Are you in need of a budget, but don’t know where to start? Listen to this week’s episode! Josh and Austin dive into all things budgeting including who needs one, getting started, different systems, and much more. They also share their own personal experience with budgeting. Listen now to learn more!
Main Talking Points
[1:24] – Budgets & Who Needs One
[2:58] – Getting Started with a Budget
[9:34] – Dad Joke of the Week
[10:06] – Bucket System
[16:52] – Expected & Unexpected Events
[21:42] – Credit Cards
[24:54] – Josh’s Way of Budgeting
[26:51] – Austin’s Way of Budgeting
[32:28] – Non-Steady Income
Links & Resources
The Everyday Advisor – The Financial Advisor Without a Budget
Money Under 30 – These 4 Steps Will Teach You How To Budget
Invest With Us – The Invested Dads
Free Guide: 8 Timeless Principles of Investing
Social Media
Full Transcript
Intro:
Welcome to the Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.
Austin Wilson:
This is the story of a girl, ran a river and drown the whole world.
Josh Robb:
Is that Blink-182?
Austin Wilson:
Why she looks so sad in photographs?
Josh Robb:
Avril Lavigne?
Austin Wilson:
Absolutely love her when she smiles. No, it’s not.
Josh Robb:
Taylor Swift?
Austin Wilson:
No it’s not. It’s before all of that. This is, I don’t even remember what it was, but-
Josh Robb:
Tim McGraw.
Austin Wilson:
Tim McGraw, George Strait. All right. Hey, hey, hey, welcome back to the invested dads podcast, a podcast where we take you on a journey to better your financial future. Today, we are going to talk about one of Josh Robb’s favorite topics.
Josh Robb:
That’s right. Donuts.
Austin Wilson:
No donuts.
Josh Robb:
Oh, come on.
Austin Wilson:
No, but maybe a close second to donuts. We are going to talk about something that has a bunch of zeros in it, typically. So that’s budgeting.
Josh Robb:
Budgeting.
Austin Wilson:
So yeah, let’s kind of start at 50,000 feet and work our way down. So Josh, as a financial advisor, the financial advisor in my life, the guru… He wears robes and is…
Josh Robb:
Ponder, always looking off in the distance pondering.
[1:24] – Budget & Who Needs One
Austin Wilson:
He’s the Gandhi of the financial world over here. What is a budget?
Josh Robb:
Well, we probably shouldn’t have even told people what we’re talking about, because we probably lost half our audience.
Austin Wilson:
I know. Dropped off.
Josh Robb:
That’s going to be one of the things we are talking about is the frustrations with budgeting and how only one out of every three people even tries to budget. So what is a budget? A budget is a planned future expenses comparing to future income.
Austin Wilson:
Wow, that’s deep.
Josh Robb:
I know.
Austin Wilson:
It’s like the future.
Josh Robb:
Oh man. Looking forward. So when you’re creating a budget, you’re projecting future cash flows, if you want to use our accounting terms. But you’re saying, “Okay, I know, or I expect, to have X amount of dollars come in. And then I want to allocate them towards different future expenses that I anticipate happening.” So really, a budget is saying, “I’m making X dollars and I’m going to spend it on X amount of things.” Simple.
Austin Wilson:
So I guess, take a step back. Who needs a budget?
Josh Robb:
So who needs a budget? From a high level, 50,000 foot, everybody needs to be aware of their income and spending. How detailed and in depth, that really varies. So everybody needs some sort of budget. What it looks like will be different for everybody.
[2:58] – Getting Started with a Budget
Austin Wilson:
Everybody. Yeah. What works for you, as we’ll get to at the end of the episode, and what works for me are not the same, but we all have kind of a… There’s some general things we can talk about here. So yeah. Yeah. It’s all about balancing what you know is coming in to what you know has got to go out. So let’s talk about maybe some different ways to budget. So how would someone get started saying, “Hey, it’s new year, right? It’s January. Let’s start this year out very strong with a new budget.” So let’s talk about it. How do you start a new budget?
Josh Robb:
Yeah. And it really, again, Austin, depends on how do you think about and how do you approach your spending? So we work with a lot of clients here and everybody thinks about it differently. And so I’ve seen everything, from someone handing me a handwritten piece of paper across the table saying, “Here’s our spending,” to someone sending me an Excel sheet, to others printing out a report from a program, because each of them approached it differently. So there’s different ways of budgeting. You could do one on paper. And if you’re in a pretty simple, straightforward, you don’t have a lot of differences, a lot of unknowns, a paper budget’s pretty easy. You just start at the top and say, “Okay, I’m making $1,000 a paycheck. And then I have my rent due and I have some food and I have utility bills and my insurance payment.” And you just kind of write your way down to the bottom and what’s left. And so paper’s easy.
