When I started working, I tracked my spending down to the penny in a spreadsheet that I named the Budget Bible. (it was borrowed from my friend)
Over the years, that spreadsheet has morphed into a document that primarily tracks our net worth. It tracks our bank accounts, our investment accounts, as well as our tax filings each year. It's a living document that has evolved over the years. I can't imagine managing our financial life without it.
(the title says budget but the article will focus on anything regarding finances and numbers – so it can be budget, tracking net worth, tracking investments, whatever)
That said, we still use some personal finance tools in managing our money. The spreadsheet is the core but we do have tools that support it.
Today, I want to talk about how, despite those tools, there are reasons why budgeting with a spreadsheet is still king. And will always be king.
It's a Custom Tailored, Living Tool
Spreadsheets can be as simple or as complex as you need. What you track, what you calculate, what you put into reports or charts and other visualizations… you build it to what you need. Spreadsheets are amazingly powerful but they can also just be a simple log of transactions.
You can start with a budget spreadsheet template and customize it or start completely from scratch. As there is no rush, you can just tweak it over time to fit your needs.
Tools are powerful because they can get you started very quickly, often for free, but they are never perfect because everyone's needs are different.
It's like buying a suit. You can go to any store and buy a suit off the rack. You'll get a suit very quickly and it will fit decently well.
Or you can go to a tailor and get measured for a suit that they make custom just for you. That will take far more time but the suit will fit perfectly.
To stretch the analogy even further, when your body changes, you can get the suit tailored to match. Your spreadsheet can be adjusted as you go through your life's adventures. What your life looks like at twenty will not be the same as in your thirties, forties, or sixties.
You can't change a tool, but you can update your spreadsheet.
Many people who look for a better tool than Mint are often graduating beyond simple budgeting. They enjoyed Mint but want to do more investing and tracking their whole net worth, not just focus on budgeting.
You Can Build Your Own Reports
What I love about my spreadsheet is that I have built all the reports I need.
My summary sheet gives me a quick snapshot of our finances. I know our net worth, our liquid net worth, as well as where our cash is. It's pulling from cells in my Assets sheet but organized in a way that is less cluttered.
I also have secondary sheets that are useful like one for my taxes. I've recorded a few of the lines from my Form 1040 into a sheet – including Wages, Interest, Dividends, Capital Gains, Total Tax, and calculated figures like effective tax rate.
It's fun to see that in 2006, I only had $50 in dividends. By 2015, that figure would be over $50,000. (There's no secret to the huge increase – I sold a business in 2010 and put much of the proceeds in the stock market)
When you build your own reports, you can build calculations all over the place. You can calculate some of these important money ratios and you're always aware of your ratios. This is especially helpful for those ratios that track your progress, like your Net Worth Ratio (Age X Pretax Income / 10), which comes from The Millionaire Next Door.
Tools Change, Disappear, Get Acquired
There's a concept in business called platform risk.
It's when you build a business that relies on another business. Instagram influencers, Youtube stars, Twitch streamers, and the like are very popular these days but they rely heavily on third-party platforms. If something happens to Instagram or Youtube or Twitch, those businesses suffer.
Personal finance tools often change from year to year and sometimes they get acquired or go bankrupt. If you rely on those tools, you're subject to those risks and that can be very annoying if a tool goes under when it's a key cog in your financial machine.
Users of Quicken have experienced this quite a bit. The tool was created by Intuit, experienced a lot of competition from Mint (and many switched), and sold to H.I.G. Capital in 2016. If you were a long time user of Quicken, you “enjoyed” these changes first hand. Many Quicken users complain about support too. Tools stop synching with some accounts as interfaces change. They lose features, add features, get more complicated, get simpler – you have no control.
A more recent example is Google Finance. I loved Google Finance but I guess not enough people did because Google shuttered it and many scrambled to find a replacement.
Spreadsheets will never go under. They also, fundamentally, don't change. It's a ledger.
It's like worrying that a calculator will disappear. It won't disappear. 🙂
Manual Tracking is Still Best
When taking notes, writing it by hand adds an extra layer that helps your memory. A lot of the value in taking notes is in writing them down. That's why you'd have tests where you could bring in a sheet of notes for help.
The same applies to your budget. By manually entering in data, you add an extra step that makes the spending and saving more tangible.
While this can be time-consuming, it does have the benefit of pushing you to simplify your finances. Before I started, I had a lot of online bank accounts because I'd open them to review the process. It became cumbersome to log into them just to record $50 here and $25 there. (and trivial to close them!)
When you get started, manual tracking will be your friend.
As you and your system mature and you lose the benefits of manually tracking, it's important to lean on tools like Tiller. They can keep your process going even if you don't feel like it. You don't want to abandon tracking because of data entry! Tiller will handle the automation for you and pull data on your behalf.
You Can Write Notes!
Notes are KEY.
I wasn't good about putting in notes when I started. It wasn't until later that I started keeping notes (literally right click and add a “New Note” on a cell) and it has changed how we use our spreadsheet.
Your memory is probably good for the last year or so. It also remembers the big events in your life.
But does it remember what happened in December 2012?
My Vanguard account had a big increase that month, but why? If I tried to remember today, in 2019, I'd stand no chance. I could make a guess but it would just be a guess. And I wouldn't be confident in my guess.
But it turns out I rolled over a 401(k) into my Vanguard Rollover IRA. Answered in seconds because of notes. That was a really mundane example but that's exactly why notes are important. You don't remember mundane! And certainly not many years later!
Your notes remember for you.
Your Data is Safer
The cloud is pretty safe. But there are risks.
When I talked with Personal Capital about their data security, I felt confident my data was secure. But with any service, having the data out there means there is a greater than 0% chance of something happening. If my data is not out there, nothing can happen to it.
When people ask me for alternatives to Quicken, one important factor is keeping their data local. They don't like Mint or Quicken Online because they don't want their data in the cloud.
The best solution is to use a spreadsheet you store locally. While there are still risks, as someone can break into your computer or steal your laptop, that's on you. It won't be anyone else's fault. 🙂
Do you use a spreadsheet to track your finances? What do you track? Any fun calculations you make that I can steal? 🙂