It’s our last episode of 2014, and – in the spirit of the coming New Year – we’re talking budgets. The Christmas bills are about to start rolling in, which means ’tis the season for resolving to control your money this year. We want you to stick to it, so in this episode we talk through how to start budgeting, why so many people give up on it, and how to stick with a spending plan (hint: it’s all in your head).
Check out the transcript and resource list below if you don’t have time to watch:
Jackson: Jackson Middleton
Robb: Robb Engen
Sandi: Sandi Martin
Jackson: Hey everybody welcome to another episode of the Because Money Podcast. This is Episode 25, and it’s the episode that follows 24. Thanks for joining us here today. We’re talking about budgeting. This is all about budgets. I think we’re going to talk about three main areas:
- What’s a budget good for
- How to keep a budget
- Why do people give up on budgets
I am personally really good at giving up budgets—setting them, you know the 70-line ones—and then just forgetting about it. So we’re going to try and avoid that, so the conversation’s all about budgeting. If you’ve already got a budget, hey great, hope you enjoy the show. If you don’t, you might learn a thing or two. Onto Robb, here we go.
Robb: Well we wanted to talk about those broad areas of “why do you start a budget?”, and I think a lot of it comes down to when you first start to take a good look at your finances – whether that’s because there was some lifestyle change like you got married or you had a kid, or whatever has caused you to start looking at your finances – one of those first steps is you need to come up with a budget, and how do I come up with that budget?
So you look at some of the basic tenets of personal finance, and one of them is to obviously spend less than you earn, and how do you do that. Well, you want to take a good look at your expenses and what’s going out the door, and so I think we wanted to talk about there’s so many different ways to track you expenses, from apps like Mint or a paid software like You Need A Budget (YNAB), or just a simple spreadsheet that you’ve doctored up to fit your own unique circumstances and what works for you.
And then what doesn’t work, like tracking your expenses in a spreadsheet seems really tedious to a lot of people, so it’s that dreaded “B” word for the budget, and they just don’t want to do it. So they’ll do it for a few weeks or a month and then give it up. And so I think we just want to talk about what the different stages that people are at when they want to start a budget, and how do we keep them going, and what makes a successful budgeter.
I guess I want to throw it over to Sandi. She was really excited about a budgeting episode. And there’s a lot of psychology behind it too, Sandi, isn’t there?
Sandi: I think so. I mean, unless you’re a real money nerd and you get excited about a spreadsheet or a software program – just by virtue of the fact that it’s one of those things – unless you’re that special type of person, you’re probably budgeting or trying to control how you spend your money, or watch how you’re spending your money – those are all kind of different characteristics of budgeting – for a reason. And so that reason might be you’ve just all of a sudden realized that it’s important, or maybe it starts to feel like a crisis, where all of a sudden you feel like you don’t have enough money and you don’t know what’s happening. I think those are two of the main reasons people start.
But if you don’t have a reason, a really compelling reason, and you’re not a money nerd, chances are that budgeting – until you’ve kind of found a system that works for you and you’ve trained yourself to use that system, and modified it for your own needs – it’s going to be a job that you don’t want to do. So you have to keep your eye on it. You have to figure out why you’re budgeting in the first place.
So why do want to control your spending?
I mean, in my case, we have a very narrow margin. We’re a young family, we have a mortgage, we have pretty ambitious goals for our life, so we want to make sure we’re not spending more than we earn, and kind of those subtle ways that people can do that. So my goal is, I think, probably one that a lot of people have. But I’m also a money nerd, so I enjoy opening up Quicken and I like all the other extra spreadsheets that I have.
So to me it’s not a big job. Robb, obviously you talk about money all the time, are you a money nerd?
Robb: I’m a money nerd and I do. I have my own spreadsheet and I’ve got 70 different categories to track expenses. And what I’ve found was actually really interesting, was as our family situation changed — so in 2009 I changed careers, so I moved from biweekly pay to a monthly pay, and all the different deductions that come from a different employer. And we had a baby, our first child, so my wife was on maternity leave. And then the next year we decided we were going to be a one income family and she was going to stay home full-time, and so there’s another change — And so tracking all that is really interesting, to me anyways, to find all the different changes in your income and expense, and just as a way to stay on top of it.
