Accounting for personal finances is a waste of time, in my opinion, if you plan to be upwardly mobile. Instead of making the most of what you have, just make more. Spend all the time and resources you need to to make yourself better. In five years, I've gone from making $30K / year to over $100K. Accounting will not get you there. Removing all the barriers in the way of success will.
Businesses need accounting. Humans need nurturing and growth. Don't nurture your business and account for yourself. Account for the business and nurture yourself. Your business can't love you back.
Strongly disagree. That 30k or 100k or 200k can go a LOT farther if you pay attention to how you use it. And you can reduce your stress level tremendously.
When I picked up YNAB, I was already making 90k or so. At the end of every month it was tough to make rent, and we would live on rice and beans for a week. We lived in fear of the day that a larger or annual bill would show up. Health insurance? Panic. Tax bill? Drink and panic. Emergency needing some real cash on hand? Don't even think about it.
A budget lets you save in advance for those sudden shock bills. Now I don't even notice when the insurance bill comes due; I've been gradually putting aside money for it all year. What's more, we can afford way more important stuff. We were able to self fund two successful companies, we take extravagant vacations, and our quality of life is much better, just because we now set money aside in advance. And fwiw, those two companies more than doubled our income.
It's important to work on increasing your income through an improved skill set,better jobs, etc. But you can reap multiples of every dollar, and even new income sources, just by taking control of your expenses.
I strongly agree with vinceguidry. When there's a recession the advice I give and follow is invest in yourself. Learn new things, become better, heck, go to the gym seriously. In short, put yourself head and shoulders above the rest of the flock (them being your competition, for a gig, a job, etc).
That being said I really don't think budgeting will have the same effect... But my motto is "whatever works". Furthermore you're not advocating against improving oneself but saying that you should do that AND budget.
So I'll try that for the second half and 2016 and for 2017 and keep you posted at the end of 2016 and at the end of 2017.
I recently quit my job, so I'll be living off my savings for the next couple years, as I try to build up a lifestyle company (and hopefully eventually live off recurring revenue from this). Keeping my personal expenses low is exactly what can let me stretch this runway enough to make my professional goals a reality. And as we all know it's much easier to optimize something when you measure it. I'm not sure totally exact accounting is needed, but keeping track of recurring expenses and budgeting in general seems essential to make this work - it'll let me know if I actually have 2 or 4 years of runway, force me to consciously make the choice "is this expense worth what it does to my runway?"
That said, hopefully after the schlep I can go back to the state you describe, plus have much more freedom in how I spend my time than if I was working a full time job.
Tell that to my significant other with a straight face.
I know my financial position. For me when I was single, energy spent on personal finance was energy lost for other causes, like earning a lot more money for example, or doing something socially relevant or building a laser cutter.
But my signifciant other? Living hand to mouth on a tight income, and not mentally prepared to even think about budgeting.
So now as a couple, needing to nudge her into basic budgeting, it better be with as little friction as possible...
Something low tech that really helps with that by the way is day-by-day budgeting. Estimate your annual net income minus your fixed costs: mortgage, rent, utilities, insurance, savings, investment, ... Divide this disposable income by day/week/month/quarter/semester/year. You now have one number per timeframe not to exceed. Discuss everything exceeding this limit, and build sensible rules from that.
This is a great point - if you're married, budgeting is more essential because you can't do a defacto budget in your head. If anyone is interested, Dave Ramsey has some really great advice for how to sell your spouse on budgeting and how to keep things simple.
Cannot recommend this approach. There are many people making $100k, $200k, $300k, etc, living paycheck to paycheck because they think 'accounting for personal finances is a waste of time'.
I think you're right that it's more productive to concentrate on increasing income rather than decreasing expenses. On the other hand, you will never be wealthy if your expenses rise faster than your income, and it's possible to easily spend any amount of income.
This is the bottom line I agree with. I too am currently a member of the school of thought "Expand instead of budget". To the extent that I never save any money, I always invest it (in my business, in productivity tools etc...), and I live on a rolling personal operating capital.
Yet I definitely feel that accounting might be useful. Not to save money in order to make money (this whole notion actually makes me uncomfortable), but to optimize my spending.
I find myself buying too much crap (around $100 in McDonalds a month, etc...)
I'm also considering putting a few thousands dollars aside in a saving account. It won't be more than 2 months of living expenses.
Mmh... Actually thinking about it, I think that I've been doing accounting for a very long time without naming it - and realizing it. For example, I have rules to manage my personal operating capital, and I can tell precisely at which income level and how I will start to work on growing my cash reserves.
My advice would be:
-Invest everything while you are netting less than 10k a month, and be hungry to expand as if the devil was after you. The younger you are, the more aggressive you have to be. If you are under 30, don't even think of taking vacations.
- at the 10k point, you need to mind your expenses, and build cash reserves because investments to reach the next level will require down payments. At the same time, you need to keep growing your revenue at a faster pace.
-When you reach the next stage, your finances have reached a point where no anonymous from the internet can help you.
Maybe it's my european prospective or something, but this "less than two months of expenses in savings, no vacations" approach strikes me as inexplicable and horrible.
Do you think that you're really at your most productive while not taking vacations for years?
USA vacations tend to be pretty stressful to travel to and from and horribly overpriced "tourist trap" type stuff. Turn money into status signalling posts on social media meets bean counters trying to maximize their profit. Its a very old movie series but the "National Lampoon" vacation movies very thinly satirize the actual experience of an American style vacation... that's why they're considered funny.