There’s a lot of free worksheets out there that you can download and use as your budgeting template. If you want to step it up another level, you can use Excel. And I say Excel. Any kind of spreadsheet, Google Docs is out there now, a lot of people are using that. Whatever it is that you use, the Excel version of that, whatever the spreadsheet is, you could put it in there and use formulas so you don’t have to do the math yourself.
Austin Wilson:
Oh, I love me some formulas.
Josh Robb:
Formulas are great. So you can have even simple things like summing up things, so you don’t have to do the addition yourself.
Austin Wilson:
A little pivot table action.
Josh Robb:
No pivot tables in Excel. For budgeting, you shouldn’t be… I don’t know what you’d be-
Austin Wilson:
You’d have to have a lot of expenses to make it worth your time.
Josh Robb:
But Excel can be useful because not only can it be used for formulas so you don’t have to worry about making a mistake in your calculations on a calculator, it can also be used because you can track it historically and have it all at one spot. You can have tabs for each year and see things as they change. There is, and we’ll talk about some of these systems coming up, but there’s systems in the sense of like a program, a process you can use for budgeting. So we’re talking about actually just writing it down. But if I want to implement it, there’s what’s called the envelope system, which is-
Austin Wilson:
Oh, I’ve heard of this one.
Josh Robb:
Yeah. So back in the day when people held cash-
Austin Wilson:
What is cash?
Josh Robb:
Yeah, I know. It’s weird.
Austin Wilson:
Like Bitcoin cash?
Josh Robb:
They would actually physically put dollars and change into envelopes. In each envelope, you would write on what the purpose was. So if I was going to spend $100 on gas, I would put $100 in the envelope. And any time I went to the gas station, I would pull that envelope out and use that money to spend on it. When the envelope is empty, I can’t do it anymore.
Austin Wilson:
Sidebar. We’re getting back to envelopes. Is it envelopes or envelopes?
Josh Robb:
Envelopes.
Austin Wilson:
Why?
Josh Robb:
I don’t know.
Austin Wilson:
Is it enchilada or enchilada?
Josh Robb:
For what?
Austin Wilson:
How do you say it?
Josh Robb:
Before you eat or after you eat it? Past tense or future tense?
Austin Wilson:
Past tense, you don’t want to think about what it is.
Josh Robb:
The enchilada is good, the enchilada is not.
Austin Wilson:
So why is enchilada any different than envelope?
Josh Robb:
I don’t know.
Austin Wilson:
I don’t know. This is just ketchup and catch up.
Josh Robb:
Catch up, ketchup.
Austin Wilson:
Man, Josh, we talk a lot, so I’m finding all of your isms.
Josh Robb:
All my little words.
Austin Wilson:
All your isms stuff, I’m figuring it out.
Josh Robb:
So you like envelope.
Austin Wilson:
I’m an enveloper. So yeah, the envelope system. And that’s kind of something that Dave Ramsey made famous. He made it cool to be the envelope guy.
Josh Robb:
Yes, so he was big on that. And so now we’re in a little bit more of a digital age. Now there are programs that use the same envelope system-
Austin Wilson:
Envelope.
Josh Robb:
And you can then digitally earmark the things to the different-
Austin Wilson:
Yeah, it comes out of the bucket.
Josh Robb:
Yep. And that is one of the zero-based budgeting systems. So from a higher level, zero-based budgeting is just saying, “I’m going to start with my income, have every dollar of that income for a purpose. So when I get to the very bottom of my sheet, whether it’s on paper, in Excel, using whatever, my system, it’s zero at the bottom.” Zero-based budgeting is I spend every dollar on something. Even if it’s saving.
Austin Wilson:
Yeah, even if you’re not spending it, you’re putting it somewhere. Every dollar has a name. I think that’s what Dave Ramsey says.
Josh Robb:
Yes, has a name or a purpose. So that’s one. There’s the bucket approach. And we’ll talk about that in a little bit. It’s one of the ones I like, where you, instead of having an envelope for each thing, the larger categories have a catch all bucket. And so my spending’s just more broad from that standpoint. And of course, apps.
Austin Wilson:
Yeah. It’s 2021, right?
Josh Robb:
Yep, 2021.