I think people start budgeting, in the beginning, to track their expenses and stop or find the money leaks. So I spend an extra $100 a month on coffee or magazines, or whatever. For me it became beyond just tracking where the money was going, but it was all about planning. So maternity benefits are going to run out in six months; what are we going to do?
So I use it as a way to forecast that income and expenses, so that I have a spending plan for the next year or 12-18 months. So that’s where budgeting has become useful to me, where it’s evolved beyond simply just tracking my expenses and looking backwards, it’s become way more forward thinking. Even in terms of like come July or August I’ll stop paying into CPP, or I’ll stop making those contributions because that’s run out. So that’s extra income. Then what am I going to do with it or how am I going to allocate it.
So it’s very forward thinking now, which I think that is a natural evolution, and I think that can become a little more exciting for people than just to look back and say, “Oh, I’m going to enter all these receipts after my trip to the liquor store and Safeway and Starbucks.”
Jackson: Well that was it for me. I mean, when I started budgeting, I just found it a tedious experiment in tracking crap that I was spending money on. Like for real. It’s like I don’t want 70 line items, because I don’t want to know that I spent $180 on Castle upgrades on Clash of Clans. Or I spent $800 on diapers. These are not things that I wanted to know I spent my money on.
So I guess if I could summarize what you guys are saying about what a budget is good for, it’s good to initially track your spending history. Like “where’s my money going?” If you do have that gap, that leak in your plan and it kind of tough to make ends meet, a budget is good to kind of track your spending. But then it’s also good to project a cash flow. That’s pretty accurate?
Sandi: Yeah, although Robb was talking a little bit more about slightly longer term. One of the benefits to me of really good knowledge of what’s going to come into your account and what’s going to go out, is not just how’s that going to look six months to a year from now, it’s “I am standing at the grocery store right now and I know that we need to buy diapers and I have this long list of things I’d like to buy. Do I have enough money?” —this is especially if you’re spending out of kind of the same account– “My mortgage is coming out on the Friday, and I know I’m going to deposit X-Y-Z on Thursday, so does that mean subtract the two, carry by one, okay so I can buy the diapers but I can’t buy the prime rib”. You know what I mean? It gives people limits that are predetermined and it allows you to not go into overdraft or not have to put the grocery bill on the Mastercard because the mortgage came out on Monday and you forgot.
So to me it’s that really short-term cash flow planning as well that is really useful for people, instead of just guessing.
Robb: Yeah, and that’s where we were when we first started, was really close to edge, and we would end up—I would say—exactly that, – [phones ringing] –
Jackson: Seventeen different phones are ringing in your background.
Robb: Yeah, someone really wants to get ahold of us. Anyway, we had come right to edge of our finances, so it was exactly that. It was a question of the mortgage is coming out tomorrow and we need to buy milk, or whatever it is, today. And so it helped us kind of forecast that. It was really on that month-to-month or even week-to-week type of financing. Now, like I said, we have ourselves a buffer now where there’s money in the chequing account. So if you forget your credit card at home or you forget a payment, or whatever, then you’re still covered that way. But there was no room for error back when I first started, and so it was really useful.
Sandi: And I think that’s the thing. When people talk about starting to track every one of their transactions, and they make it like 70 line items, and think “oh my goodness!” I think that for a while, that’s really good for getting a handle on how you spend your money. But I think after a while it’s just as you said—once you get used to it, once you kind of build up those kind of spending muscles or budgeting muscles, when you mature into your budgeting journey, let’s say, then I don’t think you have to necessarily say “Okay, well I have $24 for entertainment this month and I have $10 for clothes”.
It becomes “Okay, so I know my fixed expenses are covered because they’re this amount of money, and then I’m going to give myself this amount between now and the 15th of the month, and that’s going to be for everything else.” I don’t think you always have to–as a beginner I think it’s easy to look forward and say “I’m going to have to track every time I spend money on coffee for the rest of my life”– I mean, that’s the first step, and then you hope that you mature into other things.
Jackson: Well I can speak on personal experience that until I started tracking my money, I had no idea where it went, and I was off by hundreds of dollars. When you make good money, money comes in and you just spend good money, and you always seem to spend what you make, or a little bit more if you’ve got access to credit and you’re not tracking it.