Its possible to take a euro style vacation, but extremely rare. Also your friends and family will tear into you, lobsters in a bucket style grabbing one trying to escape, unless you do the selfies at the tourist trap thing. "What you relaxed and had fun instead of stood in line for three hours to take a low quality picture? You totally wasted that once in a lifetime vacation."
So don't take stressful vacations you don't enjoy? If you enjoy so called "tourist traps" go for them. If you enjoy going to a cabin in a national park, do that instead. If you hate traveling and hate leaving your hometown, then don't. Pretty simple.
I cannot understand for the life of me what you are talking about with friends and family. Basically hardly anybody cares about your vacation to begin with and nobody cares what you do and if anyone does why do you care? I mean, you don't have to tell your friends and family you are going on vacation if you believe they won't approve, your vacations aren't public information. I, personally, don't tell my mother when I go on vacation because she wants a play by play when I get home and I simply don't care to tell her how I spent every minute, so I just don't mention to her that I am going somewhere.
> Also your friends and family will tear into you, lobsters in a bucket style grabbing one trying to escape, unless you do the selfies at the tourist trap thing. "What you relaxed and had fun instead of stood in line for three hours to take a low quality picture? You totally wasted that once in a lifetime vacation."
What a weird problem to have. Are you sure that's actually a thing that happens? It sounds unlikely.
I would think that the HN crowd of all people would know how easy it is to escape this trap. It's not _at all_ difficult to take a cheap, relaxing vacation in the US. In fact I'd say it's easier than many other places in the world.
Thanks for your honest feedback, what I really meant was : you don't need this 4 days vacation in a mansion in spain for 1200eu+ if you are under 30 and don't enjoy financial freedom yet.
One more thing is that the reason I say "30" is that I believe that you owe time to your wife and kids and while I think it is important to take the opportunity which is youth, I also think it is not good to be obsessed by making it big all your life. There's a time to try hard, and a time to try moderately.
And finally, I regularly do nothing for 2-5 days, sometimes up to 10-12 and just take some fresh air when I think I need some rest and wouldn't be productive enough in front of my screen.
So it is actually much more balanced than it seems - and perhaps than what I communicated. The bottom line of this balance is : take the hit now.
I love free time and recreation more than all those who told me that I worked too much, this is what they never understood. And this is why I prefered to take the hit a few months to free myself for the rest of my life.
Thats crazy! I'm a firm believer of finding something you love doing (that also can make money), and doing it as much as you can. But at the same time enjoy your life... Meet people, take vacations, travel!
As time goes on hopefully you have built up a unique arsenal of skills, knowledge, and connections. BUT please enjoy this process because it's your life...
When you're earning $30,000 sure. Once you've achieved resonable success, you're likely to have serious diminishing returns on earnings without associated risks.
I'm at a good point in my career, whilst not impossible, I doubt there's a lot of growth without changing my lifestyle in a way that I believe would be for the worse.
Yes and no. Accounting helps you decide what to optimize. Spending a lot on Uber? Maybe you can get a bike instead. Spending too much on groceries? Maybe you don't need to buy too much food every time.
Personally, I find everything related to personal finances among the least interesting and most repulsive things to waste my precious spare time.
My solution? My regular expenses are significantly smaller than my income, which lets me basically ignore my personal finances. (This does not mean I do not consider whether a gadget is worth the price. I just typically do not need to think whether I can afford it or not) How do I do that? By making relevant choices in the biggest expense classes, i.e. housing and car. My accommodation and car choices are _well_ below my typical peer standards. Easy? Depends on your character. Personally I enjoy the freedom and control I have on my own life much more than I dislike the laughs[1] I get from my old friends when I pop up into meeting them with a crappy old bicycle.
[1] Obviously this is much easier when both I and my friends know that I could "afford"[2] to buy a similar car than they, I just have chosen not to.
[2]In the normal sense of being able to finance it. My personal definition for affording something is that I do not have to care financially whether the purchase gets stolen the following day or not
> My regular expenses are significantly smaller than my income
How do you know this? By what method do you account for your spending?
> when I pop up into meeting them with a crappy old bicycle.
How much do you spend on repairing your bike (either time or cash)? Does that work out as being more cost effective than buying a new bike / taking the bus / etc?
If only there were a simple way to keep track of spending to see if it really were cost effective...
When I check my bank account, there typically is more money than before.
> Does that work out as being more cost effective than buying a new bike
I don't know and I don't care. I don't claim that I don't do _any_ budgeting/planning/accounting/whatever, I just try to minimize the mental effort needed for that. Obviously one effect is that my consumption bucket is not economically optimal. I have no clue, nor interest to find out, how expensive these choices are for me. For some people it is worth putting money to luxury items. For me it is a luxury that I can afford not to worry how optimized my consumption is.
(One more thing. I do have above average salary in my country. Obviously that makes things a bit easier.)
> (One more thing. I do have above average salary in my country. Obviously that makes things a bit easier.)
Most of us here can easily say the same thing. Most of us could also say that we are above average intelligence and we, too, could just as easily have a sense of our finances. However, we choose to keep track of everything a little more accurately than that.
> However, we choose to keep track of everything a little more accurately than that.
Precisely. And there is nothing wrong with that. I just have made a different choice based on my preferences, and I see nothing wrong with that, either.
That's an interesting way of thinking about it. Accounting is the programming equivalent to profiling (money flows in this case instead of time/memory flows).
>...and most repulsive things to waste my precious spare time.
Really? Repulsive?
