Fixing budgeting

[duncang (Duncan)]

@Peter_G

I’d want to have financial projections or modelling in the app

I suggested this three years ago, but using explicit pots and an explicit list of things you’d like to buy:

@duncang

I think that it helps to consider savings in their essence - discretised deferred spending. One pot per item, the current model, is overly discretised and makes it hard for people to know how much to put in each pot, and makes it hard to fluidly reprioritise the items. The pots feature should allow the user to view different predicted futures, so that they can decide on the one that they want to actualise. To achieve this, I suggest one large pot in combination with a list of items and prices of those items. Then, in combination with the predictable savings rate (see below) you can allow the user to reorder the items in the list and the app can update the date that they will be able to buy each item.

How can we get predictability in the savings rate? I suggest minimising the number of transfers both in and out of savings. Ideally there would be one transfer in per month, and only purchases outgoing. Many of the ideas here are variations on "if <arbitrary condition>: <transfer money to pot>" . I think that this approach is flawed because it doesn’t take into account what it’s actually possible for the person to save. They’ll either save too little (and potentially end up with needless discretionary spending) or save too much (and have to tap savings to meet expenses - reducing predictability). However, people didn’t suggest these strategies for no reason, and I think the unifying element is the laudable “get the money out of my sight ASAP!”. If you don’t have clear edges to your expenses - and it all appears in one big pile in your account all month - then you get numb to your day-to-day discretionary expenditure.

Thus, to minimise expenditure, maximise savings, and provide predictability over savings, I suggest the following 4-pot “buffer” strategy:

Discretionary pot

• Minimal amount
• Inducements not to spend (“You’re spending too fast!”)
• Containment for discretionary spending unpredictability

Bills pot

• Minimal amount
• Inducements not to spend (“Switch your electricity provider!”)
• Containment for bills unpredictability

Buffer pot

• Remainder amount (income - (discretionary + bills))
• Bills pot needs to be able to refill from this, because bills are asynchronous

Savings pot

• Maximal amount
• Reminders to buy stuff (“You reached your goal - now buy X!”)

In the current strategy Discretionary, Bills, and Buffer are all in one big pot (your main account), and bills & large expenses will be hidden from the spending target by flagging them individually. I think it would be a lot easier to plan if these different kinds of expenses were segregated more clearly in the app.

The key is to provide predictability, and hard (psychological) edges around the savings. Once it’s in there it shouldn’t be used for arbitrary discretionary spending, or to meet the expense of an outsized bill. Once a few months of data have been logged then the app will be able to show predicted savings into the future and thus be able to assign dates to each of the items listed in the pot and allow the user to reorder items and create possible future scenarios.