So we’ve talked about what a budget is good for, how do you budget? Because I mean obviously there’s a lot of material out there. There’s a lot of information that says like if you’re with Gail Vaz-Oxlade, you’re putting your money in jars and you’re a complete tool bag if you don’t put your money in jars. I mean, obviously there’s programs like Robb mentioned, like Mint or Sandi speaks fluent spreadsheet. Personally, no. But what are some of the ways how people can budget? Robb, over to you.
Robb: Well I think Mint kind of speaks to people in your situation, Jackson, where you just think, “Oh, I don’t wanna track every single time I swipe my debit card or credit card”, so Mint takes that away from you and then it will show you a pretty graph or pie chart to show you where your money’s going and in which categories. So I think that appeals to a lot of people who don’t want to sit in front of their spreadsheet and enter in their receipts.
So I think that can capture a lot of that first-time budgeter who needs to track their spending and find out where the money is going. But there are issues with Mint, and I don’t know how much in detail we want to get into that. Sandi, maybe you can talk a little bit about Mint and why it might not be a good idea.
Sandi: Well, most banks have that as part of their standard banking agreement, that if you give your information to a third party, they won’t cover you in the case of fraud. I’ve yet to see, and I asked this question about it specifically–now this is quite a few months back– but I’ve yet to hear of a case—and I would love to hear of one—where somebody claimed for unauthorized access to their bank account. I’ve yet to see a case where a bank specifically asked, “Do you use an aggregator like Mint, and if so, we’re not going to cover that money.”
Robb: Yeah, I haven’t heard of that.
Sandi: No, so you hear that all the time, like “don’t use Mint because the banks then won’t cover that agreement”. So I don’t want to say “pooh pooh” to that problem, but Mint has another weakness as well. Mint is really good for kind of knowing where your money went, and then using that data to project forward in longer term increments. It’s not very good for telling you can you buy diapers this week, or you’re good for your mortgage payment. So that’s a weakness for Mint, I think.
Robb: Right, and so you mentioned Quicken. Is that the program you use, personally?
Sandi: I use Quicken. It’s really bookkeeping oriented. So you have to balance between your accounts. You reconcile your statements at the end of the month. It’s for people who like debits and credits, and those sorts of things. It’s $65. I bought Quicken 2014–I think is the last one that I bought– and t was $65. I think it’s worth it.
Robb: Like one time?
Sandi: Yeah, it was a one time. No, it’s not annual subscription. You don’t have to update it. They will upgrade new features, obviously, just like any other software, but you don’t have to keep buying the new version every year.
Jackson: So no cash in jars.
Sandi: Well what if you forget your jar?
Jackson: What you think about cash in jars, money in envelopes. Sewing an extra pocket in your jeans for that money. What do you think about cash, dealing in cash?
Sandi: When Seth and I first started budgeting, it was life event. We had our first daughter and I remember we used cash for all of the things that weren’t fixed payment. So any groceries, gas, and anything like that was cash. And we withdrew a certain amount every week and that was it, that’s all we had. And because it coincided with when we were first budgeting, it made sense, it worked really well for us because it gave us a really good limit. Obviously, if you’re holding cash–it’s true: it’s that psychological aspect. I believe all those studies, I’ve experienced it in my own life. It’s harder to part with cash.
The problem is—and this maybe just feels like poor planning—after a while, if you do that for a while you feel like you should be able to graduate in some way. Because I can’t tell you the number of times I was driving home and needed to stop because I needed to pick up diapers and then you’re going to pick up the girl from daycare else it’s going to cost us $5 a minute, and I don’t have my cash because Seth has it. Cash for couples is a tough proposition, if you have very narrow margins.
So it’s not that it’s a bad idea, it’s that logistically it can be a bit of a nightmare.
Robb: Right, and when you’re living close to the edge, financially, I think it’s a double-edge sword there because you’ll have the case so that you know exactly like I can’t go do anything frivolous here with this because, like you said, you’ve got to eat tomorrow. So you’ve got that. So it’s good in that way, but at the same time, like you said, it can be very challenging logistically, from a couple perspective or just “I don’t have my jar with me” or whatever the case may be. It can be very challenging.
