This is thread to ask questions you want answers to. Here’s my first question:
Why does bitcoin use so much electricity? (I haven’t really looked hard for an answer, but I’m looking for a quick and simple explanation, if possible.)
This is thread to ask questions you want answers to. Here’s my first question:
Why does bitcoin use so much electricity? (I haven’t really looked hard for an answer, but I’m looking for a quick and simple explanation, if possible.)
48 thoughts on “Can Someone Explain This to Me?”
Because mining Bitcoin and any cryptocurrency is the act of completing a difficult series of mathematical problems. If I ask you what 7 plus 22 is, you can spit the answer out almost without thinking about it. If I ask you what 137 plus 822 is, it takes you a bit longer, because there are more steps, because there’s more room for error, and because you probably don’t have much of it memorized, so you can’t take shortcuts.
If I ask you what 137 TIMES 822 is, you can probably do that too, but your brain will work harder and the answer will take longer to arrive upon.
Computers do this too, much much much much more quickly, but the concept is the same. They require more thinking power for more complicated problems. Computers don’t think; they process. And processing requires electricity. More processing requires more electricity.
Also, more elecricity generates more heat, which is a big issue when mining cryptocurrency. You have to have good cooling, which adds to the expense.
Wait, back up–what exactly is “mining Bitcoin?” It sounds like every time bitcoin is spent or used, that complicated math problem has to be solved. Am I on the right track?
Mining Bitcoin is the computer process of discovering it — the way gold miners look for and find gold in rivers and mountains. One way to earn Bitcoin is to trade something in exchange for it, but it has to originate somewhere. That somewhere is in the process of doing these math problems.
This is fascinating and weird. Bitcoin is like gold that one must find? It’s not like paper currency that people make? That doesn’t sound right. Why is Bitcoin such a complex thing to make?
Remember that paper currency used to represent some amount of gold. You were trading the value of the gold, not the paper itself.
Today, the paper really represents some amount of earned value, like X hours worked, or Y cans of tomato sauce sold.
The value of Bitcoin comes from successful solving of these math problems, but it’s more involved than that. There are thousands of computers working these problems at the same time; they don’t all just earn Bitcoin because of it. The distribution is random. It’s one way to create value and scarcity.
Also, the math problems aren’t just math problems. The computers working the problems are actually verifying the exchange of Bitcoin from person to person, contributing to the decentralized nature of the currency. Their reward for participating in the process of verifying transactions is the occasional fraction of a Bitcoin.
It’s complicated. I don’t fully grasp it myself. I’m hoping to get in on an application of cryptocurrency that I believe in, party in hopes of being involved from the beginning to see how it all works.
Why is Bitcoin such a complex thing to make?
The main reason is that it’s decentralized. Our government controls our money, to some extent. Other factors come into play, too, but there’s a reason that when a nation collapses, so does the value of its currency.
Bitcoin was created out of nothing, so there had to be a plan for creating and distributing it fairly, then a way to validate transactions that was unhackable. This second part isn’t part of traditional currency. The proof that I sold you that bucket of oranges is right here: the twenty bucks I’m holding in my hand.
But if I sell you a bucket of oranges for some amount of Bitcoin, that Bitcoin has to show up in my virtual possession. My possession is legitimized by the confirmation of all those people running computers to validate it and hopefully earn some Bitcoin in the process. All those computers working independently to confirm the transaction is how we prevent me from faking my ownership of the Bitcoin. Once the transaction is logged, nobody can change it because there’s no central record. Instead, the record exists on those thousands of computers. You can hack the ledger in one person’s computer, but you can’t do it in thousands of computers.
At least in theory.
This last response is helpful. It’s also fascinating. There are some cool things about Bitcoin.
But yes, every time Bitcoin changes hands, there are some of these processes as well, but not necessarily on the computer of people doing the trading.
Is Bitcoin used in retail? What is an example of something you can buy with Bitcoin? Like Reid I probably could look it up, but at this point, Bitcoin seem just a way to invest like stocks.
Speculation is the biggest driver of its value right now. But yes, there are Bitcoin-friendly retail establishments, and they’re growing in number. My coworker’s boyfriend on Kauai has a tow truck business, and he once accepted Bitcoin as payment for a tow, a few years ago. He’s pretty happy about it today, I gather.
