I am a huge fan of budgets. I find them essential to syncing up on monetary issues. But not just in business. The Gotham Gal and I use them in our personal life to avoid conflicts about money.

For a long time, probably the first fifteen years of our life together, we lived paycheck to paycheck. Sometimes it was two paychecks, other times it was one. For a brief period as I was starting Flatiron, it was none. I got shingles that year.

As our income went up and down, our spending had to do the same. I created "fredsheets" that we looked over, debated, discussed, and then adjusted and signed off on. Then we created budgets so that each of us would live to these spending plans. It worked. We always made it to the next paycheck. Many times by the skin of our teeth.

In the second fifteen years of our life together, we've had the pleasure of living in a different financial situation. But we still use budgets. We created budgets for our kids which they live up to. We created budgets for our real estate projects, our angel investing, art collecting, and so on and so forth.

Another trick we frequently use to deal with personal financial issues is multiple accounts. We have bank, brokerage, and money market accounts for various projects, all of which have budgets. We fund these accounts based on the budget and then pay the expenses as they come in out of the various accounts. This means that we can look at the available balance and compare it to the budget to make sure everything is in good shape.

Managing money and financial issues is hard. It leads to a lot of tension in relationships. I suspect it leads to divorce in many cases. Better education (mine sure helped me), better tools, and better communication around these issues would help a lot.

#Random Posts

Comments (Archived):

  1. Rohan

    Very very nice, Fred. Thanks for this. 3 questions  – – Would you have a google doc template of a Fred-sheet with dummy numbers? (I’d made one for myself http://bit.ly/aladaccountst…. – Is it something like this?) – Would be nice to know how you think of money? Do you save/invest etc by percentages? – And finally, when it comes to investments – would be nice to understand how you think of an investment philosophy? (eg: mutual funds or no mutual funds).–After going completely broke and in a bit of debt as a student, I’ve learnt that there’s no way around being financially healthy. Being frugal, accounting for every penny, doing budgets etc – it’s just like exercise. The difficulty with this (Atleast as a youngster) is you don’t realize you’re carrying flab unless you pay attention.I’ve just begun trying to understand this world and more specifically, understand how to think about investing money. And started by reading Dave Ramsey. 🙂 Any help/thoughts/advice would be much appreciated…PS: Aaron, Riskalyze is on my ‘dig deep’ list! 🙂

    1. fredwilson

      i don’t want to share our spreadsheets. it’s work to dummy them up. and it’s not that hard to imagine what goes into them. you just figure out where the money is coming from and going to and then look at how much you’ve been spending in the past and figure out what is discretional and what is not.we don’t use percentages. we use actuals and work from there.as for investing. we are in cash, real estate and venture capital. no securities like stocks and bonds. i want to understand what we own as well as anyone.

      1. markslater

        no stocks and bonds…….love it.

        1. leigh

          m2!   Does that make me a super sophisticated investor like Fred?  I thought it meant i had no clue 🙂

          1. Aaron Klein

            You might want to give Riskalyze a try. I would still shy away from stocks and bonds, but it can help you figure out how to convert a nice set of index funds into a portfolio that fits you.No one has to be a “muppet” any more! http://blog.riskalyze.com/2

          2. leigh

            ah cool…will say though, one of my biggest issues/fears with the stock market is how it feels so high school to me.  A bunch of people can start spreading rumours that so and so is a slut and next thing you know, everyone thinks so and so is a slut even though she stays home crying every saturday night.Even the fact that Goldman Sachs lost how many billions over one blog post — well, i think i’d rather buy into the housing bubble or my own business!

          3. Aaron Klein

            That’s exactly why most investors should stay away from stocks and bonds and pick some good index funds. Then you’re invested across the entire high school (and the prep school and the art academy to boot) so it makes it a lot tougher for that phenomenon to work. 😉

      2. Rohan

        That’s very helpful, Fred. Thanks! 

      3. JimHirshfield

        No covester?

        1. fredwilson

          Yes I have a big covestor account. But I feel like I’m backing people not stocks

          1. ShanaC

            Which is how banking should be (especially in the light of “I quit goldman” letter in the NYTimes)

          2. Mark Essel

            It’s much easier for me to trust a person with a plan, than an uneducated hunch.But how do you select that lead covestor? (I haven’t tried it yet)

      4. Ryan Frew

        “and it’s not that hard to imagine what goes into them”I think that’s an important point, but not necessarily an obvious one. For most, although probably not the majority of AVC readers, budgets are a daunting task because people simply don’t know what they’re comprised of. Bearing in mind that we live in a society where an Accounting 101 class is as intimidating as nuclear physics. A crucial, but under-appreciated, aspect of maintaining budgets is upholding simplicity whenever possible. Doing this will make keeping a budget a less tedious task which will drastically increase the likelihood of actually keeping said budget. So, when you imagine what goes into them, just try to make it as obvious as possible, and that’s it.

      5. ShanaC

        Do you think it makes a difference to use actuals?Also, what was your starting point when you first did this – did you gather a bunch of bills and then make the budget around that?How do you decide tradeoffs in the budget?

        1. fredwilson

          Yup. I pay bills once a month on the first of the month. I added up all the bills and got started

          1. ShanaC

            How did you decide on tradeoffs though???

      6. William Mougayar

        There must be some SaaS software app that lets you do that? Banks should provide that free of charge. For small businesses, I’ve started to use this great software Wave Accounting http://waveaccounting.com 

        1. Fernando Gutierrez

          My girlfriend and I use EEBA, Easy Envelope Budget Aid (http://www.eebacanhelp.com). It syncs web version with mobile apps (we use Android and iPhone). Very easy to set up and a free basic version.Toshl (http://www.toshl.com) is also very nice, but it has desktop instead of web version.

          1. William Mougayar

            Will definitely check these out. Thanks for sharing.

        2. John

          I use wave for business and personal.  They have a personal tab.  I do wish they’d add a few more reports and charts to the personal side though.  I still like the easy way you can categorize things in Wave.

      7. Emil Sotirov

        “…as for investing… no securities like stocks and bonds.”Hugely interesting detail… deserves a separate conversation. I don’t mean the purely investing aspects but more about the implications – smart people losing trust in institutions (Wall Street, Government), where does this lead us, etc…

    2. Mark Essel

      After my first paying engineering job out of college I was cash rich. I had little debt besides some credit cards I used to pay off school (I worked in the summers and got help from my folks for the local state university). And my only bills were rent, food, and car insurance (inherited a great used car from my bro).With that first paying gig you can eliminate any debt and start building a stock pile. I chose to max my 401k contribution and use the rest for quality of life (back then it was beer, video games, and food), but your mileage may vary.

      1. JLM

        2nd Lt being paid $277/month; $65 jump pay; $65 demo pay; $65 hazardous duty pay; no taxes when overseasI had no idea what to do with all that money!

        1. Mark Essel

          No doubt our perception of wealth is relative. I can only imagine you had your fair share of fun (and then some) spending it back then.I caught your twitter handle this week @JLM73TX, and added it to my inbound list (I don’t have a default follow, in order to promote some semblance of context to my time there).What’s the story behind the car, and where was that cockpit background pic taken?

          1. JLM

            Mark —I have had that ’66 Impala Super Sport convertible for a long, long time.  It is a great pleasure to drive it and I drive it all the time.  It is a driver.I was hoping to take William M and Fake Grim for a ride when they were in town for SXSW but the weather did not cooperate. We had brunch and had a wonderful chat.  Couple of brilliant guys.The cockpit is my plane and those are my legs.

