This Simple Budgeting Trick Changed Everything For Me
ฝัง
- เผยแพร่เมื่อ 24 ก.ค. 2024
- Download our FREE Cash Flow Planner: rootfinancialpartners.com/cas...
Despite loving numbers, traditional budgeting never worked for me. It’s often too complex and time-consuming. But I discovered a simple, effective system that takes just 10-15 minutes monthly to manage.
Why Budgeting Fails: Most people fail at budgeting because they treat all income as available to spend, ignoring fixed costs. Parkinson’s Law explains this - tasks (or spending) expand to fill the available time (or money).
Creating Clarity and Constraints: To avoid overspending, understand your actual expenses and limit your available spending money.
Our Budgeting System: We use a detailed spreadsheet divided into:
-Fixed Monthly Expenses: Mortgage, utilities, subscriptions ($4,650).
-Non-Fixed Monthly Expenses: Groceries, gas ($1,050).
-Discretionary Expenses: Dining out, entertainment.
We also save monthly for non-monthly expenses like gifts and vacations.
Using Technology: The app EveryDollar helps us track income, categorize expenses, organize bank accounts, and implement zero-based budgeting.
The initial setup involves creating multiple bank accounts, preferably with a credit union to avoid fees. Debit cards linked to these accounts simplify tracking. Once set up, maintaining the system is quick and easy. Knowing where your money goes helps in planning for the future.
=======================
Learn the tips & strategies to get the most out of life with your money.
Get started today → www.rootfinancialpartners.com/
Get access to the retirement software I use in this video and more → retirement-planning-academy.m...
🔔 Make sure to subscribe here to be notified for future videos!
/ @rootfp
_ _
👥 Make sure to connect with us on all socials below → beacons.ai/rootfinancialpartners
⏱Timestamps:⏱
0:00 - Why most budgets fail
3:04 - Create clarity and constraints
5:26 - Not-fixed and discretionary expenses
7:18 - One-off expenses
10:20 - The bottom line
11:39 - Creating constraints
13:25 - Debit cards and EveryDollar
16:48 - Making adjustments in EveryDollar
18:14 - Closing tips
Other videos we think you'll like:
About Root: • Financial advisors wit...
Worried about retirement?
Start here: • Worried About Retireme...
Two comments:
Too many people forget to add CAR MAINTENANCE and HOME MAINTENANCE to their budget plans.
My best advice for budgeting: eating out is part of ENTERTAINMENT, not FOOD.
A new roof cost me over 30K
Totally. Either that or just have a general savings budget and have sinking funds for those two items.
Adding in everything makes it too cumbersome. My budget is ~$900 less than what I pay myself each month. I don't include eating out or entertainment since I can control those, to zero if I have to, to cover unexpected expenses.
I'm glad to see that you apply basic thought process, rather than gimmicks or locked into an 'app' without understand what's actually happening behind the screen. Folks really need to think about their spending and plan their spending. It's not hard, I've done it all my life. Thank you for another great video to educate us !
Great way of explaining it. I have kept an Excel spreadsheet for years, detailing my monthly expenses by category by month. I enter all the reoccurring expenses that happen every month, and then all the variable expenses in the rows beneath. It allows me to see a trend if I am spending more on groceries or amazon for example. It also lets me know what I need to live on realistically each month. It made transitioning from working to retirement rather painless because I knew what I needed to continue living as before.
A couple tips: pay yourself first. The first priority in my budget is savings, it’s automated and I live on the rest. The next priority is the house payment. I budget $2,000 for my house payment. The house payment is actually $1,650. The extra I’ve budgeted for it goes as extra on the principal, about $350 a month. Homeowners insurance and property taxes are included in the house payment. Then I budget $1,000 for utilities and $ 500 monthly for car and $500 for food. However, there is extra added into those categories. For example, my utilities don’t actually add up to $1,00, they’re less. The extra margin is for safety. It stays in that account and after a few months I either move it to my High Yield Emergency fund savings account or into investments..into my regular brokerage account so it’s still available if I need it.
I absolutely enjoy building and tracking our budget. I have a workbook that has tabs out to 2060 and can see how our financial decisions today affect us next month, year, and so on. We are debt free (recently). We do use credit cards for groceries, gas, and our trips. But those trips have been budgeted beforehand so we make sure we’re not over spending and can’t pay off our credit card each month. Also, our spreadsheets show our pensions so we get to see how we can live our lives in retirement. We have an allowance and are free to spend it on whatever. We’ve simplified the number of accounts we hold and only have two cards
With your channel I have finally found someone who is as obsessive as I am about budgeting. The work is worth it. I sleep very well knowing where the money goes. Works great for long term planning.
