• 02:35:13 am on May 7, 2009 | 15
    Tags: , , , , , , , , ,

    Where Did All the Money Go?

    OK Scott is off the hook for not doing this exercise …

    … but only because he actually already has a pretty strict budgeting system in place: I love the idea of withdrawing a certain set amount from the ATM each week for things like personal spending and entertainment and “when it’s gone it’s gone” … much like Caleb’s envelope system a lá Dave Ramsey described in a comment to my post at 7million7years.

    Not to mention Scott saves 40% of his income!

    BTW: I bolded a very key statement that Scott made; it will be your ‘reward’ for taking the time to read all the way to the bottom of Scott’s excellent post … excellent because it does what I was hoping this blog would eventually do: start bringing new ideas to the forefront; ideas that come from our readers and our 7MITs 🙂

    Thanks Scott!

    _______________________

    Well, I started keeping track at the beginning of April of every expense I possibly could. Boy, it certainly takes quite a bit of dedication to keep track of everything and I have to admit, I didn’t do very well keeping up with everything.

    But to be completely honest, the way my wife and I have elected to set up our financial life, it keeps things so simple to keep track of that we really don’t have to be that anal about every dollar and cent. In other words, we sat down long ago and established our “lifestyle budget” if you will.  You see, what I’ve noticed among financial circles is that there is a great deal of debate about the dreaded “B” word budget.

    On one hand, you have a school of thought that feels like every single penny that someone earns should be spent on paper, the month before that income even comes in, ‘ala Dave Ramsey’. Some people take this to heart 100% and some bash the idea of using a budget completely, stating that it is a foolish waste of time and that the answer to building wealth is to simply “earn more”.  I’ve read this school of thought on many popular blogs, but the thing I find interesting is that the author will turn around and contradict themselves in their very next post and talk about how you must ‘live on less than you make’ to get ahead, that way you can save and invest the difference.

    To me, the contradictions are a waste of time because by now, we all know that, “pay yourself first”, “live below your means”, live on less than you make or any other million ways you can say it all mean the same thing. And it’s something that I feel must be done if someone wants to go from zero to hero financially speaking. But that is only one of the necessary ‘tools’. The next tool you need to use is the one that decides what you do with all of these ‘pay yourself first’, ‘live below your means’, ‘live on less than you make’ semantic dollars.

    When I think about applying the principles of a budget, I stand right smack dead center between the two schools of thought. I don’t think it’s the end-all be-all to financial success and I don’t think it should be ignored or ostracized.  I believe it is one of the necessary tools that every person needs for financial success, but it is only one tool in the toolbox. It’s a tool that you NEED, but you also need other tools equally as important.

    I’ve read a lot of posts and comments recently scolding budgets, saying don’t “live below your means” just simply INCREASE your means. Well that’s fine, but you can increase your means all you like but if you don’t have a plan for the money, it will simply be attracted to those who do have a plan for it like everything else in life.  Just ask Mike Tyson, MC Hammer, Evander Holyfield or any other person who made ultra millions throughout their career and found themselves broke. You’ll find that you can never earn enough money.

    You simply need to figure out your number that allows you to live your life’s purpose,  get there as fast as possible (by the date you need it), and guess what? You’ll still have to live by something that at least somewhat resembles a budget to make sure you can continue to live your life’s purpose and not have to work for money in the future!

    Like I said, it’s all semantics whatever you want to call it. I don’t mind calling it a budget because with any negative sentiment, it also carries many positive sentiments to me such as “We will not only get wealthy, but we’ll stay wealthy” and can sleep at night and live the life we’ve chosen.  I just simply look at it as a game plan, in the financial sense much like a sports team or big business has a game plan. And I find, once I get it set up, figure out all the mistakes and nuances after a couple of months, things settle in with a budget nicely and you’ll simply know what you can spend and what you can’t spend. You have a game plan. What I find is that after you master it, it kind of goes on autopilot and you don’t have to think about it anymore. You get on to living your life and not thinking about paying the bills or if you can or can’t make it to payday. I use this mental ‘freedom’ if you will to go forth and put my energy elsewhere, such as how to make more money in business and investments and hence the snowball effect works where I begin to make more money, all tools guiding me to my number.

    My wife and I simply sat down and figured out our ‘lifestyle’ budget long ago and discovered what it cost for us to live, on average, every month, predictably, with a little emergency money in place to keep things ‘predictable’ and we discovered what we could be comfortable with or without while we were on our Money Making 101 journey and then to stay on it throughout our current Money Making 201 journey.