Austin Wilson:
Wow, that’s taken some getting used to. Yeah, so nowadays, you go into the app store anywhere on your phone or maybe you walk into one. I don’t know how you would, that’d be really difficult. Yeah, what’s a store anymore? You get on your phone or your iPad, or even your computer, you can log in to certain things and you can find things, like Intuit is a company that makes QuickBooks and all that, but they also have a free budgeting software slash all kinds of things software called Mint. And that’s kind of something like that. There’s one called You Need a Budget.
Josh Robb:
That one I think you pay for.
Austin Wilson:
Yeah, I think it is. And I think I had one back in the day called Home Budget and I kind of liked it, but it was super manual.
Josh Robb:
Yeah. So then depending on what you do, there’s a lot of free ones out there. There’s some that you subscribe to, they all offer different services. A lot of the ones, especially ones you subscribe to, have some sort of automatic pull in of your transactions. You link accounts and it will actually sort them for you. So the benefit is I don’t have to go back and designate, “Okay. This one was spent for X category.” So there’s a lot of good ones out there. And so those are all, from a high level, ways of getting it organized. So when you have a budget, you need some way of setting up for the future expenses in income to say, “Here’s what I’m trying to do.” Then you take that budget at the end of the month and say, “How did I do?” And then each month, you reconcile that. “Okay, do I need to make adjustments? Was I good? Too high here? Too low there?” Those types of things.
Austin Wilson:
Yeah. And you obviously can’t change what was in the past. So what you’re doing is looking at it and saying, “Hey, my eating out was a little over. I’m just going to keep a better eye on that next month, plan ahead, and see if I can hit that the next month.”
Josh Robb:
Or, “I ate out more, but spend less on groceries. I’m going to rearrange those two budget amounts so that they better equal what I’m actually doing.”
[9:34] – Dad Joke of the Week
Austin Wilson:
I love food. So those are the budget busters right there, for sure. Hey, guess what Josh?
Josh Robb:
What’s up?
Austin Wilson:
I got a dad joke of the week for you, and if you know this one, I’m going to be really mad, but I hope you really laugh. This is a live reaction.
Josh Robb:
Live reaction. I haven’t heard this one.
Austin Wilson:
I have COVID shield up. Not going to get spit on here.
Josh Robb:
I will be rubbing off-
Austin Wilson:
Right. So Josh, what do you call a fake noodle?
Josh Robb:
A fake noodle. I do not know. What do you call a fake noodle, Austin?
Austin Wilson:
An im-pasta.
Josh Robb:
Im-pasta. I like it. I like it.
[10:06] – Bucket System
Austin Wilson:
So that is the dad joke of the week. Let’s get back to everyone’s favorite topic, budgeting. So a simple way to budget. So this kind of goes back to your jam that we talked about earlier, a bucket system. Let’s talk about that bucket system a little bit.
Josh Robb:
Yeah. So again, there’s all different ones out there. I’m just throwing out. This also includes, because a lot of times we get the question, “Well, how much should be in each category, each bucket?” And again, it varies per person and where you live. What I say works for us here in Ohio is a little bit different than someone in New York or Los Angeles or somewhere in a big city. What I spend on my home mortgage is way different than what someone has spent on a home or a rent of an apartment or whatever in those places.
Austin Wilson:
But on the flip side, incomes generally follow. So also in those big cities, your proportions may be a little different, but your income may offset some of those extra spending. It may not also, just could look very different.
Josh Robb:
You may pay more for that, but you also don’t have a car. There’s all these different things. So yeah, it does vary a little bit. So one of the reasons why I like this bucket approach is it gives you kind of the broader category, then within there, gives you some flexibility. So it’s the 50, 30, 20 rule.
Austin Wilson:
This is a lot of numbers.
Josh Robb:
I know, but if you add those up, it equals 100%. So first off, were already set. We’ve got 100.
Austin Wilson:
Okay. 100. So it’s kind of a zero-based budget.
Josh Robb:
It is. And so 50%, the big one, 50% is for your needs.
Austin Wilson:
Now this is of your after tax take home pay.
Josh Robb:
Yes. So what you do is you start your gross pay is everything you get right away before anything is taken out. So that’s the word gross pay. Then you subtract out your taxes. All right. So that becomes your net pay, net after taxes. Now, if you have health care or your 401k contributions automatically taken out of your paycheck, don’t look at what you get as your deposit into your account, look at what your net is after taxes.
Austin Wilson:
Count your retirement savings and your health care as expenses.