Thanks James for another very informative video!
Thanks for your easy going, clear, and practical approach to sharing budgets.
Completely agree with this approach James, my Wife and I use YNAB to do this, makes the annual or random one off costs very visible each month so you don't overspend.
Love this information. Thanks, James.
Great ideas here. I have always struggled with budget but did two things and now I spend my money as planned, and I spend it consistent with my values. First I use copilot money. It enables you to be on top of your budget by updating your as the transactions role in (not once a month credit card bills). It was a game changer for me. Second I structured my budget differently. I have top level,category for essentials ( which lets me, as a retired person know how far I can conceivably back off spending if needed. I have other top level budget items,s according to my values. For instance, “help others”, “learn and grow”, be healthy”, make life comfy”, “have fun”. Having a burger to remind me where to spend my money to live life as I have planned has been a big help. And yes, I know that is a total bizarre way to do a budget, but it works. Oh, and I do of course have a one off category.
Omg!! This is the perfect way for us to upgrade our budget. ❤ I need to go make these changes.
Mate you are an excellent teacher.
I love having our own fun money for me and my spouse. It’s separate checking accounts too. We also have different checking accounts for food, family fun, home and car reno, kids and a vacation checking. Love that system.
I feel very validated by the information you’ve given in this video. I started making and sticking to a realistic budget maybe 15 years ago. The results have been much less stress, because I always know where I stand financially, but as a bonus, my net worth has actually grown by about 300% over that time period. That’s mostly because I budgeted more to savings, investing, etc. I wouldn’t have done that without a budget, I think because I wouldn’t have felt I actually had the resources to do so. They were there all the time, but before the budgeting I didn’t know that!
I under calculated net worth increase over 15 years. It was 2900%
Great channel. 17 years ago we created a spreadsheet budget. We’ve used it every month in that time to present. We created 3 big categories: Monthly, Annual, Work expenses. We also accounted for gifts, child disposable, joint entertainment, individual disposable, healthcare, car maintenance, and miscellaneous unexpected category etc etc. When I read the 4 hour work week book and read that whatever the average person budgets they can plan on 30% more in unexpected expenses. We also use different cards for different major categories and have separate bank accounts for each different major category. We also have a paycheck checking. Our system works a month in advance like: in June all income goes and only sits in the paycheck checking account. Then at the end of June we pre-fund July with thar money and allocate any overages and underages to saving and investing. The time it takes us to accurately account for the month in the future is a great monthly planning meeting also. So yes James your system has worked for us for 17 ish years.
I got started by tracking every expense. It was eye opening. I used a little 3x5 notebook with a page per week, but some may find a higher tech way works better for them (spreadsheet on the phone? note app on the phone? specialized app?).
You look so young but are pretty damn smart and you are very skilled with your presentations. Much appreciated!
Good info! Such a cute thumbnail pic of you and your wife too!
Nice system. I wouldn’t give up my flight, hotel, and shopping points from using credit cards and have the discipline to pay them off every month. But, it does make it more complicated.
My budgeting is very similar. The exception is I use rewards credit cards exclusively. I love the rewards and feel using my debit card exposes me. I know most of the rules are the same but, I've had fraudulent charges on a credit card and it gets frozen. That can be much more inconvenient if the card that gets frozen is the one that gives you access to your cash. I'm debt free and my budget categories are:
3 credit cards, Pool cleaning, electric utility, health insurance, cell phone, Patreon, church offering, Netflix, food and gas. Other than that, I add car, motorcycle, and homeowners insurance to the month that it is paid and real estate tax to November. Even in retirement, I like to spend less than I make.
I used to budget religiously, but hadn’t done that in several years. Just recently I started tracking expenses again just for curiosity since I’m retired. It’ll be interesting to see how things end up. I have planned for up to $10k/year for big time one-off expenses, such as home repairs and major medical expenses. My hope is to be very far below that many years, but if not I know it’s something I planned for.
I do it with credit cards, but I just shift the money from the savings account to my general checking when I put the expense on the card. I probably use fewer different savings categories than James, as I mainly use a “festival” account for gifts, travel and special events combined.
Don't forget things you pay annually or semi-annually or those things which auto-bill to your account or a credit card.