10,000 Bitcoin was good for two Domino’s pizzas in 2010. That Bitcoin was worth $100,000,000 when this article was published in February. http://fortune.com/2018/02/26/laszlo-hanyecz-pizza-bitcoin
But if a Bitcoin is worth $5000 (probably more), how do you buy something worth $10 with it now? Is that still possible? Can I spend .2% of my Bitcoin?
Yes, people trade in fraction of bitcoint all the time, and I don’t think there’s a minimum on the size of the fraction, but I can’t say that for sure. People who mine Bitcoin are receiving fractions of it at a time.
Can someone explain this passage from the Atlantic, Email is Dangerous:
The email client would be an entity like yahoo or gmail? The attacker is the hacker that is posing as a browser? Even if the answers are yes, I’m still pretty confused about what’s going on.
No, an email client is a non-web-based email application that lets you read your email, such as Outlook, Eudora, or what you might be using for your work emails.
When you get an email in Outlook (for example) if it has a link to a web page or maybe an embedded image, when it shows you the linked image, it’s going out into the web to fetch that image so it can display it for you. This is not necessarily so, depending on your settings. Remember the good old days when all emails were completely textual, with no sound or graphics? Those were days when something like this couldn’t really be pulled off.
The part I don’t understand is how the email would name an image with the entire contents of the actual email message. That must be in the paragraph before. Which I don’t have a moment right now to look at.
We use Outlook at work, and embedded images are by default not displayed. If we get an email with images inside it, Outlook prompts us, asking if we want to download the images — this is true even of emails we get from within our own email domains, from people in our contacts. It’s a way to prevent this kind of thing from happening, although I had no idea this kind of thing was happening.
Amended: Apps you use on your mobile device, such as the Gmail app or the Yahoo app, are also email clients. I’m trying to figure out why this hack would work in a client and not in a web browser. Maybe I do have time to read that article.
I’m confused by this last part. What do you mean, “This is not necessarily so.” If the email client isn’t going into the web to fetch an image, what is it doing, or what will it do?
I’m still pretty confused by that passage (and I’m not really blaming you–just stating a fact).
Okay. It helps if you know a little about how your computer views things. When you look at a web page in your web browser, the page itself is just a bunch of code (usually in a language called HTML). There are no images in the page itself, there are only references to locations on the web where the images reside.
Your browser reads the code, sees the reference to the image, then fetches it from its directory somewhere on the Internet, displaying the image in the place on the web page where the code indicates it should go. It downloads the image from that location to your computer in order to show it to you.
Web pages don’t have to work this way. They just do because that’s how we like it. I don’t know if you remember, but the terminals in our public libraries used to have access to the web, but in text-only format. Remember those terminals in pine green and amber orange, operated with keyboards only, displaying text only?
You could use those terminals to look at a web page, but the monitors would only display the text, not the images. You might see something like “image: Metallica at the Blaisdell November 1995” in the middle of the text. The terminal was telling you that if you were looking at the page in a real web browser, there’d be an image there. You know how, on some web pages, when you float your pointer over an image, you see what’s called alt-text? That alt-text is a remnant of these days when some people were looking at web pages with no images. The alt-text told us what the image was, even if we couldn’t see it.
(peripheral info: this way of looking at a web page was called Lynx and it’s still available. If you ever need to control the data use in your house, Lynx is one way to limit it, since it’s all text with no graphics)
It also helps to know that email and the web are two separate functions of the internet. The H-1 is a freeway that gets you from your house to your job, but it’s also a conduit to get our cookies and antifreeze from a boat to a supermarket. The internet is a way for us to look at web pages, but it’s also a way for us to exchange email. The difference today is a lot smaller than it once was, but it’s still there. And the way we get a web page vs. the way we get our email are not exactly the same. Toyota Corollas vs. eighteen-wheelers.
This is why, in the early days of email, we didn’t open a web browser to look at our mail. And it’s why many of us, even if we had net access at home, could only check our emails at work, and our personal emails at home (there was always a way around this but you probably didn’t know it unless you asked someone like me).