          2. Mark Essel

            Taking a picture someone else flying your plane is uncivilized (so I guessed it was you), but are you airborne (I see some clouds)? That legroom doesn’t look too spacious, I may not fit properly!Glad you, Willy M, and FG got to meet up. We need an AVC donors choose meetup in your neck of the woods, with a proper outdoor BBQ/picnic. Let’s see of FG can catch a frisbee in that robotic maw.

          3. William Mougayar

            I’ve already lobbied JLM to put the next Donors Choose on his calendar. A couple more requests, and he’ll have no choice but to acquiesce. The best part being the after-event at Punch.

          4. panterosa,

            I spent many years at RISD, and after, in my best friend’s ’65 Impala convertible. One of my favorite reds ever. I would dress up for that car, which my friend adored, and was a nice change from being a studio rat. The car is gone, he died, and you can probably imagine how fond I am of the memories of the wind in my hair in those days.

          5. JLM

            @panterosa:disqus Ahhh, yes, the wind in one’s hair and that harkening back to those earlier years.  Yes, it feeds my personal brand of crazy.  A feast, really!

          6. Rohan

            I think that’s the car he spoke about a month or so ago – the one he likes taking into the ride in the mountains.. ?

        2. LE

          What kind of “me love you long time” can you afford with that kind of pay?

      2. Rohan

        Thanks Mark. Agree! I’m in that exact place.. 🙂 

    3. Aaron Klein

      I think you’ll dig it. A very simple way to convert investing ideas into decisions that fit you. And we give you some great places to start. 🙂

  2. Carl J. Mistlebauer

    Wisdom:  “For a brief period as I was starting Flatiron, it was none. I got shingles that year.”You can either translate that as, “with no income you get shingles” (let that be a warning to those who are unemployed!) or, “without a income and a budget bad things happen….Sorry, Fred, I just could not resist!  :)Honestly, budgets should be a way of life!  Every young person who I have ever come into contact with I make it a point to sit them down and explain budgeting to them.  If you are in college and you come work for me as an intern, you are going to learn how to budget and I will ask to see your budget from time to time.I after the first year you also learn about investing and IRA’s and you better be prepared to stash away $100 a month in a fund….Nothing like being a one man police state!  I have no clue why anyone in their right mind would come to work for me…..

    1. fredwilson

      Can I come work for you?

    2. karen_e

      Love this!

  3. jason wright

    Maybe just once a year I get the tiniest herpes simplex sore at the corner of my mouth (certainly due to feeling physically run down), but when it’s there I’m completely hacked off by the feeling for the duration. Shingles sounds truly awful. I never want to experience that.

    1. markslater


      1. jason wright

        “simplex” – there is a difference :-)Now edited for clarity.

        1. JimHirshfield

          Still TMI.

          1. jason wright

            Is that why the French kiss on the cheeks?

          2. JimHirshfield

            Where are we going with this?

          3. Emily Merkle

            I would draw this parallel: Fred provided some insight into the financial framework he & his family use for structuring their assets. You could extend this to budgeting your time investments as well. Having your financial house in order – and succeeding at managing it – can give rise to budgeting your time investments as well. To me – and I suck at budgeting – I am much more rigorous in monitoring how I spend my time. I am not saying I am Super Efficiency Lady, but I do subscribe to the adage “Time is Money”. 

          4. jason wright

            “Where are we going with this?”I don’t know what “this” is, but I know the French public healthcare system in rated No.1 in the world by the WHO.

    2. fredwilson

      Super painful

      1. LE

        Shingles & Stress I feel your pain.I got shingles last year over the decision to buy something expensive that I had always wanted. The shingles were a direct result of the tumult caused by spending the money, and worry about potential criticism, from, as you would say, “family members”. (Not my wife she was 100% supportive..)When I finally made the decision to buy, it took me at least a few days to settle down, enjoy and be comfortable with the decision. What’s really strange is that I’m the type of person who doesn’t give a shit about what people think in general. I do things all the time that my family disagrees with. For some reason this was different. 

    3. ShanaC

      are you sure its herpes (and eww to herpes).  I get an attack of the canker sores once a year from too much acidic food and too much stress…

      1. Dale Allyn

        Try increasing your water intake, Shana. It’s a common issue in regions with lots of fruit in the diet (like S.E. Asia), and a common practice to increase hydration with water (as opposed to juices and such). Edit to add: stress adds all kinds of quirks, but hydration is almost never a bad idea 😉

      2. jason wright

        How would I tell the difference? I’ve always assumed it was simplex.

        1. ShanaC

          Look up pictures on the internet (note, they’re gross) – also inner lip/tongue/mouth tend to be canker sores

  4. jason wright

    What kind of art Fred?

    1. JimHirshfield

      Have you seen his avatar? Duh!;-)

      1. jason wright

        Have you seen Rohan’s? 

        1. JimHirshfield

          Yes. All these avatars are part of the collection, eh?

          1. jason wright

            Oops, I thought you were referring to shingles LOL – Disqus,… honestly.Tom Hanks collects…. typewriters. 

    2. fredwilson

      Modern emerging artists. Seed and series A as always

      1. jason wright

        …as an investment asset class, art as commodity, a warehousing operation? Or, genuine appreciation?

        1. ShanaC

          Don’t get me started on art as an investment class.Some people actually do use it as an investment.  I think there are even a couple of funds that try to “”trade” in art.Unfortunately, the market for art is really really murky – going to certain schools is more likely to make you successful *cough*yale*cough*.  Further, NY State prosecutors/Federal prosecutors have been debating back and forth for years about if the secondary dealer market (also the primary market, but not to the same extent) about te following:whether there is price collusionwhether there are different prices based on the likelyhood the piece in question will be donated/exhibited at a musuemIt’s really not about if the piece is any good.That being said, I just was at the armory, and I saw some excellent growth into interesting pieces that move the field a bit more forward, especially in the realm of drawings.  Which was nice.

          1. Adam B.

            Where else can you store 25mm in a 8.5 x 11?Art is an asset class.

          2. ShanaC

            I mean it is, just one with illegal and murky pricing-also, photos are weird because of the possibility of reprinting…same thing with ukiyo prints

          3. jason wright

            I remember the 1980s and Japanese corps buying up art and locking it away in Tokyo bank vaults.Today it seems to be Roman Abramovich and his muse, plus the Qatari royal family hoovering up everything in sight.It’s a murky world the international art market.I’m no fan of art museums, especially western art museums. Fig leaves mostly.

          4. ShanaC

            I happen to find art facinating, and if I ever make a lot of money I would totally pull a 180 and go back to active artmaking. There is some hyper contemporary ideas I want to explore.Still, the art as an asset class thing is just weird.

          5. LE

            “Don’t get me started on art as an investment class.”You would be hysterical if you saw what happens on cruise ships with art sales and art as “investments”. Truly sad.

          6. ShanaC

            I probably would get super snarky on them

      2. LE

        Since you invest in real estate you may want to consider this type of project.You open up a gallery which is a combined work space and gallery space for unknowns.  You (or someone) vet’s the artists and holds shows. Simple to do. I’m sure you’ve seen this in NYC.I owned a building in the early 90’s (which I later sold). It was rented by a rich retired auto company exec for his wife who was an artist to give her something to do. They sublet part of the space out to artists who paid rent (I think there were 6 private rooms) and the front was the gallery for shows (of the people they thought were good). They would hold the shows every Friday night (Philly has 1st Friday in the Old City section which contained galleries).Anyway it developed into this:http://artistshouse.comI remember how the owner used to complain about the rent. One day I went in and started speaking to some of the tenants. I thought the owner was having a hard time renting the studios. Turns out that there was a waiting list to get in and all the artists were super happy to be able to rent their little space and be in an actual gallery.

