Savings and Envelope Budgeting

I’ve mentioned envelope budgeting and YNAB a few times already and I’m overdue for a few more. I need to talk about bank syincing in NZ: Open Banking and Akahu. I also need talk about Actual Budget (a YNAB competitor). This post though is about part of the work required to transition from traditional budgeting to envelope budgeting.

I’m somewhat active in a couple finance subs on Reddit, and a common theme from new members is struggling with the idea of eliminating savings. They’d been taught ‘save x% of your money’ and many have large savings or investment accounts. Being told they should eliminate the savings category is one of the bigger mindshifts.

This post is about the transition and exactly how that’s done. I’m going to use my “Appliances, Furniture, Whiteware” category for this example because it’s the sort of purchase they’d normally take from savings. I’ve been saving $400/month towards this category for a long time, but where did that number come from, and is it enough? I recently reviewed my category and the process is much the same as a new user starting off.

I started by doing an inventory, getting all purchases from this category from the last fifteen years. There was a bit of guesswork involved on the older purchases, but I finished with a list with the date, the purchase price and the category. For example ‘Dishwasher, Oct 2024, $2200’. Next I looked up typical lifetimes for each appliance and divided the purchase price by the average lifetime (in months).

This gave me a monthly savings target. But coupled with the purchase date, it also gave me how much I should currently have set aside for appliances just to replace what I have. In my case I need $500 each month and should currently have $18,000. I want to highlight that, because $18k is a lot of money and it’s easy to see ‘$5k’ sitting in appliances and think everything is on track.

So imagine a new user to envelope budgeting. They have perhaps $100k in savings and they’ve bought into the idea that they should transition. Someone like me comes along and says ‘let’s get rid of that savings category and move the money where it belongs’. , It’s completely nonobvious that they should put say $18k into appliances, because that number depends on how much they spend and when they purchased things. You really need to go through this process to work it out.

I am highlighting this because the YNAB tutorials tend to say ‘the best day to start was ten years ago; the second best day is today’. That’s fine, and splitting up a savings category isn’t urgent, but knowing how much to assign each month is. You cannot assign your monthly income without knowing how much you should be setting aside for appliances.

I learned this the hard way. I thought everything had been tracking fine with budgeting. I knew i was cheating a little bit with a savings category which was for really big purchases ($10k+). I felt I’d do a better job of budgeting the everyday purchases if I didn’t have a $50k house roof in the budget too.

One day I looked at my savings account and started wondering if I had enough. I ran the numbers just like I described above, and found we’d been living beyond our means for years… over spending monthly and not setting aside enough for long-term house maintenance.

Playing go again

I started playing go in 1995, mostly because computers sucked at it. Another reason I picked it was that there were many older players - I liked the idea that this was a hobby I could keep for the rest of my life. I stopped playing competitively in 2006 when my son was born and I just didn’t have time for serious study between working professionally and being a parent.

I carried on as an increasingly casual player . Partially it was time - moving to Auckland meant I was spending a lot more of my life in transit, and starting my own business meant I had even lot less ‘free time’. It was also a question of priorities, my work was intellectually stimulating and I needed something different. I was able to carve out time to pick up ultimate frisbee.

Last year I decided that I’m just getting too old for ultimate frisbee. Too often in a competitive game I simply cannot keep up with my mark and so let the team down. I still do ok, but it’s clear what direction things are heading. So… I’ve been trying to pick up go again.

It’s been hard. My play is extremely inconsistent, with my old skill level coming through in some areas while I play like a beginner in others. I don’t have the concentration I used to, and I tend to get into all-or-nothing fights rather than backing off. I’m not sure whether i’ll be able to keep it up or not, but it’s been good pushing myself to try.

Making Brandy v2.0

My last post on brandy was made just over five years ago. Today I brushed off the still and tried to use it again.

It was hard. Firstly because I’d only done a one-day course and I’d forgotten most of it in the intervening five years, and secondly because the course was for beginners and my insistence on doing everything naturally is definitely not ‘beginner level’

To me, if you want to drink brandy then you go to the shop and buy some. If you want to make it yourself then you should be doing the whole thing from scratch. Making ethanol and adding ‘brandy flavouring’ just defeats the point.

I tackled plum brandy, also known as Slivovitz. The first step was gathering plums (about 20kg). I had to remove the stones and generally pulverise the fruit which took quite a few hours and resulted in some pretty horrible looking pulp.

I cheated slightly at this point and added a couple things to help. These aren’t strictly necessary but shift the odds in your favour:

1. Campden tablets (discourage wild yeast), and wine yeast (predictable)

2. Pectin (Encourages plums to break down so you don’t need too much)

I didn’t add sugar as that felt too much like cheating. I also didn’t have a pH meter, but it tasted very acidic to me.