Outlook is an email client. If it helps, “client” is the counterpart to “server.” The email server is a computer somewhere that manages your email and speaks to other email servers so that our emails can be exchanged and passed along. The email client receives the stuff the server is dishing out.
Just as with a web page, an email doesn’t have images in it. It has code that tells Outlook where the image resides. When you open the email, Outlook gets that image from wherever it is and displays it in your email. In a text-only email, the entire content of the email is in that code, and code by itself is harmless, just a bunch of text.
But when you include images, Outlook is now retrieving files from other places (this is why the article says it’s an email client acting like a web browser). They might be the photos from the picnic you missed, or they might just be pretending to be. They might instead be titled “picnic 1” but actually be photos of your friends eating balut as some kind of prank. Whatever they are, most of us have Outlook (or Gmail, or Yahoo!, or whatever) set to display images in our emails as a default. So when we open the email, Outlook gets the images from wherever, without even asking us.
But you can set Outlook not to do so. In which case you might see something like in the photo I’m attaching.
This doesn’t address the interesting trick mentioned in the article you link, which I still haven’t looked at. But does it help you understand what your email client is doing when it shows you an image?
I really do appreciate the response. I think it’s helpful, specifically, increasing my awareness of how clueless I am. I think you need to go back a step further and explain more fundamental principles about the way the internet works. The following might illustrate this:
Wait, I thought the web was the internet–i.e., I thought the two were synonymous. That’s wrong?!
If we use the internet = highway metaphor, would the web be towns (or facades of towns, might be better) dotted along the highway, and email is basically messages sent from one “post-office” (email client) to another “post-office?”
I think so–at least a little bit.
The following involves something I’m wondering about more than a request for an explanation. What I’m wondering is if there have been any online discussion fora that are really vibrant and active when the response time to posts are an hour or more long. For example, in the most vibrant and active fora I’ve bee on, responses times are often within an hour, quite frequently within a few minutes, if not sooner. This doesn’t occur 24/7, but during windows of time (e.g., three or four hour blocks). I’m wondering if a vibrant discussion board is possible when the response time is hours or even a day or more after a post. My instincts say this is not possible–or, more precisely, unlikely.
Are you asking about the existence of a forum where the response time is LIMITED to a hours or even a day or more after a post?
No, not limited by some feature of the software or formal rule. The relatively long response just occurs because participants take a long time to respond, for whatever reason.
I’m sorry. I still don’t know what you’re seeking.
Can a vibrant and active forum exist if people take a long time (several hours or even days) to respond to posts? By “vibrant and active,” I mean things like:
Lots of posting activity;
Discussions with good, back and forth;
high participation on the forum.
I tend to think really long response times kills energy and participation. If you know someone will respond quickly, you’re more likely to watch for responses. When those responses occur, the chances of you writing a response occurs. The same dynamic occurs with others and this creates a feedback loop, which generates interest and energy.
With longer response times, people may not be watching the forum so frequently. Momentum and energy for certain discussions may never fully form.
Is this clearer?
Okay, so you’re just basically looking for a forum where people respond quickly. Really, FB and Twitter kind of killed that medium, although Reddit is probably the best similar alternative.
More context: I’m on a new forum now, and I want it to succeed. The responses times are often very slow, as I described. Based on my experience, my inclination is to find ways to change that. But I’m wondering if I might be wrong. Maybe the forum can be vibrant–and more importantly–contain good discussions–even with a long response time.
I’m interested in hearing opinions about this. Do you think a forum can be successful–e.g., have good conversation and lots of participation and enthusiasm–if the response times are generally really long? Normally, I would say no, but I’m wondering if this is wrong.
I would say yes, but you know. I think we both know that it’s extremely difficult for you to be satisfied with stuff. It was the veiled topic of my post about that a few months ago, which I still owe Don a response to.
In the days before the online forum, there was the mailing list. These still exist, but they’re not as much of a thing. If you received the day’s emails in digest form, you only got one email each day, so your responses only went out once per day. It was a fine way to communicate. But of course all of that is dependent on the participants. You get good participants, you get a good forum or mailing list. You get crappy ones and you get a crappy forum or mailing list.
I hope it works out for you.
I’m not sure what my being difficult to please has to do with this. I’ve been on discussion boards that satisfied me, in terms of the energy.
