A guide to using Mint – Our Approach
Knowing how much you make and what you spend your money on is Personal Finance 101. This is the fundamental building blocks of wealth building. If you income is greater than your spending, your net worth will go up. If income is less than spending, your net worth will go down. It is that simple.
Before you dive into new and exciting ways to grow your income, reduce your spending, and find ways to grow your savings, it is important to know where you’re starting from. Only one you know where you are can you know the best way to get to where you want to go (in our case, financial independence and early retirement!).
Luckily, there are lots of free tools that can help you to understand how much money is coming n, and how much and where your money is going out. Mint.com is just one resource, but it is one that has worked very well for the New Father Finance family. We use Mint primarily as a way to track that balances and activities of our savings, checking, and credit-card accounts. By linking all of our accounts to the Mint portal, we can see daily what we spend our money on, how much we are spending, and if we are on track to our monthly budget.
Common pitfalls to using Mint (or any budgeting software) and how to avoid them
A couple of months ago, I was listening to a favorite personal finance podcast of mine. One of the hosts was talking about his budgeting with Mint, and how he has about 40 different budget items, one as detailed as the exact amount for 10 cups of coffee per month. He found this constant checking of each budget time consuming and tiring, and has turned him of from budgeting altogether. In my opinion, this is exactly the wrong approach not only for Mint but also for budgeting in general.
While Mint allows you to categorize transactions to a very detailed level, I encourage you to only use this for deep-dives into your personal spending, not for every-day budgeting. Our entire monthly budget consists of 10 different budgets that line up (mostly) with the first-level categories for all Mint transactions. These categories include:
- Home: for things like rent or purchases for the apartment
- Bills & Utilities: for recurring monthly expenses, like internet or electricity
- Auto & Transport: for any car expenses we might incur
- Food & Dining: pretty self-explanatory
- Entertainment: includes anything we do with friends (eating out with friends would go here)
- Health & Fitness: this for us is a combination of yoga for Mrs. NFF as well as any medical costs (which have gone up given the pregnancy)
- Travel: covers both vacations as well as trips to see friends and family, particularly around weddings and the holidays
- Charity: This is the one item that is a 2nd level category in Mint
- Kids: for now, an experimental category to cover anything we have to buy specifically for the baby
- Personal Spending: my wife and I each have a separate account to cover expenses that are just for us (like haircuts, eating out for lunch during the workweek, etc.)
2. Being too rigid
When people complain about monthly budgeting, their biggest argument is that life (and spending) is not broken up equally into monthly segments. Looking at our own spending, I have to agree. The only expenses I can think of in our lives that are the same from month to month are rent and a couple of recurring services like internet and Netflix. Everything else is variable, some with just a little variability like food, and others that are very seasonal like travel. What some people propose as a solution is a yearly budget, and I don’t entirely disagree. Spending year-to-year is much more predictable, but IMO it can be much harder to know if you’re on track or not. It’s a pretty bad feeling when the December you curses that January you for eating out too much without realizing how much travel around the holidays can cost.
Our yearly budgeting process begins with a yearly spending target that we divide into monthly increments. When you make a budget in Mint, you have the option of carrying over month-end balances to the next month, or starting over. We elect to carry over all of our end-of-month balances. This provides us with the feeling that we’re “saving” for expenses that tend to come at the end of the year (like travel) while also allowing us time to recover from months that might bring our spending above our budget for one reason or another. We don’t come to the end of the month with the feeling that we “can’t” do something. Instead, we have the ability to reduce some expenses that might have come the next month. Our month-end conversations often go something like: “We overspent a little on food this month, so let’s try to eat out a little less next month. However, we did really well on entertainment this month, so let’s go see that show you’ve been wanting to go see.”
The key to finding and using any personal finance software is to know how you want to manage your finances, and find the software that allows you to do it that way. It is important to stay on top of your finance to build good habits, but changing behavior is difficult. Don’t try to conform too much to a new software, but find one that provides you with the knowledge you need with as little effort as possible.