        1. fredwilson

          i would love to do something like that

      3. kenberger

        the difference being that in the art world, most creators only hit it huge posthumously.

        1. jason wright

          So if an artist died suddenly those who’d invested would see their return grow exponentially? I’d be a worried artist.Lucian Freud was a noted exception to the rule, and Francis Bacon. Both now gone but their paintings sold for large sums when still alive and painting.

          1. kenberger

            I didn’t say that the converse of my statement was necessarily true (that if they die, it guarantees success). And sure: happily, there are plenty of exceptions to offset my use of ‘most’.

      4. Greg Neufeld

        I have one hell of an emerging artist for you – Domingo Zapata – dzapata.com.  He went from doing 100 person shows at Art Basile to thousands of people waiting in line for his show this last year.  His new manager stepped up his game and now he has studios in NYC, LA, and Paris and has a 2 year wait list for commissioned pieces.  His story is amazing too: from Majorca, Spain, his father wanted him to be a banker but he always wanted to be an artist.  Moved into the music industry and co-wrote the english lyrics for the Macarena, all while pursuing his passion for art.  Now he’s finally breaking through with amazing results.Let me know if you want an intro…

  5. JimHirshfield

    I had to read the GothamGal related article. A real keeper! Love this morsel :”I will never forget when I came home after a small shopping excursion with a pair of new shoes. Fred freaked.”How many lessons learned therein?

    1. Mark Essel

      My mom used to go on $500 mall shopping sprees (when I was a kid that was a ton of stuff). My dad’s response was always *face palm*http://i2.kym-cdn.com/entri…

      1. fredwilson

        As long as they are within budget, shopping sprees are celebrated in our home

        1. Brent Weber

          This.  Huge amount of satisfaction when you can go on a vacation, shopping spree, buy kids clothes, etc and not be stressed about where the money is coming from.  It is planned into the budget and there are funds set aside to cover them.I do have to ask one question though Fred.  Many of our friends mention that they would like to stick to a budget but they make a meager amount and find it hard.  In your experience is more money easier or harder to manage?I know in my life, when I was just out of high school, working construction and not making much money, it was much easier to manage the finances.

          1. fredwilson

            More money has some challenges but less money has way more, particularly if you have a family to provide for

          2. Emily Merkle

            In managing less money the challenge is not so much the management of the money, it is the stress that accompanies struggling to live within very modest means, the sacrifices that entails, the anxiety. 

        2. Laura Yecies

          I actually think that’s one of the biggest benefits of budgets.  When I know the spend is in the budget, even if it’s a splurge type of item, then it’s more enjoyable as I don’t need to feel guilty.

    2. fredwilson

      That was how it all started. We were 21

    3. Fernando Gutierrez

      Yeah, that was a great post. They are clearly in the same page!

  6. Pascal-Emmanuel Gobry

    My wife is fanatical about this, which is great because I am awful at it. The problem is that as a freelancer my income fluctuates. Btw, I absolutely agree with you on the need for separate accounts. I don’t know about the US, but in France every married couple we know has a joint account, which we think is unhealthy. We’re independent people with independent lives, and that includes financially. We share our expenses equally, and we know we can rely on each other to pay. 

    1. fredwilson

      All of our accounts are joint. We just have a bunch of them. We had nothing when we moved in together at age twenty. Half of nothing was nothing

      1. Pascal-Emmanuel Gobry

        Ha! Whoops, no way to walk back that one. 😉 Well, if it works for you that’s great.

      2. matthughes

        My wife and I had separate accounts when we first got married.I don’t know that there was a particular reason other than we were both pretty independent people.It caused some friction off an on for a few years.We finally merged accounts and not only did the friction disappear, our financial position steadily improved.It’s one of the better decisions we’ve ever made. 

        1. PhilipSugar

          I don’t know we went the opposite way.  Much, much happier.

          1. matthughes

            For us, it brought down some barriers.It was actually very liberating for both of us.To each his own I guess. 

          2. PhilipSugar

            Oh absolutely to each his own, I didn’t mean it any other way.

          3. matthughes

            I totally got what you were saying below – we’re on the same page. 🙂

    2. Marcus Oberholzer

      Proof that it’s very possible for couples to approach this topic differently and still be healthy. It all depends on how each individual approaches it and how it matches with the other.For instance, my parents (married for 40 years) have always kept separate accounts because my father never understands my mother’s need (or “need”) to shop, and this approach works great for them. On the other hand, my wife and I keep joint accounts because we’re both similarly frugal, and it works equally well (at least it seems to).Different strokes…different folks.

      1. Pascal-Emmanuel Gobry


    3. Aaron Klein

      My wife and I have two checking accounts for day to day transactions. They’re labeled “our money” and “her money.” 😉

      1. Pascal-Emmanuel Gobry


      2. Mark Essel

        Ba dum dump 🙂

      3. Rohan

        Now I know you’re a very smart man.. 

      4. LE

        If you grew up in the 60’s you can’t forget “The Jetsons”.”Jane his wife” who grabs the wallet (not the cash George takes from the wallet) is at about 40 seconds in:http://www.youtube.com/watc

        1. Aaron Klein

          If you grew up in the 80s and had retro parents, you can’t forget the Jetsons either…And we’re getting closer and closer every day.

        2. fredwilson

          i love the jetsons

    4. Fernando Gutierrez

      I have the same problem. I budget as much as I can, but my income is not stable at all, so it’s quite hard. Time to revisit Fred’s posts on forecasting!

  7. Christopher Herbert

    Fred- it sounds like you use simple spreadsheets to budget. I wonder what the community that reads you uses.I used MS Money for a long time, then switched to Mint about 5 years ago. It makes things really easy by automatically ingesting all transactions, but the budgeting tools leave a lot to be desired. The main problem is that people with annual budgets can’t measure performance vs. budget in Mint. It’s infuriating.Any better tech solutions out there?

    1. Scott Barnett

      Not sure about MS Money, but I’ve used Quicken forever and it has a reasonable budgeting capability, including year to date reports.  We setup our daughter (17 years old) with Mint and it’s working for her, although I haven’t spent a lot of time on it with her yet – she uses it to track and reconcile her spending and accounts.In general people do NOT do this.  It’s one of the great shames of our society – we do not teach kids the value of money and how to save/track what they spend.  My friends make fun of me for tracking everything, in fact.  But I wouldn’t have it any other way.  It is truly enlightening to see where/how you spend your money (most people would be completely shocked) and once you get into a rhythm and discipline of spending only what you budget, it’s easy to get the things you want.While I doubt our upside is on par with Fred’s, the curve has been similar… I remember the days WAITING for that paycheck to arrive so I could pay rent/bills/etc.  Now it’s quite a bit different, but we still run our household and budget the same way – we just have more *stuff* to pay for.  And we’re now working with our daughter to budget for college – which shockingly very few of her friends are going through with their parents. 

    2. Max Yoder

      Hey Christopher, have you ever checked out MoneyDesktop (http://moneydesktop.com)? I’ve never used it, but friends of mine like it for its budget forecasting tools.

    3. fredwilson

      I use google spreadsheet. I have some tricks and techniques that I’ve used over the years that no standardized software would ever have in it

      1. karen_e

        You should do a Khan Academy style video on this, Fred. Seriously. Household budgeting using fredsheets so that hard-working entrepreneurs can get along better with their loved ones. You could have Jerry do a nice Buddhist intro to it.