And so I see cash as very limiting. If you’re living close to the edge financially and you’re first getting started, I think it’s a fine system and it’ll help you really kind of get a handle on what you spend every month. But eventually something needs to happen so that you can simplify things. Once you have that, say $1,500 buffer in your chequing account, or whatever, you’ve got that small emergency fund where things aren’t so tight and you’ve developed your frugality muscles, then does your budget allow for a little bit of overspending in certain categories. And that’s where you want to become a little more flexible and not so militaristic with the categories that you have.
Sandi: You know, and I found a good compromise between carrying cash around in whatever you have (for instance, they sell little special envelopes that you can divvy up you cash with) I think a good compromise is actually a spending account. So obviously we’re going to air all the dirty laundry…that’s what we have now is one account that has the discretionary spending money in it. We put new money into it every 15 days. And it still has the limit that cash does. You can’t go above it because it doesn’t have overdraft on it or anything. It’s a debit card. It doesn’t cost any extra transactions or anything. Obviously, we just have the cards. It’s not like you have to carry your little jar around.
So I found that to be a nice compromise because we’re still a little bit on the edge. We have a very tight margin. [laughs]
Robb: And you know, even when you’re meeting your savings goals—you know, 10% off your paycheque going to your RRSP or your tax-free savings account—it still leaves very little margin for error. And when I talk about “we budget and we’re very forward-thinking with our budgeting”, that’s because I’m planning for every dollar spent. And spent could mean saved as well. There’s very little room left still for just frivolous expenses.
So we are, I guess, still very close to the edge in terms of our monthly cash flow, and that’s because every penny has been allocated in some respect. Whether that means saving or spending on groceries or the mortgage.
Sandi: And I think though—I’m going to steal Jackson’s thunder—I think that’s probably a reason why people give up, is that they haven’t got a system that really works. They’ve tried jars, and they left the jar at home, or they want to use the credit card for points and then they overspent. Whatever that is, I think people have the perception that whatever system you’ve landed on, that’s going to work for you. And if it doesn’t it’s because budgeting is not–
Robb: You’re not cut out for it, or whatever.
Sandi: Yeah, exactly. Or the idea of I think people when they sit down and they fill out those little spreadsheets, I mean we have that in planning. We talk about “what’s your retirement spending going to be?” They fill it all out and everything’s kind of a conveniently round number, and I think it’s kind of all fictional when you first start. If you don’t take the time to look back at how you have spent, it’s sort of fictional. And then when you encounter real life—I have had this problem, I’m not on some pedestal, and I think it’s pretty obvious—you feel like you’ve failed in some way. Like “oh, these are all made up numbers that I know I made up, and they’re obviously made up. Ugh, It’s just too much work, I’m not going to keep going.”
It feels like a big mountain to climb, to get to the point where you have accurate numbers and a system that works for you.
Robb: It’s important to have the accurate numbers, right Jackson? Like you said, if you didn’t know where your money was going whatsoever, if you were just spending it, I guarantee 100% of the people who have tracked their spending for 30 days can find a money leak where they said “Whoa, like I didn’t know we were spending that much on that.” And it can be helpful.
So I was going to throw this out to the two of you and ask, what do you think of the people who say just save your 10% for retirement or short‑term goals, and spend the rest. And it doesn’t matter where it goes from there. And I think that was even in the original Wealthy Barbers. You know, set your savings allocations and targets, and then spend the rest and I don’t care where it goes.
Jackson: I’m going to jump in and just say that personally that would not work for me. I mean, the reason that I have had a really hard time with budgeting is because of lying to myself and compromise. If you’re setting fictitious rules, it’s pretty easy to just break them. For me, even where I know where my money is spent, I like spending my money like that. I don’t want a budget to tell me that I can’t go have another coffee. Screw you budget!
That’s just the natural reaction. You just kind of feel like, “Who are you to tell me how I’m gonna live my life.” And it’s a budget. It’s not going to talk back.