This was mixed up in a food processor and left for about three weeks. In hindsight three weeks was probably too long, and also I think I should have activated the yeast before adding it. After three weeks the resulting mix (called a mash) tasted wickedly acidic and also had a mild mould growing all over it. I decided to turn a blind eye and simply proceed

Processing the mix in the still didn’t go well. Our shiny new induction hob didn’t work with copper, and our old camping burner was barely hot enough to boil the mash. It did produce alcohol but it literally took all day to produce 1.5L. Further, the final mix was about 10 percent alcohol (like a weak wine).

I’m not really sure which of my mistakes was the fatal one or if they’re all cumulative, but it was a fun experience to learn from.

Community Sport

I played sport as a kid just like most people did, but gave it up when I went to uni where I picked up Go. I was never a natural at sport - really sucking for the first few years and only being mediocre after I got a bit of experience.

A few years ago I was hunting around for something to do that would keep me physically fit and happened on community sport. I knew adults played sport because I’d played a bunch of adult teams as a kid, but I’d assumed it was super-competitive and only for people trying to get into the national team or similar.

Instead what I found was a wide bunch of people just looking to have fun running around and trying to play well. I picked up Ultimate Frisbee, a sport particularly known for its inclusiveness (e.g. no referees even for international games).

I’ve been amazed at how much I’ve got out of it. A huge and eclectic bunch of friends, a far easier way to maintain my fitness than any exercise programme, and a new bunch of skills to develop like snap decision making and proactive communication that have been surprisingly useful in other areas of my life.

Public Transport in Auckland

Loads of people complain about PT in Auckland. Today I thought I’d try it for myself. Unfortunately I found that public transport failed in every single respect.

I live in Titirangi and had a meeting just next to Britomart, where there is poor public parking and excellent public transport. This is a ‘best case’ scenario for public transport.

Option A: Drive

Hop in my car and drive 40 minutes (26 minutes off-peak). Pay $19 for all-day parking. Drive home. Total distance 40km, which is estimated at $12 of car wear. Total time: 80 minutes, total cost $31.

Option B: Drive + Uber

Note that the close parking is unavailable off-peak. If I was travelling off-peak then I’d drive to an inner-city suburb with free parking and Uber the last bit.

Drive 20 minutes. Wait for an uber and spend $7 on the Uber. Total time 60 minutes, total cost $26.

Option C: Train

Hop in my car and drive 15 minutes to the train station. Wait for the train and then wait 40 minutes on the train. Spend $3 on parking, $9 on train fares and $5 on car wear. Total cost $17. Total time two hours.

Conclusion…

The train cost $14/day less than driving, or $9/day less than drive+uber. However that saving costs an extra 40 minutes in commute time per day, which works out to $21/hour. Anyone earning more than that is likely better driving.

The core to this calculation is how slow the train is. It took 40 minutes for the train to travel from Glen Eden Train station to Britomart train station, a trip which takes 25 minutes to drive. I don’t see why the train should be slower than driving along the same route. If it was able to go at the speed of a car then the economics would stack up

Making brandy

I recently purchased a still.  It turns out that New Zealand is practically the only country in the world where it is legal to distill alcohol for personal consumption without a licence.   Below are my notes on the whole process so far...

The still is beautiful.  I did a lot of research and discovered that I needed a pot still as I was trying to retain fruit essence rather than simply producing alcohol.  Apparently most people just want alcohol which they add artificial flavours to.  Go figure...   Anyway I purchased from http://www.alembics.co.nz/products/traditional-alembics/ purely for function but it ended up being a work of art that I'm quite happy to leave out.

It turns out that alcohol isn't the only thing you can make with a still.  You can also distill flowers or other vegetable matter to make essential oils and something called a 'hydrosol'.  The hydrosol is similar to essential oils in that it contains the essence that you've distilled, but is water-based and far weaker which makes it much easier to use.  If I was more into betting then I would bet that there will be a huge business opportunity creating hydrosol over the next couple years.

So far my attempts to make brandy have been largely unsuccessful.  I thought I'd shortcut the process of creating a mash by using wine, and since I was going for a fruity brandy I picked Banrock Station's 'fruit fusion'.  This had the added benefit of being lower in alcohol - the still I was using multiplied the alcohol content by 3.5 and I like my brandy around 37%.

Unfortunately while the result smells reasonably good, it tastes... pretty awful really.  Far worse than anything I've ever bought anyway.  I'm not sure if I started with the wrong raw product or if I did something very wrong in the process. Anyway, next time I'm intending to make pear brandy - I just need to find an affordable source of pears as the ratio is apparently 10kg of fruit for 500mL of brandy.