Was the nature of the discussion more like communicating via snail mail or like a in person conversation? I ask, because I think if I approached the forum as if I were communicating via old fashioned letters, maybe my expectation would change, and the place would seem more vibrant and alive to me.
By the way, what’s your experience like on online discussion forums? What was the response time on the discussion boards that were the most vibrant and active?
(What was the veiled topic?)
I have, but those days are long gone. As I’ve mentioned before, it’s more likely to happen in special-interest fora, such as those dedicated to crossword puzzle construction or progressive metal. But even those have struggled in recent years. FB and Reddit seem much more instantly gratifying for people who want interaction.
On mailing lists the nature of conversation varied. Sometimes it was a bunch of short backs-and-forths, and sometimes it was an exchange of longer, more thoughtful compositions.
This is the musing I started on being dissatisfied. I’m still thinking about it, by the way.
I’m not sure which question you’re answering.
What was the response time to posts on really active online fora?
Boy are you going to regret asking this question, if you actually read this response.
TL:DR: The internet and the web aren’t the same thing. The internet is the connection of millions of computers. The web is one way we use that connection; email is another.
My answer to this question is, “Suuuuuuper wrong,” but the answer for most practical purposes is, “That’s pretty much right.”
You’re asking a question whose answer really starts HERE but I’m going to answer it beginning way back HERE. In an extremely simplified (because that’s really the only way I understand it) explanation.
Once upon a time, we could make computers talk to each other by attaching a cable to each. They would be distinct machines, but if computer 1 wanted to share info (files, messages, that kind of thing) with computer 2, it could. This is a network. And you could add other computers to this network with cables directly attached as well.
Then someone invented the modem. A modem let one computer communicate with another computer through a telephone line, so the computers didn’t have to be directly connected from machine to machine. They just each had to have access to the telephone system (which, when you think about it, is an extremely complicated technology, speaking only conceptually and not technologically).
The US government (specifically the Department of Defense) took first major advantage of this capability, connecting computers in Washington to comptuers around the world: the ARPANET. Because of the importance of the communications on this closed network, its designers put lots of interconnectivity in the network, so that if the computers in D.C. were blown up by some enemy, the computers in Alaska, Hawaii, and Tokyo could still communicate with each other. Kind of a big deal in the creation of this network.
Computers back then (the early to mid 70s) pretty much lived only in government and educational institutions. Universities connected their major computers to each other and formed their own network: the BITNET. If you were in college in the mid- to late-Eighties and took a computer course, you were probably assigned an email address (back then it was called e/mail; it was later e-mail; now it’s just email) and could send electronic messages to people at any other university on the network. This was LOTS of fun. I mean think about how we normally communicated with friends in faraway places back then. Now you could send messages and get responses mere minutes later. Yes, it usually took minutes for your emails to get from you to their receivers.
There were other, similar networks in operation but I don’t remember what they were. If you had an email address on the BITNET (.edu), you couldn’t yet send messages to someone on the ARPANET (.gov or .mil).
I don’t know how it happened or whose idea it was, but someone thought it would be amazing to connect the existing networks, a network of networks, or an Internet.
And ta-da. Pretty much worldwide accessibility, as long as you had access to the networks, which usually meant logging in at the institutions, or using your Apple // or Commodore 64 or IBM PC to call the school’s computer, then log in using your credentials.
As you know, I was doing this since our senior year of high school. No, I didn’t have (legitimate) credentials for accessing the UH computer system. I did have a friend who hung around at the UH Computer Center and picked up students’ login info out of the trash, though. I never knew that guy’s name. He was known to most of us only as D.
That was just a cred-establishing diregression, though. The main point is that the joining of these networks into one big network for the purposes of sharing info goes back to long before the World Wide Web was a thing.
The networks communicated in other ways. Info (that is, personal messages) sent in email was one. Info in file-formats stored on one machine for easy access to other machines (that is, uploading and downloading) was another. Using computers at one university so you could log in to your account at another university was another. And sharing opinions on categorized topics on publicly accessible message boards was another.
I just gave you a list of a few systems (email, gopher, telnet, and usenet) the Internet was used for. The Internet itself was the connectivity between computers. These were some of the uses for that connectivity; other uses for the Internet.