Josh Robb:
Correct. Yes. Because you want to include this because that’s part of some of these buckets. And so, again, let’s say, you have $1,000, and you have 10% withheld. So that’s $100. So your gross is 1,000. Your net pay is 900. So just from high level, that’s using those numbers. So then you would say, “Okay, I have $900. And so then I need 50% of that, or $450, is in a bucket for my needs.” So that would be all of your, what you would call, essential stuff. So mortgage or rent, insurance, utilities, all those things that have to happen. All right? So those are all in there. Healthcare, all that’s 50%. 30%-
Austin Wilson:
$270.
Josh Robb:
$270. Thank you. You probably knew I needed that help.
Austin Wilson:
I looked at up with my phone, because I knew that would be… Because you didn’t… Yeah, the gross to net number.
Josh Robb:
And it worked out.
Austin Wilson:
Okay. $270, 30%.
Josh Robb:
That’s my wants. So those are the things that are the little-
Austin Wilson:
Those are the fun things.
Josh Robb:
And they’re a little more flexible month to month.
Austin Wilson:
Discretionary.
Josh Robb:
Discretionary. It’s a great word for it. So that would be gas for my car, because that’ll vary. It’s not a need, it’s how far I want to drive. Food costs, entertainment, travel, all those things that kind of are just up to my… Gifts, all those things are in that 30% bucket. And again, depending on where you’re at throughout the year, vacations, those things, it’ll change what you’re spending it on. Then the final is 20%. 20% is $180. That’s for saving and paying off debt. All right? So 20% in today’s day and age, that’s kind of the new target of what you want to be saving. They used to say, “Save 15%.” It’s now closer to 20%. Just people are living longer. You need to have more saved. So that’s kind of the number. But especially when you’re younger, you’re going to be splitting that between savings and paying down debt. So if you have student loan debt, your mortgage, if you have one-
Austin Wilson:
Your mortgage goes into that bucket.
Josh Robb:
Your mortgage? Well, if you’re going to pay extra for paying down the debt.
Austin Wilson:
Gotcha. So your normal mortgage payment will go in the needs.
Josh Robb:
Yes, that’s your needs. So it’d be the same as rent or whatever. But if you’re saying, “You know what I would like to be debt free,” any extra payments are coming out of that bucket. Student loans, like I mentioned, credit card debt-
Austin Wilson:
Auto loans.
Josh Robb:
Auto loans, all those things like that. And so you’re kind of playing this game of that 20% of, “Okay, some of my debt is required. Some of it I’m going to have to just take out of there.” What’s left, some of it needs to go to savings, some of it needs to continue to pay down that debt. And it’s just a balance between the two. If you have pretty low interest rates on some of that stuff, it may be better to do some savings, especially when you’re young. We’ve talked about compounding how great young people’s compounding is.
The potential for each of those dollars is huge. And so you balance those two. Talk to an advisor about what makes the most sense, but that 20% what that’s for. So you notice we didn’t talk about, well, how much should you have for your food costs? Like a percentage? Now there’s stuff out there, and we debated whether we should show those, because there’s kind of an industry norm for some of those. But from a high level, really, if you love food, and you’d rather spend some of your extra spending on just some great food and you said, “I’d rather do that than-”
Austin Wilson:
Have any entertainment, or low.
Josh Robb:
To us, I’d rather spend an evening cooking and going to the movies, fine, do that. I’d rather these bigger bucks then let you decide where to go.
Austin Wilson:
Well, your budget, at the end of the day, when you look at it, it should really reflect your values. And so if something you really value is making a nice dinner and eating dinner with your family at home, your grocery budget’s probably going to reflect that. Where maybe you’re young and traveling, or you have a very active social life, your budget for eating out or whatever is probably going to reflect that as well, or going to the movies or whatever. So your budget is going to reflect what you put value on.
Josh Robb:
Yeah. And it’ll change.
Austin Wilson:
Oh yeah.
Josh Robb:
Some of the needs for my family right now, there’s some school costs involved. That’s a need for our family, but that will only last for so long. And so there’s different things that come and go.
Austin Wilson:
Until they’re 28 or 30, probably.
Josh Robb:
Depending on how long they go.
Austin Wilson:
But PhD in basket weaving.
Josh Robb:
Yes. That would be… There’s a lot in there that changes and varies. And then the savings too. Do we save some for college? Is that part of that bucket as well? So from a high level, that’s, again, a basic form of 50, 30, 20. Now again, you have people out there say, “Well, that’s great, but I want to retire early.” Well, maybe that 20 is closer 40, and you’re taking a little bit out of some of the other buckets. I’m going to really cut down on my expenses where I don’t need half of my net pay to go towards my essentials. I’m really fine tuning some of those costs down. So again, it really just comes down to what are your goals, where you’re at, but that’s a good starting point.
