An Easier Way to Budget

This sample from Mint.com shows the level of detail needed for a retirement budget.

A good starting point for predicting how much money you will spend in retirement is an accurate understanding of how much you spend today. There are several methods to analyze your current spending, ranging from using a pad of paper and a calculator to logging on to a free website to purchasing computer software and any method will work.

The hard way to analyze your spending  is to gather your bank statements and your credit card statements, look at each individual transaction and classify it as "Gas", "Restaurants", "Electricity", etc., and then add up all the "Gas" transactions with a calculator and pad of paper.  Then you move on to "Restaurants".  If you're lucky, you'll have everything totaled before the next month's statements arrive.

The method I prefer, however, is free on the Web.  Intuit, the company that provides Quicken software, has a free version of Quicken on the Web at Mint.com.  Mint.com will perform the equivalent of gathering all your statements, classifying the types of expenses, and totaling the expenses by category.  Once it's set up, it's easy to do every month.

Mint.com will collect and analyze all your credit card, debit card and bank transactions, including checks. Mint.com is not the only site that does this. Kiplinger reviewed its favorite alternatives, including Geezeo, Buxfer and Wesabe.  You can see a video explaining how Mint.com works at https://www.mint.com/how-it-works/.

You may be aware that most banks and credit card companies have websites that provide access to your financial information for that particular institution.  You can access your Visa card's website, for example, register a username and password, and then you can access your transactions for that card from computers, smart phones and other devices any time.  I have an account online at my bank and one for each of my credit cards.  I even have one for my mortgage.

Accessing your accounts online may make gathering the statements easier, but you still have to categorize the transactions and consolidate the category totals for all of your accounts.  Some credit card websites attempt to classify your transactions, but most do not.

To consolidate all of your bank account and credit card transactions in one place, you first have to register at the different websites for your bank and credit card companies. Then you input these username/password combinations into Mint.com.

I bank at Wachovia and use an American Express card, so I had to create an online account at Wachocia.com and another at AmericanExpress.com.

Mint.com asks you for the username and passwords for these individual websites and logs into every website for you, consolidating the information from all of them.  Mint.com even makes an attempt to categorize each transaction by the expense type (restaurant, grocery, gas station) based on the type of store where the purchase was made and, in my experience, it does a pretty fair job.  When it's wrong, you can easily fix it and it will be correct for all future transactions.

If you're not asking yourself right now how secure these websites are, you should be.  You will be storing your login credentials for all of your financial institutions at the Mint.com website.  My answer is that I don't think we know.  The website owners go to great lengths to keep our data secure, but then we read about major security lapses.  I've been using sites like these for over ten years with no problems, but whether you believe the convenience is worth the security concerns is a personal decision.

You can also buy money management software like Quicken that runs on your computer or a free alternative, GnuCash.  It will download transactions from your various account websites just like Mint.com does, but the username/passwords will be stored on your personal computer instead of a website.

Once you have set up an account at Mint.com and entered all of your financial accounts, you can click on the "Transactions" tab, select any or all of the accounts at the left, and get a listing of all of your credit card transactions and check transactions.  You can use Mint.com reports to see your spending by category, or you can download them into an Excel spreadsheet.

I do the latter because there always seems to be one or two things I can't get from the Mint.com reports.  I know my way around a spreadsheet pretty well, so I scroll down the the bottom of the Mint.com Transactions page and click the "Export transactions" link on the right. 

In fact, you can manually consolidate all of your online accounts, if you prefer.  Got to each bank account or credit card website and export your transactions in spreadsheet format, then import them into a spreadsheet.  Mint.com is a simpler process, but you will have more control over your own spreadsheets.  I find the consolidation of accounts and the classifying of transactions ("Groceries," or "Restaurants", for example) provided by Mint.com saves a good deal of time.

Cash transactions, of course, show up only as withdrawals or ATM transactions, so you'll have to itemize cash expenses some other way, perhaps with that pad of paper and calculator.  When you're finished, though, you will have a pretty good accounting of your current spending.

The next step is to modify that spending to account for changes you anticipate in retirement.

The Key Points

• Predicting retirement spending by adjusting how much we spend before retiring requires a detailed list of current expenses by category (utilities, mortgage payments, groceries, etc.).

• You can track and budget your spending with a pad and pencil, but if you trust the security of websites, there are much faster ways to accomplish this.

• You can automate budgeting and avoid the security risk of storing all your financial websites' usernames and passwords by purchasing a computer application like Quicken or by using freeware like GnuCash.

If You're Playing Along at Home

If you are developing a retirement plan as you read these, find a recent copy of your detailed budget of current spending by category.  If you don't have one, follow the steps above to begin developing one.