboard view with just three items being monitored is easier to process and will help you focus on hitting your spending goals.  The breakouts for additional categories don’t go away.  They show up underneath your budget.   Mint will break out your spending for other categories which is still good info to keep an eye on.

Sure it’s nice to get a breakout of utility categories, but these types of expenses tend to be fixed so there really isn’t much need to set them up with a dashboard view that needs some sort of a goal.

The additional breakouts are nice to see but in my opinion budgeting should be about focusing on what you control.

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