For me, the way that works to create constraints was to not deposit my paycheck into my checking account. I had it deposited to another account and arranged an automatic transfer to checking for the amount I expected to spend. (I also set up overdraft protection, free at my credit union.)
thank you
Creating a realistic budget takes time. In the beginning I was regularly adding expense categories I overlooked.
THANK YOU
I like how you break this down and "trick" the brain. Seems like common sense but when I was young, this had to be taught to me.
Good advice!
We used the envelope approach for many years. Now that we are retired, we have used the 'everydollar' system. I personally prefer the envelope approach but since my spouse is now Chief Financial Officer of the two of us, it doesn't matter too much.
@Jame Conole thanks.
I agree with about 80% of what you say in this video. My main problem is the use of Debit cards. I have found that if I have a fraudulent action on a debit card, it VERY hard to challenge that action because the money is already out of the account. If I use a credit card, then I CAN challenge the fraudulent activity and I don't end up paying for the item.
I understand why you use a debit card. If I have the money, I can spend it. If the money is not in the account, I can't spend it (unless there is an overdraft service on the account). People need to learn how to uses their credit cards properly. If you can't buy the item with cash, but use a card instead, don't buy it!
Good advice with everything else.
" If you can't buy the item with cash, but use a card instead, don't buy it!" ........ I can't upvote this enough...people need to understand banks are businesses, and businesses exist to make money. If you owe a bank money... they own you... and will take everything they can, to make themselves wealthy, at your expense.
I agree. The only time my debit card sees action is at an ATM. My wife and I are responsible with our credit cards in relation to our income so the envelope method is not a concern.
It’s hard for younger couples to live below their means and pay themselves first. But if you become good at it, you’ll be very happy with those results in 25-30 yrs.
Every penny we spend is tracked in real time manually by my wife and I. Our monthly budget meeting is finding out how much money we added to savings each month.
Retiring on her 50th bday. Set a goal or you’ll never retire.
Great video. I've done this method for about fifteen years for our family and it's worked so well for precommiting funds for kid's activities, vacations, house repairs/insurance/taxes, and even making sure we max out our Roths. I use a bank that allows me to have up to thirty sub accounts for free so we can get really granular if we like. I share this methodology with people as it has simplified our lives. Thanks for sharing this on your channel.
we pay on our CC the same week we spend money with it. We get points and no monthly bill. We track spending much easier this way as it's all on CC. Not that difficult really to track imo.
I aim to pay my credit card within 24 hours of using it.
Yup. Haven’t paid interest on our card in years.
My budgeting “trick” is just when I get my paycheck and maxing out all of my retiring accounts i then dump a set amount into my taxable brokerage account. Then we spend whatever is leftover- don’t sweat the small stuff.
Lol I love it!
Question: James, are you saying you have multiple physical debit cards uniquely tied to each of the multiple accounts at your Credit Union (say four or more depending on your categories)?
Do you use Every Dollar as well as Right Capital?
Definitely got dave ramsey influence vibes. Great video!
People can say what they want about the Ramsey philosophy. But the Everydollar app is by FAR the best, intuitive, simple app for budgeting that exisits. And I've tried them all.
I just overestimate what my cc payment is going to be based on past spending and consider it a fixed expense...bonus if it comes in lower
Do you have separate debit cards for each bank account?
Looking for the spreadsheet
No reason not to use credit cards in place of debit cards, keep the benefits and use one HY account and not worry about min balances. Set autopay for each card to budgeted amount and any remaining balance on stmt is your over-budget amount - credit balance at end of yr is bonus to skip pmt and add to savings/investment or bonus date with wife :). Keep cards assigned with highest reward for each category - ie, I get 4% back on gas with one card, 3% dining/travel, 1% catch all.
Needs a category for state & federal income tax
You can make credit card payments whenever you want. Why not pay it off at the end of the month, every month? Or better yet, pay the balance right before it's due and keep your credit score up. Using the 25 day grace period is fine, but if you want to keep your monthly budget monthly, just pay it during the month.
You can choose the day your credit card payment is due. And, since I'm retired, I can choose my "payday". So, my payday is one week before the credit cards are due.
YNAB solves this.
Yes it does! I love YNAB. Been using it for 9 years.💰🤑
you each have 5 debit cards and remember to use diff cards for different things?
Separate bank account for each of those main categories?
