OK guys, time to buckle up…
On our regular budget blueprint, we always put debt directly below essentials. Making it stop #2 for our dollars. Why? Because you need to get debt out of your life.
But debt allows us to realize our dreams faster, visit far-flung locations, and shuttle our families around in safe and reliable cars, right? At least that’s what all those high-budget ads would have you believe. Unfortunately, it’s just not the full picture. We’ve been conditioned to believe that credit cards and auto loans are just a natural part of everyday life. But don’t fool yourself into thinking a credit card company cares about your dream vacation. They’re in the money-making business. And they ARE smarter than you. They know the easier they make using their product, the more likely you are to use it at the exact moment you shouldn’t. As anyone with a load of credit card debt will tell you, this is the opposite of freedom.
Through debt, we get things now and pay for them later. This preys upon one of our deepest human weaknesses; always wanting to have our cake AND to eat it too. And with credit cards and student loans and car loans, you can get pretty full. For a while at least…until it’s time to pay the piper.
I get it. Putting your hard-earned dollars towards debt is one of the LEAST fun things out there, right alongside paying taxes. But if you’ve ever thought “Dang, giving my hard-earned dollars to someone else every month sucks” then join the dump-debt club, my friends! Transitioning to paying for things with money you have is the best. There are no bills to be afraid of. No collectors to dodge. No futures to sabotage. You are free to do EXACTLY what you wish with every paycheck that you work for; it’s a fabulous feeling.
That’s why we put debt payoff just below rent and groceries and above things like investing into your retirement. Investing while carrying debt is like running a marathon with weights tied to your ankles. For goodness sake, you need to unshackle yourself, and then continue the race. If getting rid of debt gets top billing in your world, it will happen. As Dave Ramsey says “You can wander into debt, but you can’t wander out”.
So, then the question becomes, which debts to pay off and how.
Well, here’s a video for you dears, where we answer that exact question. : )
Next time, we’ll tackle Retirement!
Like Julie Andrews says, let’s start at the very beginning.
It’s a very good place to start.
Most budgets take the form of a list. Whether it’s in a spreadsheet or just on a piece of paper, your expenses will show up in some sort of top-to-bottom fashion. To be a total budgeting boss, you have to get the order right, starting with the most important things at the top. Maybe that seems elementary. But I can’t tell you how many budgets I’ve looked at that are not set up this way.
Humans have a limited amount of willpower. Studies show that we succeed when we create the proper environment. We do not succeed when we have to constantly fight against our surroundings. It’s this science that resulted in a container of Nutella surviving an entire year in my pantry. Because it was in the back, hidden behind canned beans.
Just as out of sight is out of mind; top of sight is top of mind.
So, when we budget, we need to take care of what some people refer to as “the four walls” first. People sometimes like to try and get fancy with it. But just ask yourself the following questions and you should be good to go:
The answers to those questions are what go in the top section. Thankfully they should be the easiest expenses to isolate. For example, your mortgage payment, your electricity money, your gas money, your grocery money…those should be showing up here. These are NOT always your “bills”. I have plenty of bills that are not essential. Like life insurance, Netflix, or our counselor. None of those are essential to my continuing to eat, have shelter or get to work.
Make sense? Good.
Next time, we’ll go to section #2. Debt!
I love saying this word out loud to the groups that we speak to. I can immediately feel the crowd shift uncomfortably and I can almost hear the voices in their heads start to pipe up.
“I should maybe do that someday.”
“I don’t really make enough money to budget.”
“Oh yeah, I have MINT for that. Check.”
“I make a pretty good income, I’m fine.”
“Maybe on January first…”
I know that voice all too well because I heard it all the time. But even though I was the “we-need-a-budget” instigator in our marriage, I was the worst at sticking with it. I’m just one of those people that really enjoys starting projects, not finishing them. It just seemed like every time I’d jump on the budget bandwagon, a week or two later, I’d fall off and get trampled over. At the time, I just couldn’t figure it out why. It’s not like budgeting is a hard concept. But after going through countless tries and helping other people build out their own budgets, we’ve figured out something important.
A budget includes all the categories you spend money on, but an EFFECTIVE budget has them in the RIGHT ORDER. Why? Because visuals are SO important. For us creative people, the idea of going into a black and white excel spreadsheet every day is about as appealing as going to the dentist.
It was out of this realization that our “Best Budget Blueprint” was born. Our hope is that you take advantage of our years of budgeting experience and use this to create a budget that you’ll actually stick to. We did. It works.
Are you surprised…or rather, ambushed…every year by the holidays, vacations, and buying gifts? Lots of folks take a trip, finish their holiday shopping, or get past the New Year and finally look at their account balances and EXCLAIM their costs were “a lot bigger than we thought they were going to be!”….yet again.
DON’T LET HOLIDAYS & GIFTS SINK YOU
That happened to us for many years too. Don’t worry, you’re not alone. At first, we made outlandish resolutions like:
“We’re just not gonna give gifts this year…”
“We’re gonna hand make EVERYTHING!”