        1. ShanaC

          actually, he should do a skillshare classBudgeting for Startups and Small businesses. (that actually would be a good class)

        2. fredwilson

          The fred & jerry show

      2. MaticBitenc

        What kind of tricks? We’re trying to educate people with bringing in features for interesting usecases at Toshl.com, so I’m curious what do you use?

  8. Phil Fremont-Smith

    I couldn’t disagree more.  🙂  For hundreds of years the financially successful and the Personal finance establishment have been telling us that creating better budgets and spreadsheets and living within financial diets by learning discipline is the answer. The problem is that there is a very small percentage of humans on Earth who are hard wired to have an aptitude for planning ahead. The rest of us are hard wired to be gatherers not planners.  Grab that fruit while it’s ripe before someone else gets it.  That’s at a brain chemistry level of instinct.  Telling us to learn discipline, build budgets and spreadsheets – live on financial diets –  basically to be better people, will NEVER work for most.  That’s been the advice for 100s of years – but look at the results.  People epically fail to save or even live within their means.  The other reality is that the world is optimized like a mouse trap for spending – and we’re throwing that hunter-gatherer’s brain into our modern retail environment and boom – trouble.  The landscape is littered with offerings focussed on helping people to change, making budgets easier, gamifying planning ahead.  Yikes.  Like gym memberships people will sign up for these – with the best of intentions – because these are touching the huge pain and stress money causes in their lives – but like a gym  membership – for most this will never change their lives because they will not ever truly engage ongoing.  That’s where I came up with the idea for ImpulseSave (https://impulesave.com ).  Our users are saving close to $5k/year right now, that otherwise would have been spent.  And we’re just getting started.  The reason?  We’ve transformed the act of saving to finally fit our natural behavior.  We’ve made saving as easy and as instantly gratifying as spending.  So little micro-savings that would have been impulse purchases end up in the bank not in Targets rev line.  How?  That’s our secrete sauce – but I had to reply to this great post because I feel it’s so representative of the problem.  The solution for the vast majority of people for whom “budget” is akin to “diet” is not to try to change their behavior – but rather to change their set of transactional options so that saving is not only on the menu everyday and every where like spending is – but also just as tempting.   

    1. Mark Essel

      That sounds pretty good Phil but what’s your monetization model? Ok it looks like you hold folks money and generate revenue from the interest. So essential impulseave is a 0% interest savings account with some kind of game features?Heads up, you’re url is mispelled, it’s https://impulsesave.com right?

      1. Phil Fremont-Smith

        Thanks for that catch.  Not something I want typos on.  We offer an .40 apy.  And our rev model is not based on earning interest I assure you!  

        1. Mark Essel

          If you can’t share your revenue model, why should folks trust you with their money? I understand the basics of how banks work, and I can pull back the veil and find out what they do to generate revenue. Does your monetization strategy diverge from banking?

    2. fredwilson

      Disagreement is good. It leads to discussion and debate. I’ve successfully taught my kids and other family members how to do this

      1. Phil Fremont-Smith

        And the truth is that ultimately teaching people to do more of that is important -I can’t deny it.  The problem is getting them hooked on it so they engage everyday or every week with it.  Stay on the plan so to speak.  That ultimately is what happens with our users too.  But the hook is what’s missing for people.  After a few weeks of redirecting their latte factor to a goal they really care about and teasing them and tempting them with those goals to get them to do more of it – they see how it really adds up.  Then from the perspective of having $1,000 in the bank they otherwise would have spent – they feel proud and empowered and are reluctant to withdraw the money.  About 40% of our users do not redeem their goals once they’ve reached them – because for the first time they’re seeing real material gains in getting ahead.  So they just keep going.  Having people create a spreadsheet as step 1 is often a very depressing thing to look at, discouraging.  So we get them hooked on the behavior they already like to do – transact.  Once we have them and they’re excited and proud – it’s a whole different story to make a plan from there.  Thanks for this discussion.  Hugely important subject.  

        1. Tom Labus

          “Having people create a spreadsheet as step 1 is often a very depressing thing to look at, discouraging”I think most people are too scared to look at their finances for real.  If it’s not on a spreadsheet then maybe it’s not that bad.You are very right about this being an important topic.

        2. LE

          I don’t know if your numbers are right or not but I have to tell you that intuitively what you are claiming is correct based on what I’ve always observed in people. You’ve tapped into a way to take advantage of basic human behavior which doesn’t change over time. Your solution is easy to do and automatic (right?) and becomes a default behavior that provides reinforcement. My biggest question is how you get people to sign up and of course how do you make money off this idea.

          1. Phil Fremont-Smith

            Thanks.  People simply join ImpulseSave at https://impulsesave.com/  create an account with us and link their checking.  Then they can use a number of ways to ImpulseSave, mobile, web, even through other services like Instagram.  Our strategy is to make saving for the stuff that really matters as ubiquitous as is the option to spend.  We get our users from our current users inviting friends. Turns out that saving (and bragging about saving especially) has already become inherently social and more fun with friends.  The thing that has really caught us off guard is that everyone seems to know someone that needs ImpulseSave more then they do themselves.  🙂  Therefore they recommend it light-heartedly almost as a tease.  Also – once you’re account is set up it couldn’t be easier and more light hearted.  

    3. Luke Chamberlin

      My grandmother who grew up during the depression was a fantastic budgeter. She had no other choice. Saving is cultural and saving is also affected by circumstances. I don’t think it’s so simple to chalk it up to human nature.That’s like saying people are never going to buy fresh food and cook their own meals but they like to impulse buy candy bars, so the only solution to our obesity problem is to invent healthy candy bars.That said I like your idea about impulse saving. When I lived in Japan I had a coin jar in the entryway that I dropped all of my pocket change into when I came home. The thing is in Japan, they have $1 and $5 coins, so by the time the small jar filled up I had almost $1400! I was blown away. So something as simple as currency denominations can affect savings rates.

      1. ShanaC

        Saving is partially cultural – but there is an element of truth to what Phil says too.  Its like leftovers – some people reuse the food, some people just eat more of the same thing…both get where you want 🙂

        1. JLM

          Always pay yourself first.

    4. Richard Burton

      Typo on your URL 😉 Really interesting proposition.

    5. Rohan

      I couldn’t disagree more. 🙂 There’s way too much generalization for my tasteThis problem of people ‘epically failing to save or live below means’ is not a people problem. It’s a situation problem.I’d look beyond consumerist markets. I don’t see that problem in most places in Asia. 

    6. LE

      Hey Phil, – You typoed the link to your site (impule sb impulse)Anyway:”We’ve made saving as easy and as instantly gratifying as spending.”As I would say you’ve simply flipped the reward system.  This works as well with eating. Instead of getting gratification from eating you get it from the reward of resisting eating. You find the psycho basis of this reward flip to appear in many old people. They derive pleasure (and I do mean pleasure) from not spending money. I can’t point to any research but I’ve seen this to many times over the years for it not to be the case. I’m sure everyone has.At a certain point though that behavior becomes addictive in itself (just like spending that goes out of control).  Just like people who become all wacky on health food and anything they think is good and/or minimal.That said I think your idea is great. It’s kinda a version of what that financial guy says is the “latte” factor. I don’t agree with him on that although it might be appropriate for certain people. I spend a few thousand dollars a year at Starbucks and feel like I get a good benefit from spending that money.

      1. Phil Fremont-Smith

        No question about the morning coffee for me too – going without is unthinkable. And that’s the whole point of what we’re doing.  We’re not telling people to deny themselves their morning coffee – we’re saying hey! Have your morning coffee – you deserve it – just ImpulseSave too to balance the boat!  Whats amazing to me is how much pride people take in choosing NOT to get the coffee every now and then but to rather to Impulsesave that money and brag about it online.      