> [1] Obviously this is much easier when both I and my friends know that I could "afford"[2] to buy a similar car than they, I just have chosen not to.
Sorry, I am not a native English speaker, so there may be some connotation with the word repulsive that I am not aware of. What I tried to say is that I dislike very much planning, budgeting and figuring out exactly where and how much I have spent money.
> So, you ... care ... what people think of you.
But of course. Did I imply something else somewhere?
When I did do personal accounting, it didn't do diddly for me in that regard. Is accounting going to teach you how to negotiate a raise? Is accounting going to show you the best companies to apply to or how to represent yourself in an interview? Is accounting going to win you a lover or turn that lover into a significant other?
No. Emotions are the key to all of the previous things, either mastering them or expressing them. That's where one should focus their efforts.
Maybe I'm thinking about it differently then. Accounting has been absolutely instrumental on my path from $20k/year to 6 figures (in 4 years). Without it, I'd piss all my money away because I have no idea how to handle these kinds of sums mentally and emotionally.
Accounting keeps me in check so I can use my money in ways that make more money instead of fritting it away.
My current understanding is that my lifestyle costs a certain amount of money, these days around $50-60 per day. Rounded up that's $2K a month. My paycheck rounds out to $6K a month. So I have $4K surplus to play with.
In my estimation, cutting that $50-60 a day that I spend on eating out and such isn't really worth it. Dropping my $300 a month car payment for a new car isn't worth it. What is worth cutting out is the hundreds I can sometimes blow on things like unnecessary clothes or electronics purchases. These things add nothing to my life, I usually use them once and forget them.
Spending freely on eating out and buying drinks for my friends and pretty girls at the bar brings way more value to my life. And, paradoxically, it can be a more stable expense. Expensive restaurants just aren't as good as my favorite ethnic spots. My local haunt has cheap drinks and a more fun clientele than the high-falutin spots downtown.
There's a point of diminishing returns on everything you can possibly spend money on. Most of us blow way past that point without even thinking. But if you keep this point in mind, then you can get phenomenal bang-for-your-buck in places that nobody could ever think would be affordable. I took two two-month long trips to Colombia staying in hostels for not a whole lot.
That's good that you have that surplus. I think that's the real reason you can be as relaxed as you are about planning your finances.
I have a much smaller surplus, and of course you're welcome to argue that I should be behaving differently in order to increase it.
But really, spending an hour a week doing my finances (I use YNAB) does not affect my earning potential in any significant way. I don't think it makes any sense to argue that I should stop doing it, and spend that time trying to get a better job. I can do both! That time spent gives me the reassurance I need that I can carry on paying my mortgage, feeding and clothing my family and taking them on holiday, and also that I can very probably meet any unexpected expenses that arise. This is a great feeling, well worth an hour a week of my time.
>My current understanding is that my lifestyle costs a certain amount of money, these days around $50-60 per day. Rounded up that's $2K a month. My paycheck rounds out to $6K a month. So I have $4K surplus to play with.
First you say you don't believe in accounting, then a few posts down you decide to suddenly do some accounting. I'm confused.
I built an accounting app for personal use. My perspective draws from that experience. Of course I can do some rudimentary financial calculations and budgeting if I put my mind to it. The point is, I just don't. The figures I gave are the natural set points, not budget targets. If I just let go and do whatever, that's what I spend.
If I went from $100K to $300K, my personal spending would go up, but not dramatically. I've already found points of diminishing returns for most of the things in my life that I've found that's worth spending money on. I'm sure I could find ways to spend it, but the sort of mindless spending on stupid crap that most people do, I seem to be immune to it.
You can't change what you don't measure. Want to get rich? You need to have more money coming in than going out, it's as simple as that. If you don't keep track of how much is coming in and how much is going out, you'll never get there.
You're presenting a false dichotomy. Personal accounting does not preclude personal growth. It takes about an hour maybe to set up mint to track your account and maybe a few minutes every couple weeks or once a month to look at it and see where you are. There's plenty of time left to work on growth.
When you make $300k+ that's a lot of outlfow and potential for waste. I think you'd be surprised how quickly I can spend it. Accounting, and more importantly cash flow forecasting becomes a must.
It is true that you cannot reduce your costs to zero, and there is a point of diminishing returns for accounting, but the wealthiest people I know will take a vendor to task over pennies. I know that this mindset does not lead to wealth, but it does allow you to hold onto it.
At $300k the costs (ie: time) involved in tracking your spending in the way accountants do it, or how an app like YNAB [1] is set up, is much too expensive where the ROI is questionable.
It's important to have a money-guy to handle taxes, corporate paperwork, etc and have a basic budget. But as far as tracking all expenditures manually, I believe this is the wrong approach.
It's good to watch your money and sit down once a monthly to review where your money went and plan your next 30 days. Biweekly would be even better. This is a good balance between the two extremes while giving me more time to focus on building up my side businesses and other revenue drivers.
Accounting is more about being in control. It's knowledge. It has very little to do with self-improvement, career advancement, etc.
You could have equally progressed by using an accounting tool all the way through.
There seem to be a common misconception here that when someone is using an accounting tool, he is hoarding by default focusing on growing his income by spending cuts. We all know that spending less can help you so much when your income is rather low :-)
If that's how you're defining accounting, then I'm "accounting" right now, even though I don't manually track anything anymore. To me accounting specifically refers to the act of tracking individual expenses. Budgeting means to control spending so that it fits into boxes. I do neither, I spend fairly freely and keep only rough tabs on what goes out. But am I in control despite that? I think so.
