Friday, August 7, 2009

Why not just use Quicken's budgeting, part 2

In my previous post I wrote about how envelope budgeting does a good job of preparing for large, periodic expenses, like property tax or car repairs. Today I'm going to argue that using Quicken can fool you into thinking that you're taking charge of your money, when you really are just tracking your money after it's already spent.

I first started using Quicken back when I was young, dumb, and single. I was making good money, I didn't have much in the way of expenses, and I frankly didn't balance my checkbook terribly often. Quicken was a huge leap forward for me. It was super easy to enter in transactions, it felt really good to assign categories to expenses, and that happy alert box you got congratulating you for balancing your checkbook was very validating. I geeked out for a while, creating an elaborate taxonomy of expense cateogories, and there was even a brief period where I was keeping track of my cash expenses down to the penny. (I had a lot of time on my hands).

Fast forward a few years, and things are more complicated - I'm married, I have kids, a mortgage, and some much more significant expenses. I still dutifully entered all of my transactions into Quicken, categorizing away, balancing monthly, but it was just arranging the deck chairs on the Titanic. We were falling into debt, and quickly.

How could this happen? Wasn't balancing my checkbook keeping us in control? Well, no. Sure, I could run a report and tell you how much we were overspending, and it what areas. In fact, I would do that from time to time. My wife loved it, as I'd run this sort of report, reality would come crashing down, and I'd be just a delight to be around for the next couple of days. "We can't go on like this! How could we spending all of this money?"

Using Quicken to enter and categorize transactions was giving me the illusion of control, but there was no control. Sure, I could do some forensic accounting, and I could tell you to the penny how far in the red we were, but on a day to day basis it was not helping us manage our expenses.

In order to have control of your money you need to know what you're doing with it before you spend it. At the time that you're spending some of your money, you need to know that it's not going to mess up the rest of your month. Envelope budgeting does this for you. Relying on Quicken's built-in reports is like getting in your car and driving for a while, and then using your GPS to figure out just how lost you are.


Lisa said...

I just found your site through a google search for Mac finance software.

I bet you get a lot of hits. I 'm glad you have this site. I enjoyed reading your "stuff" & will come back to read more when I have more time. Funny blog title. Thanks for the heads up!

chumgrinder said...

Plus, Quicken's "Budget Monitor" is only slightly more sophisticated than the proverbial blonde who wonders how she can be overdrawn when she still has checks left.

The Budget Monitor has no concept of time, as in rate of cash flow. Your expense budget for the year is $40,000 and you spend $30,000 in January alone? Green light, you're in fine shape! Your revenue budget for the year is $60,000, and you pull in $50,000 in the first quarter? Danger, big red bar! Because of this, the ability to view the budget quarterly or monthly actually obscures things rather than clarifies them. And oh, by the way, you can only look at the CURRENT quarter and the CURRENT month -- if on April 1 you want to see graphically how your first quarter finished, forget it, it's gone forever.

Lory Watson said...

I am an unsophisticated Quicken 2006 user, and I just recently pre-ordered Quicken Mac 2010. I have never used the budgeting feature before, but beginning on January 1, I would like to be able to track all of my money based on newly defined categories that will be recognized in Quicken 2010. Is there a best practices of how to do this? Should I first download the Quicken 2006 R6 patch and then upgrade to the 2007 Quicken version and make my categories there? Will that version be most compatible with the eventual 2010 version being offered? Any tips out there? I am not really concerned about comparing to or even keeping pre-2010 data...but I want all entries from Jan 1 2010 forward to be recorded in the newest, best format for Quicken 2010 to be able to receive them...Many Thanks also what is envelope budgeting?