  9. jason wright

    I budget in my head. I like to be able to hold it all there. It’s good mental exercise. If I can’t do that I’m either ‘going’, or my world is getting too scaled up to be ‘real’ (my ‘real’).

    1. fredwilson

      Good luck with that. I am not sure it scales and ages well

      1. Jeff T.

        I would agree that it doesn’t age well, because it gets difficult as you make more and have more dependencies, but, I followed something similar for my first few working years.College: strict budgeting to be able to pay for classes, eat, sleep indoors, and have (a little) funpost-college yrs 1-5ish: my budget consisted of: max the 401(k), then split the rest of the paycheck into three accounts: checking, savings, travel.  This happened after a few months of learning my habits and costs of living in NYC and ended up somewhere around 70% in checking, 20% savings, 10% travel.   At that point I didn’t touch my savings, unless I invested somewhere.  and my budget of my checking account was a bit forced by how much of it was consumed with rent and the rest by me being a thrifty person.  If I were not thrifty, this wouldn’t have worked out.late 20’s onward: I try to keep relatively the same % split between accounts, but now actively budget much more within my checking account.  After rent, there is a grocery cut, a “going out” cut, etc.  whatever’s left over at the end of the month get’s put into savings, but also noted as belonging to it’s original category. if after two months I don’t touch it, it is fully incorporated into savings.I have no doubt that the kinda loose budgeting works because: a) I’m not a big spender, b) I have an engineering background, making me a pragmatic shopper, c) I’m a man, innately not affected by 40% sales signs at retailers and not one to just shop for shopping’s sake, d) I (most of the time) really only buy things I need vs. want.

  10. Conrad Ross Schulman

    Fred, do u use ing bank? They allow u to create multiple saving account that u name different thing or categories.savings #1: Flat screen tvsavings 2: miami vacationsavings 3: angel investmentsaving 4: new years party…etcThat is how you save!

    1. fredwilson

      I don’t. I’m with JP Morgan Private Bank. But I love what ING is doing with that#genius

    2. Elia Freedman

      We do something like this with our local credit union but they don’t have the feature. I have a spreadsheet set up that “splits” the money appropriately.

  11. awaldstein

    Budgets are social objectsPersonal aside, in companies of 3 people or public, I’ve always used budgets as the language to share the relationship between plan and reality on a rolling basis. Budgets are essential tools if you are responsible for investing in the future, measuring, changing and then pushing it forward.

    1. fredwilson

      What a great way to put it

    2. panterosa,

      My father used to say the most interesting thing about people is how they spend their money. I connect his thought to your idea of budgets as social objects. Obviously they are more social the more people are involved, couple, family, company.

      1. awaldstein

        Google docs changed professional and team dynamics.Amazing change agent that drove socialization within collaboration from a company that doesn’t understand ‘social’ at all. 

        1. panterosa,

          I was a fan of google docs for a while, but I vastly prefer Evernote, at least for non financials.

    3. Dave Pinsen

      That sounds a little like Mitt Romney’s approach, according to this article on him in yesterday’s FT. It mentions how, for example, he used cuts in small stuff (snacks, which he made executives pay for) to send a signal to the staff from the start at the Salt Lake City Olympics that the games were in the red and every dollar counted. 

      1. kidmercury

        of course it’s every dollar that’s his counts. of course romney’s true genius is in realizing that if you spend other people’s money, you don’t really need to do that much serious budgeting — it’s free money! hooray! wars for everyone!

        1. Cynthia Schames

          That’s true of all politicians, to be entirely fair. 

          1. kidmercury

            no, there are some politicians that advocate fiscal responsibility. they don’t get on TV though, and so most people don’t support them.

          2. Cynthia Schames

            OK, I should have said “nearly all” politicians.Words matter.

          3. Jorge

            There was a great article comparing the public statements of President Obama and McCain on changes to the existing government cash flows. 10 statements from each led to 2 budgets that didn’t add up for either candidate. I’ve never seen an elected official demonstrate an  effective understanding of basic math and fiscal responsibility. Just for once, I’d like to elect an accountant President and then just see what happens.

          4. kidmercury

            The problem is that talks of fiscal responsibility mean lots of cuts to welfare, wall st bailouts, social security, govt employees…..people will never vote for it because of the short term pain. Much better to vote for higher spending now and let the next generation pay the bills 🙂

    4. JamesHRH

      If it matters, measure it.If it is measured, its managed.Money matters. Expectations matter. Budgets are, exactly as you put it, the language that connects people expectations & money.Great stuff AW!

  12. Richard

    As for personal budgets, shoudn’t “opportunity costs” and “investments in oneself” be in a budget as well? Seperately, I’d also like to see a health income statement, credits for healthy activities and debits for unhealthy. 

    1. Emily Merkle

      And as you typed that I was echoing this very sentiment per below 🙂 

    2. jason wright


  13. Emily Merkle

    I am the last person who should be handling money. I know my limitations, and so  my husband handles All Things Financial. In my business ventures, I am quite able to manage to a P&L, but know better than to be responsible for the books. When it comes to Managing Time, I am a Schedule Nazi for sure. 

    1. Elia Freedman

      Relationships work well this way, if you get the right one. I’m very good with money and my wife is spend thrift but isn’t good at the details of managing it. I take care of the books, bank accounts, etc., but we discuss all the finances together. Of course there are things that she is really good at that I have a harder time with so it really works out.

      1. Emily Merkle

        You bet. I think it comes down to being able to be financially communicative. If you had told me 10 years ago that my husband would have me on an “allowance” I would have balked. But time, maturity, and being in a partnership where I can comfortably know my own weaknesses and trust that he can pick up my slack goes a long way. In the same way you have areas you mention that your partner excels at – me too. I handle all of our attire decisions 🙂 

        1. JLM

          Without betraying the entire gender, what you want to negotiate for is an allowance for your needs and unlimited credit cards for your wants.My wife always argues — wow, look at all the points!She wins every argument.  But then, hey, she’s very cute.

          1. Emily Merkle

            I am SO damn cute but alas, I do not have an unlimited gravy train 🙂

          2. JLM

            Gravy, kind of gross.

          3. Emily Merkle

            exactly the reason I do not have a train of it

          4. William Mougayar

            Wants vs. needs. Ah, if one can figure that one out, they’re the next Sigmund Freud. It’s all in the head of the beholder. 

          5. JLM

            As my wife says, we are not experiencing a cash flow problem, you just need to go make some more cash, big fella.Inspirational really.

          6. Emily Merkle

            That would be Maslow and his Hierarchy of Needs: bing.com/images/search?q=Ma… Hierarchy

      2. ShanaC

        To both of you – (that’s you and @EmilyMerkle:disqus ) – make sure that the women fully understand how your investments work and how the books work – not to be dismal, but if either of you hase a divorce/someone dies and the other person doesn’t know the books well, you could get into major trouble.

        1. Emily Merkle

          point taken.

          1. ShanaC

            wasn’t my point originally – I kept reading about women and bad financial skills.  No excuse.

          2. Emily Merkle

            So – let me get this straight; you are saying there is no excuse for knowing that financial matters are not your strong suit and planning around that inconvenient truth – but truth nonetheless?

          3. ShanaC

            No, my point was its one of those areas which should be like the three rs. You should have a basic understanding of what is going on in case something happens

          4. Emily Merkle

            Thanks for the clarification – and I agree with you wholeheartedly!