What I believe I have is insight into my own life enough to be able to subconsciously manage my financial life. Is that accounting? I guess if you want to play semantic games then sure.
I suspect that it is not a matter of insight but actually you just enough income not to worry about it too much. Good for you!
However if your expenses rise, e.g. you buy a house, have kids, etc. you might find you need to put a bit more effort into making sure your income covers it all.
Is it possible that building an accounting app + tracking for months improved your accounting intuition, such that your "living freely" approach is actually kept intuitively within certain budget limits?
Oh it generated a few insights, for sure. But mostly it just brought attention to the subconscious process I already had in place. I may have tweaked that process a bit, but making the app wasn't the genesis of that process.
The problem I find with earning more money than cutting costs, is that without realising it, my costs seem to creep upwards too. I find it's hard to plan for the future by saving money when this happens.
I'm definitely a bit biased as I'm working on a startup for financial planning but I agree with you completely.
Many people are not going to make big progress towards their longer term financial goals (getting out of debt, buying house, putting kids through college) without sitting down and creating a budget. "You can't change what you don't measure."
It's not how much you make, it's how much you keep. How much you keep is a function of how much you spend. How much you spend is influenced by intelligent analysis of needs v wants and budgets.
Your bubble mentality will serve you well until it doesn't.
So, at what point do you stop becoming upwardly mobile and plateau? Because it will happen eventually. At that point, shouldn't accounting be something worthwhile? Otherwise all your money will be gone before ya know it! So you might as well get into good habits and start managing finances early on.
I did something similar in pay terms a while back and I agree with a lot of what is said. Here is my "how to"
I am assuming you have a job, but this should work if not.
Put aside every lunch hour and scan the want ads and job sites for positions that match your skill sets. Don't go for things clearly you don't match - but stretch a little too.
Apply for them all. Make sure it is easy to send from your phone. Reduce the friction.
Call the agent / hiring manager. Make sure they know you exist and what your special skills / unique selling point is.
Keep pushing.
Once you get a new job, repeat till you are at 100k
its very simple - but you need to do it.
Extra hints:
recognise you (as an HNer) have some valuable skills and need to fight the imposter syndrome. Start to collate the knowledge you have, in scripts, example apps etc.
Is it possible that by building and using your own program, and most likely learning a lot about accounting in the process of making said program, that you became better at managing your money even without using the program afterwards?
On one's path through upward mobility, if you spend all your money before you get to your goal, that might prevent you from reaching it. Even for people with high salaries, they need to control their spending. For some that might be a spreadsheet or an accounting app, for others they might be fine at managing it all in their head.
I was serious enough once about personal accounting that I built my own web app because I thought the standard double-entry system wasn't really suited to the task. After I got the basic system tweaked to my satisfaction, I used it for several months.
I started to take it to the next level, but had the curious realization that I cared more for the process of developing the app than I did for actually tracking my finances. Eventually I gave it up, and went out and got a better job where I'm more fulfilled professionally and way better paid. I learned then that working on the app was substituting for professional fulfillment and vowed never to let that happen again.
Tracking cash inflows and outflows is an essential business skill. But a business is a machine, and people are not. Personal productivity does not respond well to wringing unit economics out of daily activities. If your goal is to turn yourself into a machine, by all means use a mechanistic approach. But we are meant to build machines, not to be them.
Don't know why people are downvoting you, your comment was grey when I read it. I see nothing that makes your comment invalid and I think it contributes to the conversation.
Perhaps it's not the popular opinion, but in a lot of cases I agree with you. Watching over every penny meticulously can become a much too consuming habit that produces little net positive result. It's easy (at least for me) to get caught up in trying to never waste money, and it's really not worth it.
I guess people are downvoting him because of his assurance that instead of managing finances one simply has to earn more.
For most people earning more is not feasible, at least not while having some personal live, family matters and depends also on their education, upbringing and people they know.
Some people work a fuckton of hours for a measly pay, and so they can't get to earn more, because they have no time to improve themselves or even to go to interviews.
For these kind of people, that is the majority, some time of personal accounting will be easy and will bear lots of fruits, while they wouldn't be able to improve their jobs in the near future.
I didn't read it as "one simply has to earn more".
He's saying it's better to work on things that will lead to one earning more money, rather spending time monitoring how much one is spending. The first leads to an improved state, the second is just for ensuring one's state does not worsen. With one your increasing your 'cap', with the other you're just maximizing given a 'cap' (cap meaning the amount of money you can work with).
Its not an either or proposition though. It's frankly ridiculous to propose that I could give up actively managing my finances and use that extra time (an hour a week maybe) to significantly increase my income.
The post in question currently stands at 31 points. One quick downvote and all up from there. You are right that for most people earning more isn't feasible. But I wasn't speaking for everybody. Specifically for the upwardly mobile. If you aren't in the position to increase your income then you by definition aren't upwardly mobile.
It's a mix of different issues going on in that comment:
- Some kind of perfectionistic NIH accounting system is probably not what people have in mind when they talk about this personal finance accounting being useful
- The project details seemed to overcome the initial scope
- Rather than addressing the need for a more elegant framework for personal accounting, OP decided to just make more money, and for all we know has discarded personal financial accounting
- We know not what kind of blind spots this may have created (for real: You are absolutely discarding a level of granularity and the freedom to find a way to make use of it)
- While we can trust that OP will probably be fine, we are left to wonder if it's really so great to tell people not to do this kind of accounting when you kind of turned it into a hyperbolic mess when you implemented it yourself.