But it’s like I kind of always thought dieting and budget are very, very similar. Did you ever notice that people always start diets on a Monday? It’s because they want to just absolutely crap out on the weekend and eat whatever they want. And then it’s like on Monday I’m going to start this diet. It’s like budgeting is the same thing. Everyone wants to start budgeting on a Monday because you’ve blown your money on the weekend. You know, you’ve gone to the casino, or whatever you do. But it’s the emotional for me, and it’s the lying to yourself. Budgets give you accountability where you’ve gotten on otherwise, and I think it’s just that it’s an ugly cycle of “don’t tell me what to do”.
So why do people give it up? Probably because it’s not emotionally satisfying, unless of course you can find ways to make it emotionally satisfying. I’ve actually been using FreshBooks for my business accounting, and I’ve been keeping really diligent track of my receipts, which is just not necessarily like me. Sandi’s loving it. Sandi’s been working with me for about a year now, just trying to get me to do things properly, but I’m actually tracking it. I’m getting excited about putting numbers in, because it gives me the nice little pie chart, and I can see it, and it goes “Yeah, you’re doing this. You’ve made money.”
I like it when I make money. And I like it when I can minus my expenses and I still made money. So yeah, it’s getting emotionally invested in the process where you’re not just hating life because your budget’s telling you what to do.
Robb: I like the point you made about the dieting and the Monday. And so it’s going to lead into in a couple of weeks here, New Year’s resolutions. So what are some of the New Year’s resolutions you’ll always hear? I’m going to quit smoking in the new year, I’m going to start my diet in the new year, I’m going to go to the gym in the new year, and I’m going to start taking my finances seriously in the new year.
So again, in January you’re going to have all these people wondering where do I start? I’m going to start tracking my spending and then, “Oh man, this is really boring or tedious and I’m going to go back to my old habits”. So how do you get kind of “hooked” on budgeting?
I don’t know, Sandi you talk to your clients about tracking their spending. How did you get Jackson to start using FreshBooks and track his business receipts?
Sandi: I’m going to give you the five-finger rule. [holds up five fingers] I totally lifted this from my father. The first thing you want is clarity [gestures to first finger]. So what exactly are you spending your money on, obviously. And then over here [gestures to fifth finger], then you kind of get to the end and go to outcome. What outcome are you looking for? Do you really want to control your spending? Frankly, a lot of people don’t. They want to feel like they are, but they also want to feel like they can spend whatever they want.
So after you talk about your outcomes and what’s actually happening, you take ownership [gestures to second finger]. So you actually say, “if I want this outcome and I start with these beginning circumstances, I have to own what comes next?”
Once you own it, you set up a system [gestures to third finger]. And once you set up a system, you watch that system [gestures to fourth finger] and you adjust it to make sure that you’re on-course, or it’s not working for you and you do something else.
And you always have to jump between all of them. You always have to keep clarity, keep taking ownership, keep working with your system, keep adjusting if you need to, and keep your eye on the outcome. There’s my five finger rule.
Robb: I like that. And once you do take ownership of it, or I guess you convince yourself that you do want to change, what are some of the tips you can give to actually take… Say you start tracking your spending, because you do want to get a handle on your finances. You do like spending on certain things; others you can live without. What is the next step to actually putting your budget or your spending summary into action that’s going to help you? And so is that just about choices? Is that about saying I’m okay with this, but I am going to spend my money building—whatever you said, Jackson—on Minecraft, or whatever you’re playing.
Jackson: Oh yeah, Clash of Clans. Yeah, you can waste a lot of money. I mean, in app purchases are a $50 billion industry. I read that somewhere. Whether or not that’s true. I mean I don’t let the facts get in the way of a good story.
Robb: And I find it in my own situation, where I would get… So I’m doing the budgeting because I’m the money nerd, and I’m doing the spreadsheet. And so I’d find myself getting upset that we were spending our money on, “Oh why do we need that home décor item” because I don’t care about that, but my wife does care about it. But then she’ll say well, “Why did you buy that case of beer?” Like it’s the same. To me it’s not a big deal, and to her that purchase wasn’t a big deal, so where do you find that common ground to say these are the things that we’ve agreed upon. I guess that’s just about sitting down and making those goals together?
Sandi: Yeah. I mean, couple money is almost a whole other ball of wax, because if I am really into the money, if I take ownership and everything’s clear, and I have a desired outcome, boy–what’s gonna happen if my spouse doesn’t?