“No trips for two whole years!!!”
Sound familiar? Yeah….that never really pans out very well. Now, we have specific steps we use and recommend to others to avoid that looney spending cycle.
1. Get HONEST about your spending habits
The key to this one is…drum roll… “honesty”. If you typically take 2 to 3 trips per year, start being honest with yourself about that. If you typically spend 5,6,7, or $800 per year on Christmas, be honest about that. You don’t need to judge yourself, just be honest about the facts.
2. PLAN your spending for 2016
IF you’re honest about your spending, then you know what to expect this year. AND, if you know what to expect, you can make a plan. Let’s be honest, this year will probably be, on a grand scale, somewhat predicable. Christmas won’t disappear, Christmas won’t happen in July, you probably won’t hunker down in a bunker in the woods all year, and you will have expenses.
So, if that’s the case, it’s actually pretty easy to start saving for those expenses now in little amounts each month.
For example, we save a few hundred dollars every month for vacations, whether or not we have a vacation in mind. So, IF we decide to suddenly take that exciting random trip to Marfa…or Belize…there’s a few thousand dollars in there waiting for us. We don’t have to steal from our emergency fund, our giving bucket, or something else that’s way more important like car repairs or health costs.
Which, brings us to budgeting for your expected costs…
3. MAKE a budget
If you have a budget, awesome! We STRONGLY recommend this for everyone. Saving for your long-term expenses is SO MUCH EASIER with a budget.
It’s all part of making a plan. For example, Christmas…surprise, surprise…happens on the exact same day, every single year.However, for some ELUSIVE reason, Christmas expenses seem to throw us for a loop every single year, too.
With a budget, you can be prepared. It’s that simple. If you’re 11 months out from Christmas, like we are right now, you can start saving around 50 bucks per month, and you’ll have around 600 bucks by the time Christmas rolls around.
Life is WAY less stressful if you have a budget, because you can just let it accumulate in a line item category. We personally LOVE the online budgeting app “You Need A Budget” or YNAB, which lets you do just that. But, if you’re old school or…God forbid…if you’re not budgeting at all, you can just have a side bank account that’s designated for specific purposes. You could set up automatic transfers from your main account to designated accounts for a vacation fund, a Christmas fund, and other long term expenses. We always recommend using some sort of budgeting system, but this can at least help you accomplish the same thing
4. WATCH this video…
If you’re “just not getting it” after reading that, watch this helpful video we put together. It illuminates our savings and budgeting principles even further. Check it out by clicking here!
If you didn’t meet your financial goals last year, guess what? You’re not alone. This time of year, LOTS of people go through the same gut-wrenching process of reviewing their goals and realizing they came up a little bit short. Just breathe, and get ready to make a better plan.
WHY wasn’t that goal achieved?
Figuring out why you didn’t achieve something starts with defining the goal itself. Maybe your goal was too heavily dependent on things OUTSIDE of your control.
Take these goals, for example:
What about the things you COULD have done, but didn’t?
You can probably rattle off a laundry list of reasons why certain goals weren’t met, but they usually boil down to these three areas:
It is important to be able to take personal responsibility for our own shortcomings, but just feeling guilty is a waste. No good fruit comes of it. Your energy and time are better spent focusing on committing to new actions.
SO, how do I make 2016 different?
Take the information OUT of your brain, and put it in the real world. Take ten to twenty minutes to make a picture of what your current finances actually look like. Cash on one side, and Debts on the other. NOTHING fancy. You can’t figure out where to go, if you have no idea where you are now. That’s why maps exist.
DON’T make this a one time thing. DO THIS WEEKLY. Maybe monthly. This will keep you focused and consistently affirming that “YES, this is something I still want”.
The most beneficial tactic we know of is to speak the goals OUT LOUD to somebody else. Ideally, more than one somebody else. You NEED an accountability partner. Period. Full stop. Not only will talking about the goal make it more “real”, but hopefully people will help you see if your goals are realistic. Utilize the strengths of those who are close to you. Humans are NOT designed to act alone.
If you have a spouse or a significant other, that can be a good place to start. But, don’t just stop with them, the MORE people you tell, the more likely you will make it happen.
Here are a few ideas:
3. Define what you will GIVE UP in exchange for that goal.
Free time and resources don’t just show up. Time and money are limited for everyone. You CANNOT do all the things all the time. There’s 24 hours in each day. But, with planning, you CAN get the things you really want.
So, what is going to give? Your daily lattes? Your Netflix binges? Those new jeans? That music festival ticket? Nights out with friends?
What is your goal worth MORE than?
Answering that is absolutely key to your success. That way, when achieving that goal is on the line YOU have already decided how to make room for it. BOOM.
We are so thrilled for the 2016 ahead of us here at The Art of Finance. Make sure you like our page on Facebook if you haven’t yet! You can find us here. We’re constantly striving to make our free content more relevant and more helpful.
Drop us a line any time! We always love to hear from you. : )
The Art of Finance
Philip and Julia Olson