The project wasn't perfectionistic, I specifically designed it to be as easy to add and look at what I was spending as possible. Instead of putting spending into accounts, I used simple categories. I had a dashboard view that gave me exactly the window into my finances I was looking for.
It was good enough for my purposes. But I kept running into situations that called for extended customization. Sure I could have extended the app to account for temporary changes in how I wanted to do things. But it just kinda stopped making sense after awhile. It made me look into how I managed my finances before I ever did accounting more closely.
What I found was that I never really got into the sort of mindless spending habits that kill most people. Accounting was, in essence, a unnecessary addition to an app that was already working just fine. It didn't buy me much when I was doing it, and I didn't miss it when it went away. My life just isn't that complicated.
Similarly, I've never needed productivity software other than, on very rare occasions when I'm super busy, a pad of paper and a pen. And I was a GTD zealot 8 years ago.
My advice in my original comment was tailored towards people who plan on being upwardly mobile. If that's what you want to do, then personal finance is a waste of time. Ramit Sethi's advice is the best, chase big wins, automate your finances, and don't stress out over small repeated expenses.
If you've hit a career plateau and don't see yourself making more money anytime soon, then by all means make the most of what you have. But c'mon, this is Hacker News. We can all be upwardly mobile here if we want to be.
The foundation isn't the issue. You can write an intuitive interface around a double-entry accounting system, but you must keep to the fundamentals of money flowing through the system.
Then don't work on an app for budgeting, just budget.
You seem to think keeping a budget is some onerous, never ending task. In reality, probably spending about half an hour per paycheck is fine, once you have a system in place.
And it certainly does not require a ton of technology, either. People budgeted just fine long before personal computers (lookup "envelope budgeting").
You are conflating two unrelated things. Spending a lot of time writing a budget app may have been a mistake. But you don't have to write your own app in order to budget.
Yeah, when I hear "spend the time you spend on your budget to make more money instead", I can't imagine how I would meaningfully translate my one or two hours a month of relaxing low-energy financial planning into making more money, or why I would want to try.
Having spent a bunch of time with GnuCash, YNAB, and budgetsimple, I've given up trying to have a formal budget. Instead, my wife and I just spend 20 minutes every 2 weeks looking at our accounts and talking about any big expenses that we have coming up.
I don't know that you're asking for it, but I'll share my approach. I use GNUCash for transaction recording, and I have two levels of budgeting:
Level 1: next 30 days. I have a couple dozen recurring transactions, generated 90 days out. If, based on the current balance plus expenses 30 days out, my checking account is projected to go negative, I do something about it. Otherwise, I think about shifting some money into higher interest savings, since I don't need it in checking. And if savings exceeds my emergency fund definition, additional Roth IRA contributions may be in order. The end result is that reducing float in checking can end up with a pretty high return.
Frequency: Once a month.
Level 2: Annual Budget. At a high level, I use a simple spreadsheet to budget all income for the year into savings and expenses. It's complexity has grown over the past six years to calculate things like income taxes, so I can compare job offers in other locations and states. I also use it to verify my very high retirement savings rates are viable. Because more savings contributions -> less taxes -> more contributions etc., a spreadsheet lets me "solve" for maximal savings. It also lets me target expensive areas, like rent, or dropping cable, phone plans, etc.
Frequency: Once a year.
I can see being more lackadaisical about personal accounting on 30k/year, but when you make 15k/yr you need a budget and you need to track your expenses to survive. I think this is just something that varies from person to person, but it's nice to know that you spent X amount on groceries per week versus Y amount on gas so you can pinpoint what is hitting you most during times of dire financial stress to optimize.
When I made that much, I didn't bother with a budget or accounting either, I knew to the nearest $5 how much I had in my pocket and my bank account at all times. Writing down that which I already carefully tracked in my head wouldn't have accomplished anything.
What you're missing is that at that level, what you can get through spending money is going to be vastly dwarfed by what you can get through ingenuity. My response to a bigger electric bill in the winter wasn't to save money on food, it was to shut my heat off, build an enclosure around my desk and heat it with a small space heater.
It's awesome that worked for you. I'm not that smart so for me, budgeting and tracking my expenses by category helped me become comfortable enough to spend more time on freelancing and job seeking. I won't say your way doesn't work, because you are a testament that it does, but I don't think I could have taken this approach and gotten to where I am now.
You were effectively budgeting in your head. Good for you. Can everyone match your skill? Who knows. I guess no. I cannot budget this well. It is not that I do not know my level of cash, it is just that I cannot accurately estimate my spending rate and I almost always spend too much for the month.
So because you are smart enough to do this in your head you think people who do the exact same thing as you just writing it down instead of doing it in their head are wasting their time? That's pretty silly.
The vast majority of people can improve their prospective in life. At the very least they can be more efficient so they can spend more time with their kids; That way the kids have a better life than their parents.
Though, to be fair, I think they should do both. Budgeting/finance is an incredibly important skill for all but the richest levels of society.
Quality of life seems to increase monotonically in the states. The relative social status does not, on average. Considering happiness seems more based on the latter, this seems to be intractable.
You're comparing life as a bootstrapper to a paid job more than life with accounting support of some sort to without.
Further, there's no reason you can't do both. I don't account for my personal finances in any way, but I don't spend a lot on silly things. I do however use an app (http://streaksapp.com) to push me. Without that, I'd be more inclined to take the easier or lazier options. We can account for our time and progress even if we don't do it for finances.