[16:52] – Expected & Unexpected Events
Austin Wilson:
Right. So I think a wild card with budgeting, especially with some of the zero-based budgeting thinking, is that life happens. Crap happens. Your car breaks down, your house basement floods, your water heater goes out. These are big things that can happen in the blink of an eye and can be very, very expensive to count for, especially in a monthly budget, where you’ve already got all your dollars given names to and things like that. So it can be a real stress, right?
Josh Robb:
Yeah. Honest story, I used to, back in the day, use an envelope system. I’m getting there, I’m trying, Austin. Envelope system where I would go to the bank, have the cash withdrawn. It was a lot of work and-
Austin Wilson:
You’re carrying around a lot of change in that envelope too?
Josh Robb:
And I didn’t want to carry all that cash everywhere, so I’d only try to bring the envelopes that I thought I would use. And so long story short, you saw yourself taking from certain envelopes when an unforeseen thing came up, you had to pick and choose. Where I going to draw this from? And so yes, when every dollar has been given that purpose and has been earmarked towards something, if something pops up that you didn’t plan for, you’re scrambling around to find money for that. And so that’s been a lot of people’s biggest problem with the budgeting system is, I just run out of money and I don’t know what to do.
Austin Wilson:
Yeah, so how you plan for that is you actually plan for that. So for example, I’m going to get nerdy. So I spent some time in accounting in my earlier career and we did things that were called accruals. And I do things like that in my personal finances, which is crazy. But if you know, obviously, there is a reason to have an emergency fund. So that is another topic for another day, but it is very important to have a set number of months or whatever of living expenses put away just in case something happens. But this is for things like, think about things like car insurance, think about things like your property taxes and your house insurance and your yada yada. These big items.
Josh Robb:
We just had a big holiday.
Austin Wilson:
Christmas.
Josh Robb:
Which we spent some money on. And so that should not surprise anybody.
Austin Wilson:
It happens every year.
Josh Robb:
I could tell you, I already saw it on my new calendar, 2021. It actually happens December 25th this year.
Austin Wilson:
Again?
Josh Robb:
So you can start planning for it.
Austin Wilson:
Okay. That’s good.
Josh Robb:
So I say, “Okay, I want to spend X amount of dollars on Christmas, divide that by 12. And that’s how much each month I need to set aside.”
Austin Wilson:
$500 is 60 bucks a month.
Josh Robb:
Yes. So that’s, like you said, property tax. I know that comes up. That’s going to be paid. And it’s a big chunk of money. If you pay it once a year, semi-annually on the two time payments, divide it and put once, every month, a little bit away, so that when that comes up, that’s perfect. And that solves those known variations. Now the unknowns, my car gets a flat tire, those types of things, that’s where each month I’m putting a little bit aside for those unknowns. And again, the emergency fund is for emergencies. These types of things are kind of the next level of, these are just the unknowns. Not really emergency, it’s just a, I’m not sure what I’m going to need it for, but I’m going to need some money for something.”
Austin Wilson:
Build in some buffer.
Josh Robb:
Yes. There’s a cushion there into the plan. So, for instance, I have an emergency fund savings account that’s a little bit more high yielding. And then I just have a savings account that I just drop some money into that could be used for whatever’s needed. It’s just kind of a floating thing. And it just is there for whatever. So yeah, that’s the plan. That’s the biggest pet peeve I have with budgets is, the people who go gung ho and you get to near the end of month and they’re right on track for everything, something happens near the end of the month, there is no money there for it if you’re putting every dollar away. Then you are forced to tap in the emergency fund. Then you’re stuck trying to repay that, finding money to do that. And then it’s a mess.
Austin Wilson:
So in today’s world, it is very easy and usually free to open up accounts. So at your usual bank that you do all your other things for, you could very easily walk in or do it online and open up another savings account just for what Josh is talking about. And then you can set up automatic, just little chips here and there. Or you have a couple of extra bucks one time, boom, chuck them in there. But the key for, really, a lot of this for me is, and this wasn’t the case a long time ago, but the key that we can do now is set up recurring anything. So make that little bit of savings to your emergency fund or that little bit of savings to your savings account for other things, or your a little bit of savings for Christmas, or car insurance or whatever, divide all that, what you’re going to spend out over a year, plus a little buffer, and then just set it up to send 50, 100, $200 a month, whatever you can swing, into that account, so it’s there waiting for you when you need it. Automate things.