The World Wide Web came along around 1990 and it was kind of a wow because it was graphical and it used in-body links to let you jump from one page to another. I consider it important (‘though most people don’t anymore) to remember that the “web” part of that name does NOT refer to the network of computers, but to the connectivity of those web pages.
So the way I usually explain it (and I didn’t create this image so don’t cite me) is that the internet is a million computers connected by large pipes. In each of those large pipes are small tubes. The small tubes each have a specific use. This tube is the way my email goes to your inbox. That tube is the way this website finds other websites when I click the links. Another tube sends files. Another tube lets you do live-chatting (oh, that’s another use I forgot from the old days). Another tube lets you read and post messages about playing the cello with other people who play the cello).
Each of those pipes has different requirements for the way data is sent from computer to computer, kind of like how bike lanes are for bikes and zip lanes are for cars with 3 or more occupants. The World Wide Web uses one of these pipes, and it has its way of transfering info, something called the HyperText Transfer Protocol. You don’t have to type it anymore, but once upon a time if you wanted your web browser to load a web page, you had to type “http://” before the web address, so the browser knew which pipe to go through to get the webpage.
Other sets of requirements had other names, like telnet. I used to play backgammon on a free telnet site, and I could use my web browser to access it by typing “telnet://fibs.com 4321” in that space where you usually type a web address. You could type “gopher://gopher.floodgap.com/1/users/ckaiser” to see the gopher page of this guy who’s keeping the Gopher protocol accessible to those who want it. You actually still can, but you have to modify your browser now because the browsers stopped supporting access to these other pipes!
Super lame. But those things still exist. We can use the web to access our email because designers make that possible, but don’t confuse the two. Although email and the web are very closely related nowadays, they are not the same thing. If you know what you’re doing, you can still read and write and send your emails without ever accessing the web. The mail apps on smartphones do it all the time. The Outlook app does it as well. They use one tube in the Internet pipe; a web browser uses a different tube.
Is it important to know this stuff? For years and years, I insisted it was. The more you know about how this stuff works, the better equipped you are to fix problems. When students asked me what the URL was for a specific website, I would always begin with “http://” even when browsers stopped needing you to type it. I was reminding myself and hopefully teaching them that a browser wasn’t only a WEB browser, but a UNIVERSAL RESOURCE LOCATOR (that’s what URL stands for) and web resources (http) were only one kind!
Time moved on, and nowadays all you have to know is the web. Most people’s use of the internet is restricted only to the web, or at least that’s what they think. So I stopped making students learn about what “internet” means and I stopped making them type “http://” but in my brain, I keep those things clear and separate. How you speak about something affects how you think about it, and thinking about it this way became unnecessary, so I stopped making people speak about it this way.
I’m not taking a swipe at you (honestly, I’m not) but a question like “Aren’t the internet and the web the same thing?” is the result of (all of us) talking about them as if they are. I’m 100% certain you wouldn’t have noticed this (because why would anyone notice this?) but I don’t use “internet” and “web” interchangeably.
One more irrelevant digression. When my students would tell me in class that their internet wasn’t working or that their internet was broken, I would say the same thing in response EVERY time: “Noelani, the internet is a network of millions of computers designed to survive a nuclear attack. It’s impossible that it is broken.”
Man, it used to make me PROUD when the other students would begin to say it before me: “…the internet is a network of millions of computers…!”
The students learned to reply (sometimes before I was finished saying my thing), “My CONNECTION to the internet is broken.” Because when we THINK of it like that, we can more specifically try to solve the problem. Yes, I know that on a practical level it doesn’t matter how a student talks about it, but on a pedogogical level, it matters to me deeply and truly.
If you ever had a teacher who insisted you say “now you add x” instead of “now you plus x,” that teacher and I are friends because it’s the same concept. If people want to call me a pedant I’ve learned to live with it. But it’s not for pedantry’s sake. It’s for pedagogy’s sake.
I guess I do it myelf, even though I no longer teach, so when people need a problem solved, I have some way to think about the problem that might be useful.
PS: If you quote me on any of this to people smarter than me, I’m sure they’ll point out some conceptual and practical errors. I’m not an expert; I only know as much of this stuff as I need to, which I suppose convicts me as well as I convict people who say, “My internet is broken.”