I take the mechanistic approach to my personal finances, and treat them like business finances basically. It's a resource to be used, not a status symbol to be hoarded. Life has been wonderful as a result!
You may have noticed that the article suggests using a tool, `hledger`, rather than creating your own accountancy software. Infact, based on your comment that you found the standard system isn't suited for the task, it's possible that your disdain for personal accounting comes from a lack of understanding of how to do it correctly.
Hacker news readers often live in a bubble that is well insulated from the outside world. A world where everyone is very smart and money and opportunities are a dime a dozen.
Overspending is very easy for the average person. I know someone making 80,000/yr who has basically no assets and are living paycheck to paycheck and always complaining how poor she is. If you are living paycheck to paycheck on $50k you tend to live paycheck to paycheck on $100k. Adding additional income does not help these people - also see The Two Income Trap.
Finding out where your money is going is good for everyone. Budgeting (even if informality) is good for everyone. Finding out where your money really goes is really eye opening for many. Realizing that a reduction in income probably requires a reduction in spending/lifestyle. Realizing you aren't "entitled" to the things you want by virtue of birth, you have to have the money to afford them. This may seem obvious to some but in the world of advertising and media it isn't to many.
The criticism of personal finance or "frugality" here and in general comes in where people become obsessed with not spending money in the long term+. When every choice is optimized for spending less and one cannot enjoy anything with becoming guilty they are spending money. They put too much effort into pinching every penny and lose sight of the bigger picture. It's easy to hate on these people. This group is the loudest, unfortunately.
Personal finance should be all about optimizing money for maximum enjoyment and financial stability. Realizing money is a scarce resource and optimizing it, which can include working on obtaining more depending on your situation. Budgeting in for the things you enjoy, within your means, and saying "no" to more things that won't bring you long term happiness. Realizing the difference between needs and wants. It's trivial to do this for many, and it is natural, but difficult for many as well. I think personal finance is just as much psychology as it is math.
+ Being obsessed with not spending money (OK, not obsessed but making it a priority) can be good in the short term for several month in some cases. Examples are taking a break from consumption or working to pay off high interest debt. Of course one should consider all their options in this situation - including, say, adding additional income short term if possible.
> Hacker news readers often live in a bubble that is well insulated from the outside world. A world where everyone is very smart and money and opportunities are a dime a dozen.
I think the main issue is having other mouths depend on you. I react favorably to his position because my personal finance strategy is having soft/fuzzy (as in "fuzzy set") targets, never spend more than I earn and set automatic transfers to a retirement account that look like expenses when I see the bottom number on my bank statement. But I see how that balance becomes disconnected from one's resolve and voluntary actions as your finances begin representing an entire (even if small) community.
> Overspending is very easy for the average person.
This is what I don't wholly get: doesn't the average person read the bottom number on their bank statement?
I mean, cutting back on expenses is painful, but it's not a matter of tracking pennies anymore. If you have a negative balance you're spending too much money, and most of your choices regarding that are personal to the point of being existential -- what should I sacrifice, my yoga classes or my kid's GameNetwork subscription?
You are forgetting about the easy access to credit. Most people not only live at their means but way over it because of credit card debt. I can't find the link but there was a survey recently where over 50% of respondents said they'd be hard pressed to come up with $500 for an emergency.
The thing about credit too - it can by manipulated to make someone feel like they can afford something when they really can't. If you stretch a car loan out for 8-10 years and only look at $200/month it looks like you can afford it, you don't think "I will be in car debt for the rest of my life." Repeat this a few times because each time it also appears affordable. Now you have no savings and are living paycheck to paycheck and can't get out of the debt cycle. You have some unexpected expense (furnace goes) and suddenly you are in massive financial trouble. This can sneak up on you if you aren't careful.
> Hacker news readers often live in a bubble that is well insulated from the outside world. A world where everyone is very smart and money and opportunities are a dime a dozen.
I was speaking specifically for that audience and not for the broader one. Of course my way of dealing with money only works for people like me. I refer specifically to the "upwardly mobile", which is generally taken to mean those who make more than the average and are still capable of climbing the social ladder.
When you are climbing the social ladder, you develop skills that make you more useful to people. When you learn accounting, you are learning a skill that will keep you from shooting yourself in the foot financially. It will not make you much more useful to others except in that regard. Sure you can get a job accounting, or use it to help run a business, but the benefits are too limited to justify doing it yourself. Hire somebody and use the time saved to learn something more useful.
I never intended to say that people should not have a handle on their spending. Accounting / budgeting is one mindset that will give you such a handle but not the only one.
The problem IMHO is that your advice seems very black and white to me. It sounds like you are saying either don't track anything at all and rely entirely on career path for your financial security, or go full-on into a time consuming accounting mode where every penny is measured and fretted on.
Tracking personal finance doesn't have to be terribly difficult. A simple spreadsheet with expenses and income often suffices. Maybe some simple divisions so that you know that x % of the paycheck will pay the mortgage and y % will be used for the insurance. Nothing too fancy or time consuming. Just enough to reveal patterns, and make sure you have enough "flex" in your bank account for things like personal emergencies.
Although I know you are saying your advice is for the upwardly mobile only, my impression is that a lot of people are very bad with their finances -- that includes even some of the "upwardly mobile". Maybe you're good with your personal finance and have no need to track, but I personally think the general rule should be that most people should do some rudimentary tracking.
Counting your pennies will not make your pennies grow. Only increasing your income will increase your income. This may seem like a radical idea at first, but look around you and you will find everyone understands this fundamental truth.