[21:42] – Credit Cards
Josh Robb:
Yep. So another thing we could talk about is… So this is great. We’re talking about budgeting. So when you put it into reality, you put the spending in there. How does that look? Because for instance, we use credit cards. And you know I’ve talked about this. We had an episode on credit cards, that you can check out in the show notes. That is talking about what we thought of them, but we’ve discussed in the thing, we both use credit cards. We pay it off every month. So putting this into practice, I’m budgeting.
I don’t have an envelope for my credit card. But I’m checking the balance and I’m tracking. So if in the month spending, I want $1,000 by the end of the month, and it’s the 20th and I have 800, I know I got 200 left. I better be careful, watch that credit card, watch what I’m doing. And so again, you can use that credit card to help with the budgeting. If I know what my balance should be each month or pay period, or however you want to break it down, you can use that as your checkpoint. And it’s a lot easier, because it’s all in one spot.
Austin Wilson:
But keep in mind that when you use credit cards, there’s a lag in your budgeting. So when you have to pay your credit for what you bought actually two months ago, you were paying today. because your statement came out one month ago and your payment is due today. So there’s a big lag on when you actually buy things to when you actually pay for with a credit card. It all evens out, at the end of the day, when you’re doing this kind of budgeting. But keep in mind, when you’re looking at that balance, you’re really looking at what is going to come out of your checking account in a month or in a month and a half or whatever. A little nugget there.
Josh Robb:
That’s right. But in general, I like credit cards, because a lot of them have nice tools to show you what your breakdown is.
Austin Wilson:
Trends and stuff like that.
Josh Robb:
Trends, all that stuff. You can see it, they have apps now, so you can see a live what’s going on, where your balances are. It gives you some credit flexibility. So if there are some extra expenses that I need to, again, I’m not scrambling around, I could just use that and then move my money back from that savings account, I put that buffer I put in to offset it. And so those are nice if I have, for instance, I know we talked about it, but I have really two credit cards that we use. One is set for all my reoccurring fixed expenses. So that one really doesn’t vary. I know, at the end of the month, what that one’s going to be, give or take.
And then our other one’s used for our discretionary spending. And that’s the one we watch and try to keep track on. It’s nice. It works out for us. That way, there’s really only two spots I really have to keep an eye on. So that’s what we do. But from an application standpoint, however you can see your ongoing expenses, that’s key. Because you set the budget at the beginning of the month. Throughout the month, you’re keeping track of where you’re at. And Personal Capital is one that I’ve used in the past. And they actually show you, month to date, how you’re doing compared to last month, which is kind of a nice tracking tool to say, “Hey, compared to last month’s this week, you spent $100 less or whatever it says.”
Austin Wilson:
Mint does the same thing.
Josh Robb:
Yeah. So it’s nice, that standpoint, you could say, “Okay, that’s my reference point. How am I doing?” But again, last month with Christmas, you spent a little more this month than you did last month. Oh, look at that. So hopefully I plan for that. Hopefully it’s okay.
[24:54] – Josh’s Way of Budgeting
Austin Wilson:
Yep. Exactly. So Josh, I guess let’s just kind of bring it home. Just how does your family do budgeting? How does your life work in that area?
Josh Robb:
Yeah. Great question. Glad you asked that, Austin.
Austin Wilson:
And I try.
Josh Robb:
So I’ve tried everything under the sun when it comes to budgeting. One, being in finance, I like to experience those different things, so that if a client asks me about it, I’ve tried it. So I’ve done paper, I’ve done Excel, I’ve tried all the different apps, I’ve subscribed to them. Some of them, just to try them out, just so I’m familiar with them. Others, I use, like I mentioned, I’ve used Mint and I think Personal Capital are a couple that I’ve used in the past. Right now, I do have an Excel sheet that I like. I built it myself, has the things I like, has certain formulas and things that I broke off. So for instance, with my giving that I do, I track individually where the giving are going, then I sum that up and put that into the box. So I could see it separate and just the little things that-
Austin Wilson:
Makes taxes easier too.
Josh Robb:
Yeah. So then I know exactly how much for itemized. I like that Excel sheet. Between my wife and I, I’m really into budgeting, she is not into budgeting. And so having, in a sense, kind of a summary that we can discuss together, she doesn’t need to know the nuances of it in there. She doesn’t want to know how I came to these numbers. But to say, “Okay, here’s what we’re targeting for our groceries this month. Here’s what we’re targeting for this and that.” And then the conversation is, “Are we missing anything? Is there something that you know about?