    For example, the mortgage, taxes, insurance, grocery, gas, etc.. etc.. stays pretty much the same every month. Quinton’s lunch money, school clothing upkeep and other things are pretty much the same as well. In other words, we found that we could come up with a  monthly ‘number’ that is required for us to live the lifestyle we have chosen during this journey. There are a lot of things we’ve elected to do without and there are a lot of things that are important to us that we have elected to ‘do with’ at the same time. But these all have predictable costs. So in essence, it’s the same as a budget. We simply leave this amount of money in the checking account that we use to pay the bills and live on (no we don’t have separate finances, checking accounts, lifestyles, etc.. this kind of goes against what marriage is in the first place, doesn’t it? Not to mention it makes it kind of difficult to know where you are financially and where All the money went, before you even saved or invested anything. Then 25 years go by and you wonder; Where Did All the Money Go?).

    Everything goes into the same pot and then gets routed automatically to it’s payment or usage destination. It never changes. It doesn’t require constant monitoring, it’s simply automatic with the add of online auto pays and a weekly ATM drive through. On Fridays, I drive through the ATM machine and pull out what we call our ‘dining and entertainment’ allowance. This is what’s used if we want to go see X-MEN: Wolverine. And when it’s gone, it’s gone, so keep the popcorn and candy down a bit, please! I also pull out a small ‘personal cash allowance’ in equal amount for myself and my wife. This stays the same. It has been preditermined and allows me  to have my own personal cash to save up for toys or stop by Subway or if I want or grab a Rock Star, to cook along on my goals at light speed! My wife has her own equal cash allowance to use if she sees a nice purse or somthing a bit more expensive that she can save up for. I call this the “Keep Your Hands out of the Financial Freedom Cookie Jar” expense. It works great.

    So with a predictable spending plan, that is pre-determined by the family, stays the same, is about 95% automatic, doesn’t require sitting in a torture chamber with budgeting tools or any other nonsense that most people dream up about budgets, we spend approximately the exact same amount each month and save each and every penny to pay ourselves first with before anything.  Lately this savings has been pretty much to the tune of half of our after tax income going into our “War Chest” as Adrian calls it, to use for business startups and investing.

    As far as writing things down daily on paper, there’s really not much to report, unless you want to know exactly how I spent my own personal weekly allowance (that is always the exact same amount) on an occasional cup of coffee, a new pack of guitar strings, a sandwich, etc… In other words, it remains constant. There’s no flux, no ‘loss’ or ‘gain’, no surprises, the amount stays the same with our allowance and entertainment and it’s taken as cash, not used by credit card(unless an online purchase is made, then that amount in cash gets left in the checking account, not taken out at the ATM and the amount on the credit card is paid asap.)

    Any other amount of spending just gets done automatically for the utility bills, taxes, car insurance, grocery spending, etc.. so there’s really nothing to report.

    We have found this method to be really refreshing. We just don’t have to think about money except for certain key moments when we take a peek at our accounts and make sure everything is getting routed to it’s proper place in a timely fashion. There’s no late pays to worry about, no over budget spending to worry about. It’s very a very peaceful feeling and frees my focus and energy up to go and make more money.

    Incidentally, since we’ve been using this method, our income has increased substantially and continues to do so. We’ve been able to amass over 40k in just a couple of months because I’ve done so well in my business and I foresee this as continuing to increase. We may actually move closer to saving 60% of our income using this method. Even when I double or triple my income, we will be living on the exact same monthly number and putting all that extra income into the war chest. This further speeds up business purchase or startups and making real estate and stock purchases.

    It seems that dreaded “B” word is somehow making us “Earn More” afterall! 😉

     

Comments

  • lee 9:26 am on May 7, 2009 | #

    Scott I know we aren’t supposed to play the “what if” game but after reading your post I wonder what your budget would look like if you had not had such great success in your career. It seems to me that many people who read this blog are not in the good financial situation you are in. “Do you not agree that it’s the getting started that’s the most difficult.
    It’s all about self discipline?