Teenagers take summer jobs to earn extra pocket money. Housewives run home-based businesses on eBay / Amazon / Etsy to supplement the household income. People with full time jobs work part-time jobs before or after their main gig. Some people buy property and get rental income out of it. Those who are an authority on a given subject write books and earn royalty on book sales. The ultra-wealthy get dividend income from their stock market investments. None of these people belong in the HN bubble.
Read any number of HN discussions on side-projects and you will see a wealth of ideas being put into action:
You have to maintain the current, while pushing forward on the new. Accounting is important, because the incoming money has to pay for the outgoing money (food, clothing, rent). Calculating everything down to the dollar is pointless, however. Just be within 80% of the right number, build in a buffer, and push forward on the new.
The new is much more exciting than bean counting the current, but you still have to maintain the current. Just like how refactoring, testing, and debugging code are just as important as writing new code.
Once I started earning money, for a long time I had a simple budgeting rule: input > output (at least on a yearly basis). It served me well. But I kept feeling guilty (my mom kept meticulous accounts for decades - she had to when every penny counted). Then life got complicated and I used Quicken for a few years. Gave up on it when I finally threw out Windows (another waste of time). Tried a few alternatives on the Mac but didn't really like any of them. I even dabbled with writing my own s/w but soon got bored. And you know what,I don't really miss any accounting software. The old rule still serves me well.
So I kind of agree with the parent comment. Spend time on what you're passionate about and but not (much) on optimizing things of secondary importance - just do the necessary so that they don't take over your life.
Once you're up and running, it is not a waste of time at all. At that point, assuming you get there, you will only get the benefit. No one is saying that you have to account for every penny. That is minuscule and there are huge diminishing returns when it comes to personal finance.
I can't agree. I recently started to properly learn double-entry book keeping and in fact I tried to make as much as I could and let me tell you, I never knew how much I had - at least truly knew it. I only had an inkling how much I had spent, and I often got it wrong. This stressed the living day lights out of me, especially with a large mortgage.
So... This month - being the start of the financial new year, I started collecting all my receipts. Then I installed GnuCash and setup their basic chart of accounts. Everything started at a zero balance.
So then I started to really get how double entry book keeping. I suddenly realised the balancing equation made sense:
Assets = Liabilities + Equity
So this is what I did to set it up:
1. I worked out all my current assets' balances. This included cash accounts, bank savings accounts and cheque accounts. I took the closing balances from 30 June and debited them to each of the accounts. To balance out the equation I credited the equity account called "Opening balances".
2. I then looked at all my fixed assets - cars, house, etc. - and debited the purchased amount of the asset to the relevant fixed asset accounts, then for each transaction I credited the opening balance equity accounts to balance the transactions.
So now my assets side of the equation equalled my equity side of the equation.
3. Then I took all my liabilities and did similar transactions, only in reverse. So I took my home loan and credited the balance from 30 June, then debited the same amount to the opening balance equity account.
So now my assets value is the same as my liabilities plus my equity.
4. So then I took all my reciepts and debited the appropriate accounts, and credited the appropriate current asset account or debited the appropriate current liability account (e.g. Credit card).
5. I take my income and then credit it to my income accounts, and debit the corresponding current asset accounts.
6. I take any loan repayments and credit the current asset accounts, and debit the loan accounts (liabilities) by equal amounts.
So now the equation is:
Assets = Liabilities + Equity + Income - Expenses
At this point I realised: double entry book keeping is really just recording the flow of money through a system. Income flows into the system, increases the assets or decreases the liabilities, and then flows out of the system when expenses are incurred. The equity or capital is just the assets less your liabilities. You really want to avoid negative equity, but at least you can track income and expenses effectively.
> In five years, I've gone from making $30K / year to over $100K
Not so great argument I guess. Someone is making 50-100K/month because he managed well his personal finances and saved money to invest to his next venture.
Nobody is making 100k a month by managing their personal finances. (Anybody who does make 100k a month on investments employs professionals to manage their money.)
And if they make 100k a month by "saving up for their venture", their time would be vastly better spent actually executing on that venture rather than doing fastidious accounting on pennies at home.
Even if you are "upwardly mobile" your expenses will tend to increase with your salary. Being disciplined with your spending will allow you much more freedom in your life.
People are accusing you of trolling (which is an ad hominem attack and should not be made on HN, and people should be downvoted if they do that).
- I agree with what I think your main statement is, and will put it into an alternative argument, so others here can understand.
There is a statement "a penny saved is a penny earned." This is true. But if you're spending a penny the most you can save is a penny: if you're trying to earn more, you can earn a penny, nickel, dime, quarter, or dollar. The most you can move up in lifestyle by living "frugally" is whatever you're saving. But if you put that same effort into earning more you can have a better quality of life more easily.
To put it into concrete terms: if you have someone who nets $1200 per month and are living within the budget that gives you, then the most that they can possibly "save" is up to $1200 per month. It is mathematically impossible to shave more than that off of your current spending, because by definition there is no more than that. So the theoretical maximum that you can possibly 'save' or reduce your spending by $1200/month. Try to reduce your rent, your food, your transportation, whatever, to fit within your $7/hour budget and you will spend a lot of time with very little to show for it, because the most that you can possibly show for it is... $7/hour. That's a theoretical ceiling on savings.