          5. Emily Merkle

            And while I appreciate your sentiment, I have very real limitations and am not ashamed to face them and find a work around. Kind of like a learning disability. Does that make sense? The “should” tone is a tad utopian and feels a little judgmental to me. Just being honest.

        2. Elia Freedman

          Yes, good point.

  14. Matthew Lenhard

    Budgeting is obviously an important skill in life that everyone should have a basic understanding of. So my question is why hasn’t this spread to our schools, I’m sure their are a select few that teach budgeting, but that vast majority leaves it out of their curriculum. A generation that wasn’t taught how to manage moneys is a dangerous thing.

    1. Donna Brewington White

      “A generation that wasn’t taught how to manage moneys is a dangerous thing.”As we’ve seen.  (sigh)

  15. Tom Mollerus

    Great advice, Fred. Despite considering ourselves to be an upper-middle-class family with two salaries, for years my wife and I found ourselves running out of money at the end of the month. Then I heard the same multiple-account idea that you use from a banker, and we’ve used it ever since. One account is called “operational”, pays all the mandatory household bills, and gets our paychecks. We keep a budget to track how much needs to be in it to cover the bills at any time. Any extra money goes into our second account, which we call “discretionary”, and we spend out of it (within reason) as we please. I’ve been thinking about making a website to monitor the accounts and track the budget. Anyway, I love that you’re spreading the word.

    1. Donna Brewington White

      Thanks for adding more insight to the idea of multiple accounts.  I’m attracted to the idea.

  16. Elia Freedman

    I can’t speak highly enough for budgeting in even a tiny start-up business. My ability to budget means that my company is still around after all these years. In 2006-7 we lost 75% of our revenue. The only thing that saved the company was a good budget that I could fall back on. I was able to use that budget to make smart decisions about personnel, contracts, etc., that would have been lost in the emotional whirlwind of that time period otherwise.

    1. JLM

      Of course, this ain’t your first rodeo.  When you find a CFO who can make a plan that works, don’t ever let him go.

      1. Elia Freedman

        Technically, it is my first rodeo… I’ve just been doing it since 1997! (I’d like to think I picked up a trick or two in the last 15 years, though. Given that, always more to learn.)It’s funny you mention the CFO thing. I’ve had a couple of companies try to hire me specifically for that role.

  17. Kevin Prentiss

    On the positive side of what money can do for a relationship:My wife and I get consistent joy from a simple web app calledsmartypig.com – it puts a silly % complete UI on labeled buckets ofsavings. The % complete is satisfying, but the label is critical. Labels like”first child” “weekend get away” “year in Argentina” are specific promiseswithin our marriage vows. [Edit: as @CRAD noted below, the specificity here makes a profound difference in the “game” of savings. ING is smart to do this.]Money is stored value. Committing it to goals and our shared values in our relationship has a profound effect on our conversation – it anchors us in our future together.  Most of the money based fights in relationships are based on what happened (someone overspent) and what is happening now (there’s not as much as anyone might like). This goal setting, like your budgeting, is future based and very healthy.When I am tempted to be a consumer (and NYC is so good at temptation) I have an option to put that money towards a goal instead. My wife gets an email saying I’ve put some money towards our future.  I can splurge on our future together. As an entrepreneur, on the dark days, sometimes that savings account for a week in france, with the woman I love, is the light I need to walk through the tunnel.

    1. JLM

      Love the last sentence.  Well played!

  18. jimmystone

    Great post. My dad, a former Marine, did the same thing with my sister and me…unrelated question – you talked about living budget to budget when you started Flatiron. What gave you the confidence to start your own VC firm at that time? Did you have any prior VC investing experience? Thank you

    1. fredwilson

      Ten years of apprenticeship under my belt

      1. jimmystone

         Cool. Thanks!

  19. Aaron Klein

    My wife and I do a pretty good job of sticking to our budget. We do almost all of our spending on credit cards but spreadsheet it every two weeks to ensure we’re able to pay it all off and not going into short term debt.It’s a little bit of extra work, but the results have been spectacular. The miles and points gave us a week at the Grand Wailea in Maui for our tenth anniversary last year. Our twelfth next year will be a week at an amazing hotel in Rome, everything on points and miles.Paying cash for that definitely isn’t in the budget. 🙂

    1. Tom Labus

      Great move.

      1. Aaron Klein

        Some people worry that they couldn’t control themselves with a credit card, and I respect that. But it’s worked brilliantly for us.

    2. awaldstein

      Smart. Starwood Amex platinum cards loyalty program for me are the best.St. Regis. Westin. W. Sheraton cover a lot of ground in a lot of places.

      1. Aaron Klein

        I’ve heard lots of good things about that program. I’m a Hilton HHonors guy myself…I love paying for $120 Hilton Garden Inns and staying for free at the Waldorf Astoria collection. 🙂

        1. JLM

          My wife is an accomplished vacation arbitrageur and we stay at the Boca Beach Club for $75/nite the week after Labor Day.  I have no idea how she does it.She is all over that Waldorf Astoria Collection through the Registry Collection.I even get invited on about half of her vacations.

          1. Aaron Klein


  20. Keren

     I just posted this on Gotham Gal because it was more appropriate there, discussing sharing your financial wisdom with your kids. But why not share it here as well.  My friend and I just created a website around this idea precisely, it’s more centered on what you should teach your kids, but we actually have a Fredsheet on it as well. We are both MBAs, we both budget our households, I don’t know how you could live otherwise, but many people do. Habits are taught at home and if you don’t teach your kids about money, they aren’t going to develop the habits you are hoping for. There are some fascinating statistics out there about this topic; I think this is the best one – 56% of teens attribute their knowledge of money management to their parents, BUT only 26% of parents feel equipped to teach their kids about basic personal finance. Our goal is to get parents comfortable talking to their kids and show them what they need to do for every age their kids are at. My partner is the money guru, I’m the clueless mom, we both work and are doing this on the side, so it has taken us FOREVER to launch, but it’s finally here. We hope it will help the next generation be smarter about their financial decisions and not make the mistakes that contributed to where this economy is now. We’d LOVE if you would check us out and give us some feedback (or buzz). Moms and financial services, how could you not love a business that’s about that – Early Earners. 

    1. Rohan

      A link would be helpful, Keren. 🙂 

      1. Keren

        I know, I did, for some reason it got lost — http://earlyearners.com/And here’s our fredsheet too – http://earlyearners.com/lea… 

    2. Donna Brewington White

      I only had a moment to glance at this, but wow!  Fantastic idea!  I’ll be back.Ever since reading “Rich Dad, Poor Dad” I’ve been struck (even more) by the need to do a better job at educating my kids about finance, and feeling woefully inadequate.  It’s amazing how wanting to be able to teach your kids something (and not wanting them to repeat your own mistakes) is a tremendous motivator.  My 16 y.o. just asked for some books on investing and my 13 y.o. is now calling himself an entrepreneur since he earned enough to meet a significant financial goal.  They are primed.

      1. Keren

        Great! Thanks, please tell your friends 🙂 

  21. arustgi

    A very interesting point of view. It is surprising how hesitant people on topics related to money, even within a family and with your own spouse. My wife, a great conversationalist on all other topics; becomes completely non engaging when we discuss money. Defense mechanisms like that are a result of poor relationship with Money.

  22. Patrick Dugan

    Another upside of budgeting in multiple accounts is you diversify your credit risk away from a single bank. 

    1. kidmercury

      huge point. though for true diversity you have to go across national borders, which is annoying, requires way too much paperwork, and is cost prohibitive for many. 

      1. Patrick Dugan

        Going across borders is fundamental to the way I do business. 