I remember seeing a thread like that, on Reddit, not too long ago about a husband saying, “I’m trying to get my wife to budget and she just won’t.” Well, you can’t. So if you both want to take control and it’s just a question of “how are we going to negotiate the amount of discretionary spending that we have between each other?” that’s a pretty simple answer. If only one of you wants to budget, then you’re really into the complicated stuff.
But budgeting isn’t an end to itself. It’s not like you’re going to win a game if at the end of the month you only spend $17.50 on discretionary items and you saved all the rest of your money. There has to be some kind of balance between how you want to spend your money now, and as a couple how you want to spend your money together, and then how you want to spend your money later. But I can’t tell you what that balance is. [laughs]
Robb: Well, it’s very interesting, going back to the psychology of it. And I remember reading something by Carl Richards—and that’s the sketch guy and The Behavior Gap author—and he said “My wife is into interior design and whenever she started talking about this great kitchen that she saw or this picture that she found in a magazine, I’d find myself naturally getting upset and getting my back up about ‘Oh, she’s gonna want to renovate the kitchen’ and whatever.” And finally his wife just said, “You know, look, we’re just talking about something cool that I saw, and it doesn’t have to be about spending.” So I guess it is a tough balance when it’s couple money, especially if one person is kind of doing most of the budgeting or the tracking, is making sure you’re on the same page.
Sandi: Yeah. I think almost every couple that I’ve ever worked with if they’ve never really done that work together before, they have a perception of how the other person spends money that may or may not in fact line up with reality. And might be clouded much more by the perception of how often that person folds the laundry or does all the other stuff, right?
I mean, I’ve had that in situations where one member of the couple will say, “Can you make sure to let him know that he’s spending way more than I am.” You know what I mean? So if you’re not going to be clear about that together, I don’t think you’re going to get very far in lots of ways.
Robb: And you’ve been doing the Fee Only Planning for a couple of years now. What percentage of your clients would you say, before they contacted you, were tracking or were using a budget?
Sandi: I would say—like actually or just say that they do?
Robb: Well, not giving you the round numbers.
Sandi: Oh yeah, I would say that about 60% of my clients have never really used anything except for round numbers. And about 40% know exactly how they spend their money, down to like “my after tax is this, and I put this into CPP”. Like in May or June I’m not going to be paying CPP anymore. Those people are right on the ball. But it’s a little bit less fun to work with them because then I don’t get to dig into their money as much.
Robb: So is that the first place you go, or one of the first places you go?
Sandi: Always. Always cash flow. To me, a financial plan doesn’t make much sense if it’s not related to how you’re going to go out and spend your money tomorrow. That’s your finances. It just happens to be a really short-term part of your plan.
Robb: And it’s true. When you finally look at those numbers and again we go back to the basic tenets of personal finance, and spending less than you bring in, so that you can save for the future or save for your goals. Well how do you know that? You know, I bring in $5K a month and I spend $4K, but unless you really–do you really spend $4K or is it closer to $4,800?–unless you really know that, it’s hard to make those goals and say “okay I’m going to put $500 a month into my RRSP, and then I’m going to set up a monthly contribution to do it, so it’s automatic off my paycheque. But then there’s no money at the end of the month, or I’m actually in overdraft because my goals were out of whack because I’m not really tracking my spending or have a good handle on my cash flow.”
Sandi: Yeah, see, and that’s showing your work principle. So let’s go back to that question that you asked. So do you agree that it can work if you just saved 10% off the top — I think the safe savings rate is 16-1/2%. Do you save 16‑1/2% of your income, and who cares how you spend the rest of it?
Well in a way, yes, it can work. If you were naturally–if the margins that you have allow you save, or you’re a naturally frugal person, like John Robertson was telling me he is. I asked him about this topic, in an email. He said he’s just naturally frugal. It doesn’t really matter how you kind of work the numbers, if in the end you’re saving enough and you’re living okay, and you’re not going into debt. Well you’re doing something, right, so does it matter if you know down to the penny how much you spend on grapefruit last month? Probably not.
But this is kind of a paradox, in a way. You don’t know that until you’ve actually gone to look at how much you spent on grapefruit last month. For some people you go through the process, but it means you end up not changing very much, you’re fine. And then you don’t have to do it anymore, or you make a few tweaks, and then you move on. That’s not as many people as I think–I think fewer people are actually like that than believe they are like that.
