One of the most important questions to ask when starting something new should be, “What can I expect?” If the new thing is a medication, you ask about any changes you may notice, side effects, drug interactions, etc. If it’s a new service, you’ll want to know how much it will cost and what type of benefits the service provides. A new system of budgeting is no different.
Soon after I got out of college, I went on a day trip visiting some breweries here in Vermont with a friend of mine at the time. At one of them, we were able to sit down at the bar and order some lunch. So we bellied up to the bar and did what most millennials do when they sit at a bar, immediately whip out our phones. After all, it’s well documented that texts, emails, and social media are far more important than the people sitting right next to you. Right? No? Whatever. The point is, during this particular experience, I was introduced to something really cool while my friend was playing with his phone. He was looking at an app that I’d never seen before and when I asked about it, he said it was called Mint and it showed him all of his bank accounts in one place. What’s more, it had all of his loans, credit cards, and investment accounts linked so it gave him his net worth on demand. Interested in this, I downloaded the app and put all of my info in it. While my net worth a the time was cringe-worthy, the ability to track all of my finances in one place was really cool. Being able to tag expenses was also useful in telling me how much I spent on things like booze in a given year (also cringe-worthy then). So ever since, I’ve enjoyed using financial tracking apps such as Mint and, more recently, Personal Capital to track my transactions and progress with financial goals.
Over the years, the tracking apps I’ve used have gathered and compiled a lot of data. They also made visualizing that data incredibly easy. So in order to help you know what to expect when using the infiBudget, I’m going to use the 2017 Personal Capital data from my own finances. Why 2017? While I’ve used continuous budgeting for a few years, I really only used it to keep my obligation fund in check until late 2016. At that time, I retooled the budget to form the infiBudget since financial independence became my new goal. So 2017 is the first full year where I’ve got a data set using the infiBudget. Below, we’re going to look at that data set and how the two main aspects of the infiBudget work: controlling the obligation fund and working your financial goals into your pay period.
Controlling the Obligation Fund
Above you can see the cash in and out for my obligation fund over the course of 2017. The inflows and outflows each month vary, but not by much. This is OK. The infiBudget works by averaging costs so you’re budgeting for future costs throughout the year instead of the month they’re due. So some months will ultimately have more money in than out and vice versa. Over the course of the year though, it evens out very well. In fact, for 2017 after taking into account all cash in and cash out, the account only had a net gain of 1.41%. And even then, that was due to the fact I over budgeted the amount I’d need to heat the house for the year.
The small variations month to month are noteworthy though. Depending on your bills, you can’t really set it and forget it if over drafting the account is a legit fear. If you are to over draft the account, it’s likely to happen at the beginning of the month since that’s when most large bills come due. Because of this, having a buffer is important. In the How To post I recommended at least a full month’s expenses in the account (yearly expenses/12). While I would start at that level, you’re situation may be different and depending on how often you get paid and what your bill cycles look like, you may want to have 1.5 months worth in there. Having some extra cash in the account isn’t a bad thing since you want an emergency fund anyway. Though, you don’t need to go much further than 2 months in there for it to work with zero worry.
Working Towards Financial Goals
OK, it’s a little redacted but it’s a work in progress and I’m not done yet. Starting in 2017, I set out to eliminate my student loans. Normally, if I just let them ride with the minimum payments, I’d still have them kicking around until 2026. I think the idea of paying for college for more than twice the amount of time that I was in college is a little stupid so the goal is to get rid of them by the end of 2018. What you see above, is the graph created from all the payments I made towards them that year. Each movement down on the graph represents a payment that was made. The vast majority of these payments were made every time a paycheck came in since I was allocating more than necessary into my obligation account. Since the infiBudget told me how much extra I had in the paycheck each pay period, paying down the loans became a frequent ritual. When I worked OT, I just had to make a simple calculation using the value the infiBudget told me I needed for the obligation fund. In all, the infiBudget got me into a regular habit which proved fantastic at paying down the debt. Increasing the frequency of payments means less time for interest to accrue on top of interest resulting in faster payoff of principal. Had I been putting that money towards investments, it would’ve decreased the risk in buying those investments over time through dollar cost averaging. Overall, the process is very efficient.
So in summary, my experience with the infiBudget has been quite successful. I’m not having to spend a lot of time managing my expenses and made working towards financial goals into a habit.