Learn to Budget (Part 3): Start setting your spending limits
This is the most difficult part of a budget. It’s where the math is unforgiving and says “If you don’t make enough, then you can’t afford it.” It’s where you tell yourself “My FUTURE is much more important than the instant gratification of <insert your guilty pleasure>” and go against all of the factors working against you. Want to know a few of them?
Factors Working Against You
These factors include you thinking you deserve the instant gratification because consumerism has had a tight grip over you since childhood, the thousands of marketing professionals trying to get you to forget that you just spent that extra $5 for that extra little “happiness” every day, the layout of the stores that hint to things that make it impossible to just get one thing (freaking Target and Costco), and many others that you probably never even thought about BEFORE THE CHECKOUT LINE.
At the checkout line, credit card companies give you ‘incentives’ to use the card versus cash to help justify your purchase. You have more little things at the “point of sale” (cash register) like snacks and gum just to get that last minute purchase. How many finance professionals do you think spent thousands of collective hours to make it seem like you’re winning with your 2% cash back return? The saying “No one sells a business that’s doing well” comes to mind. Why do you think there are so many credit card companies out there?
Don’t get me wrong, I have a single credit card. My wife has one credit card. I’ve seen the videos of credit card churning and my buddy David (who’s one of the smartest guys I know) does it. One of the financial personalities I enjoy listening to, Graham Stephan does it as well. Logically, if you have the discipline then doing these things make sense, I completely agree. However, the law of averages probably puts you in the category of “I’m not as disciplined as them.” Which is what the credit card companies are hoping for. Carrying around 10 cards, keeping track of which benefits are best for each card, REMEMBERING TO PAY THAM OFF ON TIME, AND KEEPING THE INCOME VS SPENDING IN YOUR HEAD WITHOUT FORGETTING A SINGLE EXPENSE. This isn’t for everyone. In my opinion, it’s not going to work for the majority of people. Just look for videos on YouTube of people drowning in CC debt. I personally like to apply the “KISS” principle when it comes to this stuff. One card is with a all-round 2% return is perfect for me. I only have one account to check and I do get a little bit back while keeping to my budget.
Be Weird. It’s cool, I approve.
Graham Stephan is a millionaire and keeps tracks of everything as much as possible, but do you know what his guilty pleasure is at the end of the week (if he feels like he did a good job)? McDonalds. Good old Mickey Ds.
My buddy who makes $300,000+ a year plus, his guilty pleasure is a yearly thing. He likes to buy himself the newest phone from Samsung / Google every year. Other than that he drives a Honda Civic his had since high school, has an average house for the area he lives in, and still provides for his kids. They live off a single income while he and his wife work and save the others income entirely.
The last example, that I love because my favorite superhero is Batman, is a scene from Christopher Nolan’s “The Dark Knight”. Heath Ledger plays the Joker and he finally gets half of the totality of the mobs money. It’s just piled neatly in a single pile of cash. The line that I sometimes repeat to myself when I want to buy something is:
“You see, I’m a guy with simple taste. I enjoy dynamite, gunpowder, and uhh gasoline… and you know the thing they have in common. They’re cheap.” - Joker
He then orders his men to light the money on fire because he didn’t need it. He had everything he needed.
You probably just imagine people that all millionaires buy cars and vacation homes left and right. Nope, they tend to keep everything simple. They are rich because they are weird. Even with all the money in the world, they just want things that aren’t even 1% of their income per year every once in a while. That’s how they treat themselves and that’s how they save money. So the next time you are at the cash register, be weird like the Joker… (At least that’s how I see myself sometimes with JUST one thing at the Target cash register, I beat you guys this time I’m walking out with just my travel tooth paste).
Why mention all of this?
Because there is only one step in this part and I want to encourage you to break your spending habits. Sometimes it takes the little things to achieve it. (Like feeling like the Joker when you walk away from that new TV) Maybe you can just focus on the big things like “What’s my future going to be like?” How you choose to convince and remind yourself to not spend and break the norm is something only you can do, but do it. Do it consistently, and you’ll find yourself one day in a much better spot with money.
Step 1: Look at your Income and Expenses and get to a point where you spend less than you earn by setting your limits.
So just to share, this is my September 2020 budget at the end of the month. Yeah I know, I overspent my budget about $2,000 from what I put down. But like I said, I am fortunate enough to have a little bit of wiggle room when it comes to this kind of stuff. Rather than trying to justify this to you, I’ll just take the embarrassment and move on LOL.
The most important thing that I want to show you is that MY TOTAL INCOME IS MORE THAN MY TOTAL EXPENSES. If you are looking at the numbers, just take the Total Income cell and the Total Loss cell and subtract them.
Total Income = $12,993.43
Total Loss = $9,201.21
Total Net Gain / Loss for September 2020: $12,993.43 - $9,201.21 = $3,792.22 Gain
The reason why I chose to show you this month was to show you that I am also only human. My wife and I happened to use our fun budget (AKA “Miscellaneous” Category) pretty early in the month because we haven’t seen our friends in a long time. Then we bought a new car seat because our second kid is getting big. We didn’t buy that many groceries because we couldn’t use the kitchen so we started eating out more often last month. BLAH BLAH BLAH EXCUSES EXCUSES EXCUSES. Whatever I say, we didn’t do very good last month because a lot of things were up in the air. But, we didn’t spend anything for ‘fun’ after we hit our limit. This helps us CONTROL OUR SPENDING believe it or not.
However, we always make sure that our income is greater than our expenses. We can only make sure that continues to happen when we track all of our expenses with our budget. Also, now I know I can put about $3,800 dollars into my investment portfolio and that I’m heading in the right direction.
Your budget will change
GRILL ME lol make me feel bad so that I’m better at setting the right numbers for my budget. You’ll be helping me at the end of the day. I hope that we can at the very least start talking about finances more often. I hope you know that as long as you budget you can do better with your expenses. When you’re starting out, don’t feel bad if you mess up and miss your savings goal a few times as long as you are going in the right direction (MEANING SPEND LESS THAN WHAT YOU MAKE). However, you’ll never know unless you track everything consistently. I’ve been budgeting for 3 years and I think I still haven’t set my saving goals correctly. I think I might need to make a new “Fun” category and separate it from “Miscellaneous” Category. Also, I think I’m going to cut Audible.com because I’ve gotten every book that I wanted so far and don’t want anymore at the moment.
**** Cancelling Audible Right Now, Give a Second LOL ****
Done, cancelled. That will save me ~$15 a month because I didn’t need it anymore. I have all the audible books I wanted for now and maybe I’ll buy a few more later once I know what I want. This is how budgets work. It’s that simple. Please start yours NOW.
NOTE: Once things have settled, I’m going to try the Dave Ramsey plan of getting rid of my credit card. So, I’ll let you know how that goes when I begin to try. Possibly at the start of next year.