My reaction to the following:
Huh? Now, I’m confused.
This metaphor is really helpful, but I’m still not clear about what the www actually. Did you respond to my suggestion that the world wide web is like buildings (web pages) that exist along the highways (internet)?
(By the way, I liked the explanation above. Hopefully, I’ll remember a lot of it.)
Your suggestion is fine, but think of it more like buildings along the highways that only some of the lanes go to. There are other lanes on the same highway which go to other places, such as email and instant messaging.
OK, right. Now, I have to go back and read the article and see if I understand it better.
Reid, if someone from somewhere else thinks of Oahu and Hawaii as the same thing, and if that person never has any reason to conceptualize any of the other islands, for all practical purposes, that person is right. On a practical level, it doesn’t really matter if that person always says “Hawaii” when he or she really means “Oahu.”
And O’ahu/Hawai’i is analogous to internet/web? If so, I think I’m confused. The O’ahu/Hawai’i analogy doesn’t fit with the metaphor of the little tubes in a big tube metaphor, right? Or are you saying the individual islands are analogous to the little tubes? I still don’t think that really works, at least based on the way I’m understanding your explanation. The internet is the infrastructure. The web, email, etc. are activities or things that use the infrastructure. That seems like a very different relationship between Hawai’i as a state and the individual islands.
Separate metaphor entirely; sorry. Don’t equate the islands to the tubes at all. I’m just giving an example of how something can be true for all practical purposes while actually being untrue.
I’m still kinda confused. How is the web, for all practical purposes the internet? Email isn’t the internet, right? What am I missing?
Maybe part of the problem is a weakness in the little tube/big tube metaphor. The metaphor seems to fit really well with email–one can visual mail being sent through the tubes–but it doesn’t seem to work as well for the web. The web isn’t sent through tubes and as far I know it’s not an activity running through the tubes, right? Web pages use their tube to retrieve things, but the web page isn’t something “in” the tubes. If not, where is it?
The web, for most people who use the internet, is practically the internet because they don’t really use the other parts of it except email, except since most people nowadays use a web interface for their email, from their perspective email is the web too. I’ll say with some confidence that you don’t use telnet, ftp, or the other protocols I mention in my explanation, which is why I use the Hawaii/Oahu metaphor. To someone who has no need to think of the other islands, Oahu is pretty much Hawaii. To someone who never (or doesn’t think of using) the other parts of the internet, the web is the internet.
Big exceptions are people who use an email client, people who share files via bit torrent, people who mine cryptocurrency, and people on the dark web. And since conceptually, it’s okay to think of email and the web as one thing, it’s mostly okay for people to equate the web with the internet. I mean, I don’t exactly think it’s okay, but it’s at least understandable.
Anyway, the tubes thing totally works but you have to think of a website not as a location in some distant computer. When you “go” to a website, you’re not traveling through those tubes to the distant web server.
When you type “village-idiots.org” in your browser’s address bar, you’re actually requesting a file. The browser sends a request to my webserver in California and says, “hey, send to this browser a file called default.php.”
The file comes to your browser and it’s all code. The browser reads the code and translates it into the colors, shapes, and sections of this website. If there’s a graphic, the browser sends a request through the http pipe and asks for the graphic file to be sent, so it can display it on your computer.
Which is pretty much how Outlook works as well, only it does it a different way. Each time, the tubes are conduits of data, and your browser (a web client) or your Outlook (an email client) receive through these pipes the info, images, music, or video you need.
Again, you don’t go anywhere. The data comes through the pipes (or along the information superhighway) to you, whether it’s an email or a web page.
When I agreed that buildings along the highway are websites, I should have been more specific and said the buildings are really web servers, and they send web pages to your computer, another building on the highway.
I don’t have time to comment on everything, but I wanted to ask something before I forget: Can you explain what the Dark Web is? Don and I had a discussion about this, and we understood it differently. Is it some network that doesn’t use the internet, as in another separate internet, or does is use the infrastructure of the internet?
I think I understand your reasoning here, but I think I understand the www is, for all practical purposes, the same as the internet. Let me see if you agree with my thinking. The www isn’t just websites or a website, but it is also the network between these sites. I guess, you can see the same about email or telnet. In any event, I think I understand now.