For instance, there’s been times where, “Well, you know…” For instance, our youngest is going to start three-year-old preschool next year. So there’s a cost to that. So make sure that’s in our budget. So those are those things that we talk about, discuss, “Okay, what months are those? How do we adjust for that?” All that fun stuff. So I like the Excel sheet because I can manipulate it and I’m not tied to using somebody else’s set up. But from an ongoing tracking, I use an app to know where we’re at throughout the month. What about you, Austin?
[26:51] – Austin’s Way of Budgeting
Austin Wilson:
Yeah. So like you, I’ve tried a lot of different things. And we’ve looked at things a couple different ways since we got married, which was five years ago now. And you were there, photographing the big day. Seeing me fall down in the parking lot. Yeah. So over the years, we’ve kind of gone back and forth. We’ve tried all debit card, all credit card, all of these things. And then, as far as every single penny that was spent, we would record and budget and summarize at the end of month and all these things. It was great. We’ve done all this. But kind of now, we use more of something that, actually, referred to Jess, the everyday advisor here at our office. We’ll link the blog in the show notes that I’m referring to, but she introduced a topic called mindful budgeting, mindful spending, something like that.
And that really was something that was like, “Hey, we’re doing that. And we didn’t even know there was a name for it.” So I keep a pretty good idea on our credit cards and what’s going on them expensive wise. But generally speaking, I just try and spend less. So I know what my income is, I know what my general spending is. And then, in the back of my head, before I make any purchase, I’m like, “I don’t know.” Or like I’m at the store, I’m like, “I’m going to put that bag of chips back,” or whatever.
Josh Robb:
No, don’t put the chips back. Put something else back.
Austin Wilson:
But at the end of the day, as long as, A, our expenses are all being met and we’re saving at the same time and doing what we need to do and prioritizing at the same time, I don’t, like you, bog my wife down with the nitty-gritty details of every little line item. Now I go onto our statements and check those and make sure that nothing’s crazy out of whack, and we discuss purchases that are sizable with each other as those occur, but we’ve loosened up a little bit. And a lot of that has just come with, as we’ve gotten older, we’ve gotten a little bit better handle on what those are.
So I think a lot of it comes with your priorities. So if you’re in the phase of life where you’re being super aggressive with paying down your debt and doing these things and getting yourself set up as a young adult, it’s probably a little bit more important to have a little tighter handle on some of those things, because a little tighter handle can allow you to meet those goals a little quicker. But once you get a little older and you have a pretty decent handle on that, as long as you have your things automated and set up to do what you need them to do, and you go back and there’s still appropriate amounts of money, you can really have a little bit more piece about it.
Josh Robb:
Yeah. And if you’re hitting your savings goals and those types of things, it really doesn’t matter what you’re spending that extra money. You’ve already earmarked what you need to set aside, and so it’s irrelevant what you’re spending the rest of the money. As long as at the end of the month you’re not borrowing, then you’re okay. And that’s kind of that freedom that comes to, yeah, like you talked about, that mindful spending is, the goal is to get to point where your budget is just a high-level, back of mind check that I know my stop point, and that’s what I want to stay under, because I’m already automatically taking my savings and putting it away at the beginning, so what’s left… So you talk about the net, so I’m going to net out my savings too, and now what’s left is just whatever I want to do with it.
And so, you’re right. That’s the goal is to get there. Yeah. I even remember years ago, we even tried, we had a whiteboard on the back of our door to our garage and just writing our… We had two checking accounts. One was for all of our automated stuff, and then one was for our spending. Just writing the balance of our spending one as we were coming and going, if you did something, and that was, as you left, you kind of knew what was still there, which was great if you remembered to do it. But that was just one of those that did not last long. We tried a lot of things.
Austin Wilson:
I feel like if you get too anal about this, it can actually add more stress than it’s meant to relieve. And that’s something that I’ve tried to be cautious about in my own life. Because as long as we’re doing a really good job of balancing inflows and outflows and meeting our goals, I would rather our finances have… I want my wife to go to sleep at night knowing things are stable, things are safe, we have what we need, but if she wants to spend $15 and take her mom out to lunch or whatever that would be, I’m not going to say a thing. That’s totally fine.
Josh Robb:
Yeah. And it’s always comes back to that balance that I talked about, the saving for the future and enjoying life now. I don’t know what the future holds. I don’t know how long I’m going to be here on Earth. So postponing all enjoyment for the future is not ideal, because that’s not a guarantee. And so it is that balance of, “Okay. Yeah, I do want to make sure I’m putting aside what I need for the future. I do [inaudible 00:31:36] all that stuff. But I also need to know, there’s got to be some room in there for enjoyment, because you’re going to go through phases of life-
Austin Wilson:
It’s okay to take a vacation.