  • Adrian 10:25 am on May 7, 2009 | #

    @ Lee – Great questions; and, while we’re waiting for Scott’s response …

    … counter intuitively, income seems to bear no direct correlation to wealth, as the story of the ‘two doctors’ – lifted from The Millionaire Next Door – tells us: http://7million7years.com/2008/09/22/why-most-doctors-arent-rich/

    I agree wholeheartedly, I think it has a LOT more to do with how disciplined you are, what you do with the money that you save, and how you start, than income.

  • Moneymonk 1:25 pm on May 7, 2009 | #

    “It seems to me that many people who read this blog are not in the good financial situation you are in

    I agree with Lee, when you have a more income cushion. More to invest.

    However it’s all about percentages, having the right income/debt ratios is key.

    Either way, good post Scott, I like reading blogs like this instead how to be frugal blogs

  • Josh 2:04 pm on May 7, 2009 | #

    Scott, thanks for the plethora of info on how you and your wife manage your cash. Your a great example to follow.
    I definitly agree with Moneymonk, it is all about the percentages and not actual dollar amounts. When this is realized, consistency becomes key.

  • Ryan 4:09 pm on May 7, 2009 | #

    @ Scott – Like Adrian, I really like the idea of taking cash out weekly. As you’ll see in my post, we have a similar system but use our debit card for purchases. This might be a solution to the dilemma I pose in my post.

    @ Lee – I know what you’re talking about because I’ve definitely been there (LOW income, HIGH debt, HARD budget). But, having been there, I realize you may not be making huge savings gains, or even huge debt reductions, but by creating a system and being disciplined, you are showing yourself (and the powers that be) that you are worthy of and capable of sustaining more money.
    Once you prove this, your confidence with money will improve and you will watch in amazement how money now flows to you from many different directions and in ways you never thought of.
    It may sound crazy, but I know it to be true.

  • Scott 4:25 pm on May 7, 2009 | #

    Sorry for not getting back quicker guys, I had to go to Chicago on business, so I’m not near a computer.

    @ Lee – I am certainly blessed in my income, but I think its easy for people to forget that I have to earn that income via several trying years of focus & work. It wasn’t easy to get to this point and won’t be easy to get to my number, but like every other goal I’ve set out to accomplish and have achieved, i’ll take whatever I have to on the chin to get there. I came from the trailer park to get to where I am now and will continue forward to get to my number no matter how hard it is. if I didn’t earn my current income, I would find a way in business to earn my current income via another business route and save half of it, just like I’m doing now. personally Lee, I think its way more to do with your discipline and money making 101 saving skills, then money making 201 skills and not just income.

    @ Josh – thanks man, we are certainly here to learn and help each other.

    @ MoneyMonk – Thank you. Even if I made a quarter of my income, I would live on less, practice good MM101 skills and pursue business success in something I love to do.

    Other than that, I don’t know what else to tell u guys. I guess I think that its each of our responsibilities to make our income “fortunate”.

  • Scott 5:11 pm on May 7, 2009 | #

    It’s interesting, I’m sitting in the middle of a success seminar this very moment in Chicago, typing this on my Palm and the speaker is talking about how if we are to be successful, it is entirely up to us. we are the pruducts of our dreams goals and vision and how well we stay focused and disciplined to achieve those goals. he’s talking about how we all tend to think of ourselves as victims or have a victim mentality and that often we think that anyone who is successful or achieving their goals are simply lucky. that’s the mindset we all need to have and here.

  • Scott 5:33 pm on May 7, 2009 | #

    Ryan – Thanks for the comments! I agree with everything you said 100%.

  • Adrian 7:02 pm on May 7, 2009 | #

    @ Scott – Aaah; I can see your problem: outdated technology. Get an iPhone 🙂

  • Scott 8:32 pm on May 7, 2009 | #

    lol, you got me figured out. but I can’t spend the extra mony on it while I’m getting to my number, so i’ll have to rough it, lol.

  • Adrian 12:36 am on May 8, 2009 | #

    @ Scott – Anybody who earns a high income, has a family to support, yet manages to save 40% of their income probably needs little in the way of MM101 tools/support.

    In fact, the caution that I would give is not to let fear hold you back from living your life now … as part of your journey to your Number.

    So, when you double/ triple your income DO spend more … you need an immediate and an ongoing reward for ‘success’; just make sure that you save at least 50% (but, less than 100%) of any future SUSTAINABLE income increases

  • Scott 7:47 am on May 8, 2009 | #

    you got it Adrian. Thanks!