Corrupt User in OS X 10.12

I recently had my user account stop working properly.  Every time I logged in it would try to reset my login keychain; it repeatedly said 'the application '; I could not launch simple apps like Calculator and lots of other weirdness (e.g. my login did not have a fast user switcher).

Even more strangely, other users on the computer seemed unaffected, and my account on different computers seemed unaffected.  I tried deleting the user and recreating it, but got the same result.  It was like the computer didn't like my name!?

Digging into the error message after an application crash eventually lead to the solution.  The exact error was a problem validating the code signature of /usr/lib/libSystem.B.dylib.  Google showed at least one other person had this problem and was able to recover by replacing the file from another computer.  I didn't really want to do that - I don't like manually overwriting system files, and I had no idea how many other files needed replacing.  An alternative solution I found was to download and install the OS 'cumulative update' as this essentially overwrites all system files. 

This worked!  I had to manually rebuild my keychain - setting up dropbox and other apps again... but generally I now have a working computer again.  I have no idea how I managed to corrupt some system libraries, or why it only affected my user (some sort of malware launched on login?) 

Anyway, I'm posting this in the hope it helps someone else with a similar problem.   As of the time of writing the latest cumulative update is https://support.apple.com/kb/dl1897?locale=en_US, but no doubt newer updates will exist whenever people read this that would be more suitable.

The new YNAB

I have been using You Need A Budget (YNAB, www.youneedabudget.com) to sort out personal budgeting.  It is amazing and I would highly recommend it.  I've even written a post about it before: https://corrin-lakeland.squarespace.com/personal/2013/9/you-need-a-budget 

What makes YNAB different is that it is much more than software.  It provides a full budgeting framework that helps you make decisions.  Every time you're thinking about whether to buy something you check your budget and decide if that's how you want to spend your money.  This is incredibly empowering - the budget swaps from nagging you about what you did wrong to a tool that helps you say yes.

YNAB just released a new version of their software.  A major update to software you use everyday is always a bit scary.  In this case YNAB has made a fundamental change from a desktop app to web-based SAAS.  This also means the ongoing cost goes from nothing to $5/month.

A lot of people have criticised this change.  Fundamentally it didn't bother me - I know I get a significant day to day benefit from YNAB so the idea of paying each month didn't particularly bother me.  Also I get regular advice in forums and software updates from YNAB so I'm pretty comfortable with the idea that I have an ongoing relationship and need to pay for it.

Unfortunately I think the new version is a) not quite ready and b) overpriced outside the US.  I'll address both points seperately.

Not ready

YNAB tracks how much money you have in each virtual envelope.  Overspend in a category (e.g. treats) and you have to put a virtual IOU in that category.  You can then either cover that IOU using next month's spending or leave it there to remind you that you've overspent.  

Generally you want to cover the IOU for categories where spending is compulsory (e.g. rates, food) and leave it there if spending is discretionary (to discourage you from going over again).  Unfortunately the ability to keep track where you've overspent didn't make the cut of the first release.  

YNAB Classic was a desktop application which relied on Dropbox for syncing.  This worked well.  Dropbox+YNAB is extremely reliable and the combination means your budget is always available, even without an internet connection.  The new YNAB is planning to add offline mode but for now only works with an internet connection.  

Overpriced

Five bucks a month doesn't sound like a lot.  But two points here: Firstly it was competing with the cost of a software upgrade every three years (approx $20/year)  and so it's a 200% increase in price.  Secondly the big feature which justified this increase is the ability to automatically download your bank transactions.

This is a pretty good new feature.  With it you know that all your transactions are up to date and so any budgeting decisions you make are accurate.  Unfortunately a) the UI assumes that YNAB is up to date and so is harder to use with people that cannot integrate their bank and b) YNAB partnered with a company that only integrates with US banks.  That means YNAB is now considerably worse than the old version and will remain that way for the foreseeable future.

That's a big shame - the biggest feature of the new release is unavailable to me.  But these things happen - YNAB's priorities are not set by me and some of the other features (aging your money and budgeting beyond the current month) are very attractive.  Unfortunately YNAB has deiced that they're going to charge me the same amount as people this feature works for since not everyone uses every feature.

WTF? I can either stick to YNAB 4 and have it work well, or spent $5/month for a half-baked internet version.  That's not a hard choice.  I don't think the YNAB team have quite thought this through... YNAB helps me make better decisions with discretionary spending.  What is the average household income outside the US, and what percentage of this is US$5/month?  How about making it free (or half price) for people that haven't linked their bank account.

Anyway, I still think YNAB is awesome, and if I didn't have YNAB 4 then I would personally think $60/year for the new version is worth it for me.  However I'm pretty disappointed that the YNAB team have not seriously thought about how well their offering stacks up for existing customers outside the US.