Robb: And maybe they’re just earning at a high enough rate that it doesn’t matter. I mean, that could be the case too, right? You know, you have two incomes and no kids at home. Like who cares, really? At the end of the day you don’t have any debts and you’re bringing in $10k a month, and you think you spend $2,500. Maybe it’s $3k. It doesn’t really matter.
Like you talked about the jars and the cash flow and we talked about people who just start out and they need to track their spending and find those money leaks. And then you kind of move on to maybe a little more forward thinking, “Okay, well how can I put this plan into action” and “I’m spending too much here, so what does that mean?” and “If I cut back, where can I allocate that money?”
So what’s the next step? Do you ever graduate to “I don’t need to do this anymore”? Is that the end game for anyone?
Sandi: I’m sure there are a lot of people that don’t have to. I mean, your mom just wrote an article not too long ago about how she doesn’t really do that anymore. She doesn’t budget really, anymore. But she does. I mean, it just depends on what your time horizon is. So you mom budgets on an annual basis. And other people might be in such a groove of how—like John was saying that in his email too—I know how much I spend. It doesn’t really vary, so I don’t really need to go in and do the work because it’s always going to be about the same.
I mean, there’s a piece of me that goes, “Well what if something changes and you don’t really notice until it’s too late to correct?” right. That’s always my big fear, but you don’t know until you know. But I think you’re right. Yes, you can graduate from it.
Robb: And maybe the natural progression is you graduate from tracking the minutiae of every single transactions to the penny, to okay well I get that now and I’m going to make that on my annual budget. I’m going to just know that I stop paying CPP contributions in May or June, so I have extra money. What am I going to do with it? And I have house insurance due in August. I’m going to make sure I have that money set aside. And it’s those things you’re keeping an eye on rather than, “I think I’m spending a little too much money on coffee this month.”
Jackson: I think it’s basically, it becomes a discipline, like anything else. It’s like karate; if you’ve got a white belt, you have to pay attention to every small detail. You have to pay attention to where you’re going. Not that I know karate, but I mean if you’re doing karate at a white belt level, and you put a black belt right next to them, the black belt looks way better doing the exact same thing as the white belt. And it’s because they’ve gone through the process. They’ve graduated through the steps. So as long as when you’re starting out, you do have to know what you’re doing. You have to pay attention. You have to learn about learning. You have to learn what it’s like, so that you can graduate into the spot where you’re handling it at a mastery level, but that’s because your experience dictates this is the history. But if you don’t have the history, you don’t have the foundation, you’ll never be in a spot where you’re able to understand it at such a depth that you don’t need to allocate so much time to it, is what I think you’re going for.
Sandi: That’s an excellent analogy. It’s money muscle memory.
Jackson: There you go—it’s like karate and social media. I wrote a post called “How Karate’s Like Social Media”. That’s why I thought about that.
Sandi: I remember that post. It’s still an excellent analogy.
Robb: So should we leave viewers with some tools. If you’ve never budgeted before, where should you go? Should you be downloading Mint to your phone? Or where can you find a spreadsheet to start tracking your spending and projecting your income and expenses, going forward? What are some of the tools that we use?
Sandi: Obviously I speak spreadsheet, but to me, the first tool that you want is the tool that you have in your bank transaction records. So find out how you spend that money. So that might be—I mean, Mint can download 9-13 months of those transactions, right?
Robb: But all it’s really doing is just pulling from your bank. So your bank has that. They have a statement of the money that you spent. Your credit card is another one, where it’s going to detail every transaction that you purchased, for the month.
Sandi: Well why don’t we do what we did with the Cen$ible Students episode? Why don’t we come up with a resource list? And it could just be basic—Mint is here, YNAB is here, here are a couple of different spreadsheets that we found, or a couple of books that walk you through it. That might be useful to attach to this.
Robb: Absolutely. Because you want them to know where to go, and so is it just me making up my own spreadsheet and going along. Well no, there’s lots of free tools out there. There’s paid software that can do it a little bit better, more in detail. And we can absolutely list those and give people the options of where they can go.