  • Debbie 6:13 am on May 10, 2009 | #

    I think all of the 7 in training’s stories about where you started and where you are going are inspirational, and I love that they’re all different. That way, when all 7 of you reach your Numbers, it will be even more proof that ANYONE can do it, regardless of where they are positioned at the starting line.

    @Scott I LOVE how you just put ALL the money into the bank to cover your expenses and predictable stuff, emergencies and all that – and just take out cash for the spending… “when it’s gone, it’s gone” is perfect. I tried this a few years back, but it didn’t work at the time because I wasn’t “break-even” yet. Meaning my expenses consistently were more than what I was earning. So for people in that situation, some other stuff may have to happen before they can get to use this method. As soon as your break-even though, it seems this would be the perfect solution to avoid spending more as your income increases.

  • Scott 7:38 am on May 10, 2009 | #

    Thanks Debbie, I hope this exercise is really helping people. I will have to say that if I had to do it all over again, everything i’ve learned about money from personal studying, reading, financial success seminars like the one I just attended, teach that it’s not how much you make, but what you do with the money you make. In other words, it doesn’t work in reverse. It doesn’t work in a method where someone will start doing the right thing “when they get the extra money”, or windfall or raise. It works in total reverse.

    When you say to yourself, “i’m going to have a clear goal, purpose and place for every penny that you make before you get it”, then something kind of strange happens, you begin to make more! The thing i’ve learned and had proven to me over and over again is that the better you manage the money you have, however small or large it is, then the more money you will somehow attract, to manage.

    And if someone isn’t making much, or they have strapped themself in too hard of a prison with debt, the MORE important it is to do this!

  • Diane 9:22 am on May 11, 2009 | #

    @ Lee, et al.

    As Adrian mentioned, I’m busy with other things lately so am not “up to snuff” on the readings. That said, you’ll see my post on this is nearly a mirror of Scott’s method, and I don’t make nearly the money he does.

    I started the “pay yourself first” back when I finally had enough money from my first job to afford the rent, car payment AND food. The first job paid $13k a year, and didn’t cover food really. Within a year, I’d moved in with my boyfriend – later my husband – and when we split up and I moved out, set up a budget just as Scott described, without the online automatic payments. That came later.

    I limited my spending on credit card (discretionary spending) to $400 a month and paid it off monthly. I kept track of how much I was charging, so I would not overdo this. I also usually only carry a $20 bill in my wallet. Ones tend to disappear, as does more money. I can hang onto a $20 bill forever it seems (2-4 weeks anyway), but if I have $80, I will spend money more easily. A little here, a little there. SO I use credit cards today for all purchase.

    This goes back to when I was married, as well, and we paid the bills off each month.

    Now, I have it all lined up with my bank, which does a great job of ensuring bills are paid on time. Only one of the payees – another bank – has caused a problem with my bank’s ability to pull a bill from them, so I have a set amount going their monthly which exceeds the minimum payment, but is easy to track in the budget. This ensures the bill has no late fees or charges from that other bank. Once paid off, I will cancel my credit card with the other bank. (This was discussed in earlier posts last year.)

    Men I notice tend to feel comfortable only when they have cash in their pockets. Not sure why that is, but it seems most men take $200 or more out of the bank when they withdraw money. I find it much harder to track cash expenditures (“petty cash” really) and love how the credit card companies keep track of everything I spend. My bank can also pay all doctors, hospitals, and even people, directly, so those can be tracked as well. Since I can view any cleared checks I wrote, i can always see where my money went, unless I used cash.

    Most places – doctors’ offices, fast food restaurants, etc – take credit cards. I prefer to work with those which do, and if I can use a card that gives me money back (my discover and my bank’s MC both do), then I will use those cards.

    I don’t think I was ever making the kind of money Scott makes, so I disagree with that thought. His ability to be making more money NOW because he’s on a set budget IS due to his making more money, not to his budget method. It’s because he STUCK to the same budget and saved the additional income. But, if you skinny down what’s allowed to be spent, then allow yourself a set allowance, you can easily do it to.

    For men, I’d suggest working without cash handy and see what you buy. For women, maybe it’s the other way around and we should see what we’d buy without having credit cards or checks around…pretending that we can’t use it for a purchase, how would we pay? Would we walk away?

    I saved money when I was doing this and moved in with an aunt (also mentioned before in a post; one of our 7MITs is living with family and should be saving a lot of money right now). If I had an income now, that would be a lot of what we would do with the stuff I spent before on living expenses.


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