The Dreaded B Word — Budgeting
There was pre-9/11 life and then there was post-9/11 life in the United States.
Yesterday, I covered an exercise where you look at your life in five-year chunks and pick five peak experiences from each of these slices.
Just like the exercise on your lifetime earnings, so far, it is an accounting of what you have to show for your time, so far.
These peak experiences are similar to financial assets. They are the golden memories.
After posting yesterday, I realized I failed to mention that it was the 25th anniversary of the World Trade Center tragedy.
I was in Red Bank, NJ, that morning.
As the crow flies, Red Bank is about 25 miles from the WTC site.
It was a surreal experience.
It was a sunny, clear day, and before noon, we were confronted with two huge plumes of smoke rising in the air.
I was there attending a four-day training class led by Peter Block on his Flawless Consulting methodology.
Thirty minutes before the news broke, I was actually talking with Peter about his speech to the class that morning.
He had stated that he had lived an instrumental life so that his children could live artistic and poetic lives of meaning.
That was what I was feeling at the time.
How do I shift from this rat race to something more meaningful and fulfilling?
I had been up until almost 2 a.m. working on a work project going on back at the office,
while I was doing this, the movie American Beauty was playing on the hotel TV.
That was also surreal.
It would somewhat ridiculous to call 9/11 incident a peak experience, so it didn’t make my list of peak experiences from that five-year chunk of time.
And, luckily, no one I knew was harmed in the incident.
A man at the conference claimed that his brother, who worked in one of the towers, was unaccounted for that morning.
Nevertheless, however we want to label it, there is no doubt that it was an extremely memorable experience.
It shook everyone to the core and still reverberates as a cultural influence today.
It is the Gen-X and older Millennial generation’s version of the “Where were you the day JFK was shot?” question I used to hear growing up.
I don’t want to make light of the incident, but it does help make a point about today’s topic.
There was my attempt at budgeting my money before I learned about reaching the cross-over point and achieving financial freedom.
And there was how I approached budgeting after Listening to the Transforming Your Relationship with MOney seminar tapes and reading Your Money or Your Life.
Not only that, there was budgeting before reading the Total Money Makeover and afterwards.
And now there is budgeting before reaching FIRE and after reaching FIRE.
Things change. You need to adjust, and you need to continue to pay attention to this.
Early on, I thought budgeting was ridiculous.
My first attempts at creating a budget were ridiculous. I had no money to budget.
And when I applied the recommended percentages to each category of spending, I soon discovered how much money I lacked.
Therefore, my first course of action was to raise my income.
When I came upon Your Money or Your Life, I started tracking my spending each day.
At the end of the month, you tally everything up and ask yourself if that spending was aligned with your values and if it brought you maximum fulfillment.
This was a hassle each month, but I was beginning to see, with clear sight, exactly what money was coming into my life and how it was leaving (or staying).
Therefore, when I read Dave Ramsey’s Total Money Makeover and found that one of his prerequisites for following his Baby Steps was to make and keep a budget, he had a ready convert.
I literally copied the budget example he has in the book.
I converted it into a spreadsheet, and I still use a version of this today.
That is, I married Your Money or Your Life’s step of tracking my spending each day with his call for a budget.
So, it’s more like my spending plan. But it’s also my budget.
It’s also how I track my expenses and income. It’s multi-purpose, with multiple tabs now for other financial measures.
As my financial savvy and needs have grown, so has this initial spreadsheet.
In the first column, I estimate what I think I will spend in on that item for the year.
In the next column, I track what I actually spent.
In the third column, I have the difference.
I like it when that is a surplus rather than a deficit.
I also do this for the month in the next three columns.
There are several other things I do, too.
But my main point is that I started with Ramsey’s sample budget, made it work for me, and have continued to tweak it up to and even including this year.
There are other budgeting tools out there now that didn’t really exist when I started this in 2007, and they might be the right answer for you.
Nevertheless, you do need a budget.
Want a simple one? Here’s one that a lot of people use:
20% for savings and investments (pay yourself first, off the top)
50% for living expenses
30% (or what is left) for “fun”
Or you may want to use something like Secrets of the Millionaire Mind author T. Harv Eker’s popular 6 Jars Money Management System, or a variation of it, such as:
50% for living expenses
10% for short-term savings (for vacations, car insurance, and other lumpy expenses)
10% for emergency fund (then turn it to investing)
10% for personal growth and self-improvement
10% for play and fun (discretionary)
10% for giving (tithing, charity, or helping family members, but be careful about that!)
My budgeting needs have changed since I became FIRE. I now use these six categories:
Primary Home Expenses
2nd Home (Test Apartment) Expenses
Fun In the Sun — This includes Food (because I like to eat out for fun) and Recreation (concerts, shows, vacations, classes, personal development, and learning)
Highway To Yeah Enterprises Fund — The Leavers, tours, open mics, website, etc., and Transportation
Personal — Grooming, Clothing, Self-Care, Health Insurance & Medical, plus Miscellaneous such as mobile phone, subscriptions, taxes, etc.
Giving — Charity, helping kids get established, birthday/holiday gift giving, etc.
These six buckets of expenses make sense for me.
You will likely have a different method and categories.
But I cannot stress how important it is to know:
How you plan to spend your money
How, when, where, and what you actually spend it on
How much is left (if any)
And if this matched your values and intentions
It’s not perfection you are after.
It’s just staying on top of it, consistently, that matters.
Tomorrow, we will shift to how you use your time.
This also changes from pre-FIRE to post-FIRE.
In fact, this has been the most dramatic shift in my post-FIRE experience so far.
And I am still learning how to do this.
Thus, I am going back to it with a beginner’s mind.