Josh Robb:
There’ll be no other time to enjoy those. When you have young kids, there’s no longer going to be a time in the future that you can enjoy them at that age. And so it’s that balance between the two.
Austin Wilson:
Well, thanks for making that hit home. My little three year old’s growing like a weed.
Josh Robb:
I know, it’s crazy.
Austin Wilson:
As is yours.
Josh Robb:
Yes. Yes. I don’t know what to do.
Austin Wilson:
So yeah. Josh, that’s budgeting. I think that the key is that everyone approaches it differently and everyone has to do what’s right for them. But as long as you know the variables, the variables are your income and your expenses, if you know those variables, you can create a budget, and you can understand where your money is working. And the key is to make your money meet all of your goals and all your needs, and still not have $0 left.
[32:28] – Non-Steady Income
Josh Robb:
One last side note, and this is something we didn’t talk about ahead of time, but I know there’s people that listen that say, “Well, that’s great if I know how much is coming in each month. What if I have a job where it varies?” I either work on commission or some sort of industry where it’s cyclical, it goes up and down. So the best way I’ve found for people in that situation is to figure out your lowest income month for that group, and use that as your baseline. Can I cover all my centrals on my lowest income month? So that’s your baseline. And then everything above that kind of goes in your discretionary bucket, that 30%, and then it can accrue over time. So don’t spend it all, but that’s your kind of spending. So can I, every month with just my bare minimum…
So if I work on commission, but I have a base salary, which is one example, can that base salary cover my expenses, my utilities, all the things that have to happen? And then anything above that is what I get to use for all the extra stuff. If you’re cyclical, where, maybe I’m a seasonal worker, those are a little different where you’re going to have to take what I’m going to accumulate in that season and divide that out over 12 months. And so if I work four months out of the year, for whatever reason, and I then take that four months total income, divide it by 12. And in that becomes my budget, although I’m going to get it in a lump sum in that big chunk, I have to set it aside and be very diligent and only spending the allotted amount each month.
So it is doable, even if you don’t have a consistent income, to set up a budget. But again, you’ll want to have a little more caution in there and have a little more cushion built in, because if you know, boy, it’s going to be another two or three months… My wife is a great example of this. She’s a wedding photographer. And so weddings can happen all year long, you got married in December, but the majority of the weddings are the spring to fall time. And so then she needs to budget out and say, “Okay, I know from November through March, I may not have much. I may have some, but I may not have much. So I need to take what I get through those other months and let that stretch out through those timeframes.”
So again, it’s just a matter, again, of planning ahead. You may not look at the next month’s expenses, look at the next six months, or however long it takes you to be able to average out that spending. So again, from a budget standpoint, we were talking months, but maybe it’s a little bit different outlook, but the concept is still the same. What is my income? How do I get that through all my expenses? And what’s left over for me to spend?
Austin Wilson:
Absolutely. Well, that is… Yeah. That’s budgeting in a nutshell. And I think that we could literally spend all day hashing out the little details of that, but it’s definitely something that people need to be taking a look at. But we just want to remind you that, as always, check out our free gift to you, it’s a brief list of eight principles of timeless investing, overarching investment themes known to keep you on track to meet your long-term goals. Some of the things we talked about today can definitely help you with those long-term goals as well. So check that out. It’s free on our website. Josh, how can people help us grow this podcast and continue to help people?
Josh Robb:
Yeah, so obviously, we’ve talked about this in the past. Subscribing on Apple Podcasts is great. It just helps us rank higher, allows more people to see us when they’re scrolling through looking at different options. If you have any topics here for this year, 2021, we’d love to know what you want us to talk about. Send us an email at hello@theinvesteddads.com. There’s also a link on our website there as well to reach out and contact us. And then if you know somebody who’s talking about budgeting, where at the beginning of the year, they’re thinking through it, share this episode with them, it could be useful for them. And then one last thing, there are a couple articles when we were researching this, we’re going to throw those in the show notes. Again, no endorsements, but they just had some good information there. So check those out as well.
Austin Wilson:
Except for I am endorsing theeverydayadvisor.com/the-financial-advisor-without-a-budget. Great article about mindful spending when I was talking about. So that’s in the show notes as well. All right, well, until next Thursday, have a good one.
Josh Robb:
All right. Talk to you later.
Austin Wilson:
Bye.
Outro:
Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe, and don’t miss the next episode.
Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin, or any podcast guests are solely their own opinions, and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only, and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.