Post the shirt link. Looks good
How do you deal with the risk of overdrafts? Does your credit union not charge overdraft fees? Also they let you open that many different accounts?
you need to do a collab with professor g
I pay my credit cards weekly.
12:59 debt is dumb, cash is king :D Debit Cards FTW! Everydollar and Zero-Based Budgeting! Maybe can collab with Dave haha. I hate Credit Cards becasue I have to pay for something twice. The act that the time of purchase, then later online. ugh.
Your math is off - it's only one extra pmt/mo, not double the pmts. Cash ain't king - I essentially make 4% on gas purchases; a penny saved is a penny earned.
Have you noticed more and more businesses are now adding a service charge if you pay with credit cards? For example, my family went out to eat the other night and the waitress brought the bill. On the bill, there was a cash price and a beefed up amount if paying with a credit card. In addition to saving on the fees, might the business have some tax related shenanigans going on? Just a thought.
Just like some gas stations. I avoid those businesses.
cc processing fees are around 3% + or -, well recorded, tracked, accounted for and taxed......cash..........what cash?....you don't work for the government do you?
If it's about 3%, that is completely reasonable and I don't blame any business owner for that. If it's anything more, it's just them being greedy but not wanting to raise the stated prices and hoping you don't notice.
Can you please reshare the spreadsheet template in the comments? Thanks
I cannot find the "copy link" . I am only directed to sign up.
Netflix, Hulu and other subscriptions for $30? Now that’s funny..
James, your spreadsheet is missing formulas in the monthly column for "Gifts" and "Property taxes"
Oh my goodness just got so complicated so fast! I thought it was going to be a budget I can actually do.
I have never had budgets (unless of course I want to buy a major purchase ie. vehicle, then I'll be like I have a budget of $50k) and never will. I spend money on things that I need, when I need them. If there is something that I want - I buy it. It's not that hard. I guess for people that have no impulse control etc - spending more than what comes in would be a problem. But, for us (GEN-X) that tend to have been raised on a scarcity mindset overspending usually isn't a problem.
You sound just like my husband and me. We're also Gen-X -- I never thought of this as a generation-specific thing, but maybe it is. We've never gotten into trouble (and have never written or stuck to a budget) because we just automatically save as much as possible (into 401ks, kids' college funds, future car earmarked account, etc.) then spend as little as possible (never have wanted to "keep up with the Joneses"), and then we've got plenty on-hand for when the unexpected expenses like wedding gifts or car repairs come up.
Thank your parents!
My Budget, is NO Budget..... instead I save & invest 2/3rds of what I make, then spend the rest. YOU can do this too... but first you have to get debt free.. pay off your house and only buy cars with cash, and only use credit cards for free cash back.
You got it. I like thinking if budgeting But much easier to save a lot, spend the rest...and No debt every month
If a car dealer is offering financing below 3%, I usually take it since I can make way more in the market.
Cool
Pay off your house?
Before you retire or early in your career?
Me personally, I would not aggressively pay off a low interest rate loan that underwrites a “performing” asset. Home loans can be considered “good debt”.
Take the extra money and invest it in the market. SP500 index will get you 10%, typically.
Anyway…
We’re having a different conversation if you are near retirement or retired on a fixed income. I pay a little extra principal on my mortgage each month but not a huge amount.
The devil is in the details.
So instead of using one budget, use two? Brilliant 😂
Ouch. Methods like this are why people quit budgeting. I used EveryDollar for a while and stopped because it complicates things and cultivates the notion that "budget" is a swear word IMO. YNAB leads me to identify my financial priorities based on my values. YNAB handles the tracking and the math. No debit cards or multiple accounts are needed. Furthermore, I am fundamentally opposed to spending projected income because spending money that's not in my possession looks a lot like a loan. I think it's hypocritical for Ramsey's software to promote this practice. YNAB doesn't let me spend what I don't have without my full knowledge. I'm a tightwad but the annual fee for YNAB is worth every penny.
Also long term YNAB user. Super fan as it is automated and just pulls in transactions and remembers transactions so it can auto-categorize. Key is clarity as James points out. So tracking and knowing where money is going becomes key. History helps understand, and re-evaluate your lifestyle and overall approach. We do a once a year review between thanksgiving and Xmas to setup for next year. Factor past year spends by category, but also strategic about vacations, insurance, and other ad hoc and annual amounts. Love the high yield account idea to pay for the one off and annual expenses. Great idea and video!