  23. kidmercury

    fredsheets — that’s fantastic! sounds like a great app for the fredbook.i always love to hear stories about people who were struggling financially for a long time before finally getting their break. inspirational, gives me hope.   i like budgeting frameworks. for me budgeting goes hand in hand with goal setting, so i like to see how i am making progress (or regressing!). huge gamification opportunities here. also, do folks know about this story? http://news.cnet.com/8301-3… if that’s legit, it’s basically the real death of net neutrality — by “real” i mean when we actually start to see what that world is like. i’m not a fan of NN but i do think we need app developers and hardware companies to get in on the ISP game. 

  24. panterosa,

    I was whip trained into budgeting while at art school. My widowed mother, who’d grown up in  London in WW2 on rations forever, had to sort out how to manage, or have me manage my expenses beyond tuition. I’ve always worked for myself ever since and had a budget every year for personal and business. I used to use Quicken, my accountant moved me to QuickBooks, which I loathed, and I’m on Mint now. I echo the complaints other people had here on Mint not providing easy tools for more Quicken style reporting. Mint saves a lot of time in some respects, but lags in this feature which they should really have the wherewithal to fix. My daughter joined the budgeting conversation of our household, which is just us two, when the January post on piracy and Netflix/cable/Amazon prime came out. She went and analyzed the costs of each service and what programs we watched where so she could help find a cheaper solution. I am so grateful she understands how she can budget for and save money. She really gets it. A big relief to me starting second year living on savings to launch my big idea!

    1. Phil Fremont-Smith

      That’s awesome!  I’m just starting with my 6 and 8 yr olds.  But we talk about budgeting and saving every time they want something; a toy, a new bike.  If they can grow up in that mental mold it will really serve them through out life.

    2. fredwilson

      Can I buy an option on your daughters first startup?

      1. PantherKitty

        Yes, yes you can!! (I just learned what an option is). I’m not sure what the business will be yet, but I love cooking and food. It might be more technical though, who knows. I love my school now, but if I get bored in a few years I might try to go to that new coding school which will be one block from my house! That looks really cool.It’s my first comment on AVC and I’m really excited! My mom reads me stuff when it’s fun, especially Fake Grimlock. 

        1. fredwilson


    3. John

      Dang, I feel like I’m the Wave fanboi in this thread now.  I have no financial interest in it. Just a fan of it.  I considered using Mint for business stuff and like you said it just doesn’t fit right for business accounting needs.  Wave solved that.  Plus, they have a much better interface for classifying transactions.  Wave has an actual Balance Sheet and Income Statement (unlike Mint).I guess I do have a financial interest.  I hope more and more people will use Wave so that they keep offering their service.

  25. ShanaC

    Umm – what are some good ways to start a conversation about budgets?  What are good ways to prioritize?

    1. christopolis

      I think starting with inflow and outflow is the best way to start the conversation. Honey let’s take a look at what we have coming in and what we have going out. If you find there is more going out than coming in I think that will shock even the most budget averse reality avoiding anti-budgeter into considering the implications of what life will be like in 1, 2 or 3 years.Once you realize what is coming in and going out you can begin to look at what is needed and what is not. If it is all needed/wanted and you still have more going out than coming in you have to start to brainstorm how to get more coming in.

    2. Donna Brewington White

      Ask someone for a loan.  That might start the conversation.

  26. William Mougayar

    Budgeting discipline applies equally well to personal and startup lives. The @thegothamgal:twitter post in the Related articles is a must read complement to this one http://www.gothamgal.com/go…. Although 9 month old, she’s getting a flurry of new comments on it. 

  27. LE

    In the second fifteen years of our life together, we’ve had the pleasure of living in a different financial situation. But we still use budgets.A budget in the context of what you are doing is important because it establishes in advance behavior which allows you to feel in control about the situation.  And most importantly it changes your perspective on the money being spent.Feeling out of control can cause stress. Here is an illustration.Back in the day my ex wife used to work for me and have to drive in the city to make sales calls. (Then she did the same with her own business later). Anyway she used to come home with all these parking tickets which would get me real angry. One day she explained that if she had to park each time (no meters – it would have to be a lot) it would actually cost her more money or about the same. (And for the sake of this story let’s accept that as correct.)So from that point on I simply made “parking ticket” cost “parking lot” cost in my brain and allocated $200 per month for “parking”. Viola. Stress, fighting tension all gone! Since I understood the cost in advance I felt in control.Many businesses use the same concept. It’s easier for a professional (say a lawyer or consultant) to tell you that your costs will be $25,000 and they want a $10,000 retainer. That’s like a budget. They’ve set you up and gotten your agreement in advance for the money that will be spent. Actually this is another reason why hourly billing isn’t good (separate topic). Always better to tie a total cost for work rather than hourly.  

    1. fredwilson

      that’s the secret of budgets right there in the parking ticket story

  28. Chris Phenner

    I imagine someday there will be a class of ‘marriage counsellors’ or ‘marital coaches’ who, like accountants that work within Intuit’s QuickBooks ecosystem, will require their clients to divulge access to their join Mint.com accounts.  I am sure an expert is doing Mint.com ‘spending analysis’ could tell my wife and me all kinds of things we didn’t know about ourselves.On the above note:  Mint.com on the iPhone, a relatively recent discovery for me, has been incredible in terms of offering a lens into what buckets of spending has a real impact.  Once you have ‘Categories’ set up that auto-tag your (and your spouse’s) most frequent transactions, it really gives a clearer sense of where progress can be made.

  29. Jo_Zero

    “Do as I say, not as I do”How can VCs justify funding businesses with no income model whatsoever? What does the month to month balance sheet look like at Path or Instagram for example ?

    1. Donna Brewington White

      I’m not sure I see the connection, Jot.Anyway, maybe it’s like giving your kids an allowance.

    2. fredwilson

      everyone used to say that about facebookeveryone used to say that about twitternow they say it about instagram and path

      1. Jo_Zero

        Thanks for the response. However thats like saying Billie Bob won the lottery (one in a zillion chance, kudos to Facebook and Twitter) so you, as a start up, should run your business in the same way. Imagine running a household like that. Keep piling on the debts, you may one day win the lottery as well. VCs have set up a horrible precedence for start ups. No revenue model, hope for the lottery win isn’t just killing any chance of competition, its killing the opportunity of real business. The housing crash in the US ? Thats households running their budgets very, very poorly based on an impossible dream. The parallels are identical, the exact same precedence is happening with start ups and it is side swiping actual businesses. Who is starting real actual businesses? Or in other words, who is running their household properly? You preach and practise this at home, are you preaching and practising this with your investments ? It’s a question, not an accusation.

        1. fredwilson

          you don’t understand my point.if you build a large audience you can monetize itso VCs are happy to invest in companies like Twitter and Facebook that are growing their audiences quickly into the tens of millions of users in the expectation that those investments will fund user bases close to or in excess of hundreds of millionsit’s an entirely rational bet and not irresponsible in the least

  30. Cynthia Schames

    This is especially important when you think about a startup founding team as a marriage…and remember that your earliest investors are also sort of marital partners (Big Love?).Budgets suck and they’re boring and not much fun, but they’re absolutely necessary.  I’d rather fight for an hour about a budget when it’s just going down on paper than have a much bigger problem that requires hours of fights and endless drama later on when the money runs out.  And it WILL run out without a plan.