This is helpful. So, I choose an individual or organization will choose a server to host their webpage–they need a server to do this. I assume they could build their own private server to host a web page(s) as well?
I’m going to ask a budgeting/accounting question here, because I don’t think it warrants a separate thread. I have a budget for my family–one with categories for different types of spending (e.g., housing, transportation, etc.). That is, I have allocated money for each type of spending, per month. Obviously, I need to not spend more than this allocated money every month for the budget to be meaningful.
But let’s say I sometimes spend more, but sometimes spend less. Now suppose I keep track of this every month. Here’s my question: Is occasionally going over budget in a category OK, as long as by the end of the year, I balance out (or am under budget)?
I’m thinking this is a sound approach, but I’m not sure. A part of me feels like the end of a year is an arbitrary point, so this is not really a sound approach.
What do you guys think?
(By the way, we were being too lax on the budget. For example, we would allow ourselves to go over budget on certain categories, because we knew we spend less in some others. One problem with this is that for certain months, we could spend under the budget for certain categories, but would have to go over in other months. For example, we might have a savings for many months in housing, but we’d go over when we had to pay taxes. So the months we could accrue savings should be used for the months when we’d have to go over budget. We couldn’t use that savings for other categories of spending.)
I doubt there is a correct answer. This would seem more like a personal decision. The question is why would you have all these categories, though, rather than just two buckets: necessities and indulgence. Does the multiple categories help to “stay on track”, because it doesn’t really sound like it? What if the monthly budget was something like $3000 for necessities, $500 for indulgence and a $100 savings for both necessities (ie: car broke down) and $100 savings for indulgence. You would just need to be clear on what is necessities versus indulgence such as gas. Or something like gas could have a $200 cap as a necessity and then anything over be indulgence.
The categories show, with more clarity and specificity, how you should be spending your money. It still takes discipline to stick with it, which we haven’t been great at doing.
Your categorization may be easier to adhere to, but we could be spending more on things that we shouldn’t, and less on other things we should.
But what do you think about my other question–regarding balancing out in each category at the end of the year. Is that a sound approach?
If the categories work for you overall, then go with it, but it would appear that it could cause unnecessary added work by plotting everything.
I added the savings portion to the necessity and indulgent categories as a way to deal with your balancing your budget overall. If you go over this month, you have less savings or you may have to withdraw some from the savings bucket. If you go under budget for the month you will have more to put into the savings bucket. That savings buckets though should never go negative and for the most part the savings bucket for necessities should almost never be touched. You cannot have a rainy day fund with the fund.
But wouldn’t we have to do something similar in your system? Specifically, I feel like we’d have to make up new categories to make clear distinguish necessities from luxuries. Take food for example. Food is a necessity, but obviously certain types of food are a luxury. What about sports leagues or piano lessons for the kids? Haircuts are probably necessities, but what about doing nails, etc.? You see what I mean.
I’m a little fuzzy on the savings categories would work. Would I create savings for necessities and luxuries? In this case, “savings” isn’t a separate category to build up a savings in your bank account. (We actually have a category for that, but if we strictly followed our budgeting system we would be building a savings.) But it almost sounds like the savings in your system is a cushion that will be used month to month. Am I understanding this properly?
You are absolutely correct, that you will still have categorize what is considered a necessity versus luxury. But once you do that you will have way less work and probably heartache without having to track each individually if that’s what you are doing. For example, if when I’m building my budget, if I say I need $1500 for tuition, $100 for property tax, $200 for electricity, $300 for food, and $300 for other then my necessity budget would just be the total of $2400. When I pay any of those things I won’t categorize it again, it just comes out of the total $2400. Maybe that’s what you are already doing, but that is what I meant. Yes when you are creating your budget, you need to have an idea what is making up that budget, but once you create it, it might be easier to maintain it monthly if it’s lumped together, and it may be less self-defeating as well.
Yeah “savings” isn’t a separate category to build up a savings. It’s more of a savings as a cushion especially for your luxury account. If you really want to go to a concert or event that’s not in the budget, that’s when you would using your luxury “savings”. Then the goal is to never touch your “real” savings.