YNAB and EveryDollar are both zero-based/envelope budget systems, and work in similar ways. EveryDollar does not require the use of multiple accounts or debit cards. This is just something James and his wife decided to do because it works for them. I choose to use YNAB because of the way it handles credit cards, which is far superior to EveryDollar (IMHO).
I hated YNAB. Too complicated
I love how he assumes everyone makes $100K + a year. What about those who make significantly less? Also, one thing he failed to mention about changing to credit unions is that not only don't not charge fees, but they generally pay more interest that most banks, not much but...
Wouldn’t it be insanely easy to OD those accounts? Does your bank provide OD protection for free? Feels exhausting to monitor 10 accounts.
Must add-in advisor fees as well. That is a monthly expense. Correct?
It sounds like you have to constantly monitor all your different accounts to make sure you’re not going to go over with this method though, am I missing something there? Sounds like something that would stress me out 😅
Convert MONEY to TIME!
The concepts of money and budgeting are not easy to grasp, especially when done in annual or even monthly intervals. I struggled with it until I converted my income to time I spent earning it. I simply subtract my fixed expenses from my annual net income, then divide that by 2000 (hours spent at work per year), which gives me the amount I can spend. For discretionary purchases, I convert the purchase price to the amount of time I had to spend to have the money to make the purchase. this system has helped me make decisions on purchases as small as a package of hamburger and as large as a house.
My budgeting system fails because i spend too much
Simply learn how to cash flow, either weekly, per paycheck, or monthly.
Using cash and debit cards, instead of credit cards, is a HORRIBLE idea. Much less consumer protections on debit cards vs. credit cards for fraud, and my credit card gives me 3% cash back on about 75% of the things I use it for, which is a substantial savings and more money for my budget.
Incorrect. Debit cards use visa or Mastercard. Banks will refund fraud. And for most people the cash back is a bait to use their credit card in exchange for interest on debt
Not true any debit card with Visa and MasterCard logo has the exact same fraud protection as a credit card. EFTA and FCBA apply equally to both cards
What's in your wallet?😉
Well, you’re fixed expenses is more than I have ever spent in a month.
It must be pretty hard for you to figure out what to spend that discretionary amount on.
You would have to pay me to use a Ramsey app, no matter how pretty it looks. Do you really think it is easier to budget with a pocketful of debit cards? Budgeting is Just Not That Hard (and envelopes are not that expensive for the challenged).
Basic stuff
Every Dollar.. So, are you affiliated with Dave Ramsey? Do not get me wrong Dave is great getting people out of debt but his conservative investment assumptions do not seem to align with your other videos. Do his assumptions work into Root Financial models?
Relax
@@Brucefulness What was the trigger Dave Ramsey or Root Financial fandom? All legitimate questions and goes to how this advisement firm operates. Hint these videos are marketing for their business. If I were to use their services for my retirement planning, these legitimate questions I would want them to answer.
@6:40 Liar. Ain't no man alive who doesn't ask his wife for permission 😅. Seriously great advice. I'm sending this to my son who just graduated.
If you want to stay happy, it's best to ask.😂
Every couple has a mental number of an amount that they can spend without asking their partner. For most, it’s about $300. But it’s definitely good to actually discuss what amount both are comfortable with, BEFORE IT BECOMES AN ISSUE!
Divorced, now remarried. We don't ask each other about anything financially. She has her's, I have mine. Everyone should do it that way.
He already got permission for $500/mo.🤣🤣🤣
What about property taxes, car insurance, house insurance, medical insurance , IRAs etc. etc.? I'm paycheck to my paycheck on 200k. My mortgage is 4500 in San Francisco for my 1 bedroom condo.
Find Dave Ramsey and fix your spending problem
So after mortgage, you're struggling on $130K/year?
Line 32 😉
Line 13 😀
Line 14 🧐
Line 16 🤨
Line 26 😡
Did you even LOOK at the spreadsheet?!? 😳🙄
I do not and will not carry or use debit cards for one simple reason - FRAUD. Some crook is able to steal debit card info then they are taking my money. Crook steals credit card info then it's the banks money. Also, people don't realize that there are laws in place to protect consumers who use credit cards but most of those laws do not apply to debit cards. The value of various points and cash back rewards is icing on the cake to the tune of thousands of dollars per year.
I think his figures are super unrealistic for many people but ok.
I’m just poor in today’s economy. I’ll have rest in heaven, not here on earth
If it is that simple why 23 minutes. lol.
Tricked me. I watched to see your wife 😢
Too long