Jackson: I can speak from personal experience and say just because somebody recommends something or something works for someone, doesn’t mean it’ll necessarily work for you. When I started budgeting, I kind of started on my own. I went, I looked, I found somebody’s spreadsheet, and I looked at it and said, “Well this is stupid. This is just stupid. I don’t like this.” And it was a couple of days later when I realized, like I almost gave up budgeting entirely because somebody else’s spreadsheet was stupid. But I think that’s what we kind of get. People who blog or they write and they say “This is what’s worked for me. This is the only way you could possibly ever budget”. That’s what we read, when it’s really more like, no, if you can read, learn about it, take one good action point. What works for you. Then learn more, take another action point.
It’s not like you’re ever going to arrive, so just learning, keep working at it. Actually Sandi, you’re the one that kind of brought that to me. You gave me the spreadsheet. You kind of helped me look at stuff, and then it’s like you didn’t give me something that I had to do. You gave me some tools and to help me figure out what worked for me. And that was beneficial to me, and it’s more of a process than it is an end game.
Sandi: Very well said. Wow, Jackson!
Jackson: Hey, I’m learning something. Because I’m not there. Like it’s funny: we’re talking about budgeting and I kind of feel like a bit of an imposter, because I haven’t nailed it. I’m really working at it. I’m trying to record stuff. I feel like I’m kind of middle belt, where I’m like “Oh crap, that should not have happened. I should have seen that coming.” But I’m learning for next time. Gotta make sure that I don’t get messed over there again, but it’s definitely a process, and I’m figuring out my own game plan.
Robb: Well that’s one of the reasons why it’s so exciting for me, still, is that our expenses keep changing every year because of new kid or changed job, or whatever. Our expenses keep changing, and so we haven’t reached that point where I’m 50-years-old and my expenses have been the same for 10 years, and so it’s just automatic. It’s not like that yet, so that’s why I guess it’s still exciting to track it and project it forward, because it’s always changing, and so I want to stay on top of it to see how it evolves.
Sandi: And I think that just exactly that point, and Jackson’s as well. I think that that got to be the biggest reason people give up is that it changes or that somebody else’s system doesn’t work for them, and it’s so frustrating because you just think it should. I think if people can power through that and accept the fact that mistakes are going to happen–I mean, you don’t just start budgeting and then all of a sudden you’re a black belt, right? Excellent analogy, so excellent. So if you don’t forgive yourself for the mistakes, and then move on and learn from them–that’s a life lesson, right there–give up on budgeting now if you’re just going to give up at the first sign of trouble. Don’t bother. Don’t bother starting. [laughs]
Robb: And with that…
Sandi: With that word of encouragement. [laughs]
Robb: Don’t bother.
Jackson: That’s it. We’ll write the resource list, so thanks Sandi for volunteering for that. I’m going to say good night, and thanks everybody for 2014. It was great hanging out with you, and we’ll be back in 2015 with, I guess, Episode 26 of the Because Money Podcast. Good-bye.
Resource List << As Promised
I’m a massive advocate of the easiest, laziest, more awesome budget hack: Yank your savings from the top and go wild with the rest. Here’s how it works:
-You get paid. (Yippee!)
-You instantly pull your savings from the top. Set up automatic transfers into a combination of savings, investment and retirement accounts.
-Force yourself to live on whatever is leftover.
Knowing how much I earned and spent on a monthly and yearly basis helped me catch those needed Zzzzs and find my financial way. If you’re losing sleep over missing moolah or can’t account for your expenses, then getting on track with a budget may be the secret to a six-figure slumber. Ka-ching!
The point: Learning to live within your means is discipline you have to practice. Financial catastrophe always strikes, and having the necessary skills already mastered will mean the difference between dealing with it and moving on or being overwhelmed and giving up. "I'm getting by. The bills get paid.
The feeling of not worrying about your next credit card statement, or the sense that things really, truly are going to be fine and it's not just blind hope or dumb luck that will make it so? It's fantastic, and it's worth the work. Trust me.
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My Uncle Ted is certainly not someone you would want to mess with As a 330 lb out of shape kid who preferred video games to hard work, "disciplined" was not really a word used to describe me. In hopes of changing this, I asked my Uncle if he would teach me karate.