    1. LE

      “I’d rather fight for an hour about a budget when it’s just going down on paper than have a much bigger problem that requires hours of fights and endless drama later on when the money runs out.”Scenes from an Italian Restaurant, Billy Joel (more relevant part starts at about 2:45).http://www.youtube.com/watc…Brenda and Eddy were still going Steady in the summer of ’75 when they decided the marriage would Be at the end of July Everyone said they were crazy “Brenda you know you’re much too lazy Eddie could never afford to live that Kind of life.” But there we were wavin’ Brenda and Eddie goodbye.They got an apartment with deep Pile carpet And a couple of paintings from Sears A big waterbed that they bought With the bread They had saved for a couple Of years They started to fight when the Money got tight And they just didn’t count on The tears.They lived for a while in a Very nice style But it’s always the same in the end They got a divorce as a matter Of course And they parted the closest Of friends Then the king and the queen went Back to the green But you can never go back There again.All true with the exception of “parted the closest of friends”. If you divorce and have any significant assets to split up you most likely won’t depart “the closest of friends”.

      1. Cynthia Schames

        So many of life’s truths are reflected in various Billy Joel songs.But it’s my fervent hope that not much of Billy Joel’s life will be reflected in my song 😉

  31. daryn

    Personal budgeting is easy at a high level: 1. don’t spend more than the remainder of ( income – fixed expenses – some buffer ), and 2. try to keep x-months of expenses readily accessible in case of emergency. I’m always surprised by how many people operate without the safety net of the latter – recently I had a couple friends who made ample salaries, but were panicking when there was going to be a few weeks bigger gap between paychecks than usual. Where I find a bigger challenge is when to push that short-term budget, and dip into savings or borrow money. Doing startups, you face that question a lot. For me, the answer has always been push the comfort zone, and focus on the long term. My wife lost her job at the end of the year, and has been worrying about what to do next. One option is a new, better paying, job, the other is following a passion. The latter is a financial burden, both directly as well as additional childcare, etc, but to me it’s a no brainer. She starts school on 4/1!

    1. fredwilson

      you have to do what you love to be happy

  32. b4rk13

    Also a big fan of budgets. Unfortunately, outside of the US there’s no great Mint or Quicken-like tools available, so I use a complex Excel spreadsheet/fredsheet of my own that I’ve developed to suit my needs. I use it to track my budget-to-actuals, savings goals & credit card payments (which auto-feed into my budget) and various graphs to visualise projected account and credit-card balances to give me a fairly accurate snapshot of my main finances.I’ve quickly ported it to Google Docs and populated it with randomised/dummy data if anyone wants to check it out for ideas on creating their own ‘Fredsheet’.https://docs.google.com/spr

  33. Adam B.

    Budgeting is great. I started budgeting when I was 15. I was anal and tracked every penny, my friends and family thought I was crazy.After creating and subsequently selling some businesses, I no longer budget on paper. It has been ingrained into who I am as I grew up budgeting. I now live my life without tracking expenses and end up saving 40-50% of my net income without even trying. Like learning a language, budgeting is easier when you are young. I am now reaping those benefits.

  34. Renee

    Great post about something many people are reluctant to talk about.  There’s a taboo around talking about money management (or asking people how they manage theirs), but it’s a conversation we should be more willing to have. I still remember an ill-advised shoe purchase in college that led to bouncing some checks…the fees cost the same as the shoes!  I started using Microsoft Money then, which was terrible but came pre-loaded on my desktop. 🙂 I think one of the big barriers for a lot of people is just the initial setup – not many people want to put together a spreadsheet. Budgeting via categories is a great way to make spending align with values. Exceeding a certain amount per month for fast food/restaurants probably means I’m not cooking as home (=being healthy) as often as I should.  Going over a set amount for “shopping” makes me question if I’m buying stuff that I really need. I’m a fan of dollar limits vs. percentage limits b/c it’s generally good to keep a low personal burn rate. 🙂  As much as I complain about Mint.com, it does make tracking and categorizing spending relatively easy, and I use it every day. And as someone who also has multiple accounts, it’s super useful for remembering them all at tax time.

    1. Donna Brewington White

      I’ve been seriously considering Mint and will probably sign up shortly. Good point about using budgeting as a tool to make spending align with values.  Hmm… values-based budgeting (which really equates to “values-based spending”).  I like it.

      1. John

        I prefer http://www.waveaccounting.com/ to Mint.  I actually use it for both business and personal.  There’s some things about Mint that I like, but when it comes to categorizing the money we spend, I like the way Wave does it much better than Mint.  I hope Wave incorporates some of the overall views and reports that Mint provides though.For business it’s perfect for budgets too.  I never understood the need for double entry when 99% of my expenses were on the credit card and/or paid directly to my account.  Wave understood this and made it almost fun for me to categorize my financial life.  It makes seeing how we’ll I’m doing in my various budget categories easy in near real time.

        1. Donna Brewington White

          Thanks, John. Will take a look at Wave too.

  35. Donna Brewington White

    “In the second fifteen years of our life together, we’ve had the pleasure of living in a different financial situation. But we still use budgets.”Most of the people I know of significant means did not wait until they had a lot of money to begin budgeting.  I think there is a lesson in that.One thing I’ve learned is that I see money completely differently when my thinking is informed by a budget. My personal budgeting could stand an upgrade.  One of my friends recently raved about how Mint has revolutionized her financial management. This post settles it.  I’m signing up.Amazing how often your posts address something that is top of mind for me!

  36. Bonnie

    Who doesn’t love budgets? I guess everyone does unless you’ve won the lottery and plan on spending all of it in just 3 months. We even collect coupons.

  37. Michael Ferrari

    My wife used Excel docs for a few years, then switched to Mint and now back to Excel. You just can’t beat a good excel doc. Would agree budgeting is important. As is saving (selfish plug). But truly, you never know when your situation might change. Learning the importance of saving, even if you don’t “have” to, is a life long lesson and one that should be passed down to your kids. No better feeling than buying something debt free.

  38. PhilipSugar

    Like working out.  Budgeting is also really important for life balance, you have to put it into your schedule first or it will never get done.   On the lighter side I like this: http://spin.despair.com/con

  39. jccjames

    We’ve built a service that helps couples organize their lives together. It’s called SimplyUs. Right now it offers zero config calendar sharing, shared lists and we’re adding budget tracking to answer Fred’s call for “better tools and better communication” around money management for couples.Please check it out and let us know what you think:www.simplyus.com

  40. Fin Forecast

    Thanks for posting about the importance of budgets.  My wife and I have had great success using shared Google Spreadsheets for various “project” budgets, like wedding planning, new home purchases, travel plans, and taxes, in addition to our ordinary household budgets.  Shared spreadsheets are so much better for this purpose than sending around spreadsheet files.

  41. John

    Coming from a relatively “poor” childhood with 6 siblings, I’m not sure I’ll ever get the poor boy, store money away for the winter mentality out of me.  Up until now I’ve worked on an accountability and thoughtful spending basis instead of budgets.  Luckily, I have a saint of a wife who’s done great with it.  It’s worked fantastic for both of us and we’re seeing the rewards of it now.  Now that my business is taking off and we have more money, I’ll be interested to see how that “poor boy” mentality that’s part of me evolves over time.  I imagine a part of it will always remain.  I imagine a budget could help me grow beyond that mentality.I still love the Dave Ramsay phrase about spending, “Live now like no one else lives, so that later you can live like no one else lives.”

  42. Jason Preston

    Fred – do you and family manually enter all transactions over the month into the spreadsheet? We use Mint, mostly because it logs a lot automatically, but it gets a lot wrong. Spreadsheets are appealing, but I find it hard to imagine my wife and I could reliably sit down every evening and plug in what we’ve spent for the day.

    1. fredwilson

      no, just the totals

  43. ShanaC

    I hope for utopia one day 🙂

  44. Emily Merkle

    me too 🙂