But by focusing on increasing your earnings, there is no wall. So through all of the work in the world, you have a theoretical maximum that you could save of 1200/month - however it's fair to say that by moving to $2400/month everything in your old lifestyle was "free", and you can now buy new things, or a few better things. It's the same as if you saved 100% of all of your former costs, without doing any shopping around or anything else to actively save - it's as if those costs magically dropped to $0 - you can buy them all, and still have $1200 left. And all by focusing on your earnings and ignoring all that savings stuff.
So what's easier, shopping around until you've shaved some percentage of your $1200 spending -- or moving from $1200 to $2400 in net wages?
The latter is considerably easier than the former. I would say it's not possible to do the former, you can just approach it. Through hard work "saving" you could shave off let's say 40% or even 50% -- it's still easier to move up in wages by the same amount instead.
EDIT: I got downvoted. Are people getting what I'm saying? Someone making $1200 (which is 14.4K/year) can never save more than 1200, even if they are so good at it that they're able to reduce their spending by 80%. The most that they can save even in theory is $1200. But they could have the same net effect by working on increasing their wage. There is no ceiling on the latter. It's far (far!!!) easier to move from $1200 to $2400 in earnings, than trying to save 80% off of your spend @ $1200. And even though it's easier, it has a bigger effect.
Let's put this into concrete terms: if you're a barrista making $10/hour in Silicon Valley, you are having a hard time making ends meet. You can try to absolutely cut out all of your costs, rent, transportation, food, etc, and you will still have a hard time. Or you can put the same effort into learning to design, putting a small portfolio together, and trying to get hired as a designer. While completely ignoring trying to save on those costs, and instead just, say, deferring some of your demand. It's easier to make money than to save money, other than possibly the easiest optimizations. (such as making sure that you're not drastically overpaying for anything by 3x or 5x). And it has a bigger impact on your life.
My issue is with the black and white approach that seems to be advocated. In a month there is plenty of time to set yourself up for better wages and account for that which you already have. Personally, I input every transaction at the point of sale (YNAB mobile app) and take a night every month to reconcile and allocate the next month's budget. This doesn't hinder me looking for better job opportunities though.
Instead of it being a decision of trying to save an increasing percent of $1200 or doubling to $2400, it's me trying to save an increasing percent of my current $1200 so that extra $1200 will go even farther later.
This is just a data point, but I'll just say I disagree with your approach.
So let's look at the comment I replied to. He ignored your advice/approach and instead did things my way: as a result he moved from $30K salary to over $100K in five years.
That doesn't happen without considerable investment of time and energy.
Based on the fact that you are religiously inputting every transaction at point of sale, into a mobile app, and based on your being a HN reader, I will go ahead and make the prediction that you are able to earn within the top 10% of wage-earners in your city. My prediction is that instead of doing so, you are working equally hard to earn less than 50% of that amount. Go ahead and look up statistics and get back to me about whether I'm correct.
In other words, I am actively predicting that you are close to or even below the medium earner in your city, rather than in the top 10% as you have the ability to do so.
You don't have to tell me what city you are living in or what your earnings are, but I would appreciate if you told me whether I was correct.
By the way I can't visit your site, because your SSL cert is out of date and chrome won't let me visit it.
In the time you spent saving or stretching your rent, or inputing your groceries at the point of sale, you could have fixed that and been hired by someone who instead chose to pass on you since you can't even run your own web server.
It's a zero-sum game: either you are spending 30 seconds to a minute inputing expenses into your mobile app and using 'shoe leather' to walk around from store to store and evaluate your options so that you can shave a few pennies, or you are getting home a few minutes earlier and fixing your SSL cert and sending out another five resumes. It's one or the other.
I'd love to know whether my prediction about your wage is correct.
>The certificate expired on Tuesday, June 07, 2016 1:59 AM. The current time is Tuesday, July 19, 2016 5:50 PM.
Yeah, I need to get on the letsencrypt train and automate cert updates, but I don't have any pressing need. My site is pretty low traffic unless I'm actively sending out resumes (1-10 uniques/month). Most leads come from github/linkedin. A few minutes saved won't fix that however, I'll need a good weekend to get back into that mindset of server administration.
That said, I would gain as much time by parking closer to the entrance of the store as I would by not putting in transactions. It really is negligible time spent at this point. The largest time sink is the one night/month to reconcile all accounts and allocate for next month. The better I am at putting in my transactions at point of sale, the quicker that process goes too! In theory I still have 29 days a month to send out resumes.
Just to make this formal, my prediction about jfowles income was false. I made a wrong prediction.
You might still increase your income more than the time you spend saving money, though :) I was able to read your resume after adding an exception in Firefox, but I don't think employers would do that. It's a question of mentality, and I consider likely that you could increase your wage if you wanted to. But of course only you know that - for all I know you're exceptionally well-paid and kind of lucky to have scored your current wage at all. In my experience this is not commonly combined with tracking every expense.
But what do I know? John D. Rockefeller wrote every expense from when he was a teen through a billionaire. So who knows.
> You might still increase your income more than the time you spend saving money, though :)
Possible! It's more of a pesky human thing that I track my money anymore, having gone through a period where I was tiptoeing overdrawing my bank account every day. I feel much more comfortable (less stressed) about making moderate to large purchases knowing that every cent is already accounted for and previously allotted to those purchases.
As for my place in the wage distribution it is a freak circumstance of well paying job and low COL area. Not that I'm dissatisfied with the area (yet..), but it also makes it hard to justify moving for a 2x salary when housing will be 3-4x.
Businesses need accounting. Humans need nurturing and growth. Don't nurture your business and account for yourself. Account for the business and nurture yourself. Your business can't love you back.