June 14, 2024 • 20 mins
Ever wondered why some people achieve financial freedom while others struggle despite having similar incomes? Uncover the secrets behind sustainable budgeting in our latest episode featuring insights from Scott Galloway's "The Algebra of Wealth: A Simple Formula for Financial Security." We promise you'll walk away with practical strategies for turning your financial habits into a roadmap for success. This episode highlights the critical role of upbringing and surroundings in shaping financial behavior and how small yet frequent expenses can derail your budget. Justin Gaines sheds light on common pitfalls and emphasizes the importance of continuous tracking and adjustment for effective money management.
Amidst economic uncertainties, maintaining consistent financial habits is more crucial than ever. Discover strategies for preparing for future opportunities by reducing debts and keeping your savings on track, even if it's just $10 a month. We'll also discuss the role of financial education—or the lack thereof—in traditional schooling and how much of our financial habits are inherited from our parents. Learn why a systematic approach to money management, including budgeting and expense tracking, is essential for long-term financial security. We aim to inspire a healthy obsession with money management to prevent financial instability and build a solid path to financial success.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to the Balanced Blueprints podcast,
where we discuss the optimaltechniques for finances and
health and then break it downand create an individualized and
balanced plan.
I'm your host, justin Gaines,here with my co-host, john
Prober.
In this episode, john and I aregoing to not talk about the
numbers.
Talk more about the habits andthe behaviors that allow for
your budget to actually work foryou and allow you to find a
(00:23):
path to financial freedom.
Thank you for listening and wehope you enjoy.
So I just started this new book.
I just started listening to ita couple weeks ago Hopefully
this doesn't screw up ourrecording, because I'm going to
switch over here to Audible tosee the title of it and it was
one of these things that youknow because I listened to and
(00:47):
read so many books.
I was at that point whereeverything on my wish list you
know wish list, my upcoming,like read list, one listen list,
whatever it is on audible uh,all those books, like they just
weren't speaking to me and so Iwas like, ah, you know I got.
I had two credits that I neededto use.
And then this recommendationcame up.
I was like, oh, that's, youknow I got.
I had two credits that I neededto use and then this
recommendation came up.
I was like, oh, that'sinteresting, let me, let me give
(01:07):
it a listen.
I'm so glad I did.
I definitely I'm going toincorporate this book when I
work with clients because itcompletely foregoes the charts
and the numbers and all thatstuff and just gets down to the
basic concepts, behaviors,habits and education around the
topic.
It's very easy to jump into thenumbers and say, oh, this is
(01:29):
the percentage and the ratios,but this just explains the
background behind where mostpeople get their financial
education, which is theirparents and the people that
they're around consistently, andthen how that domino effects
into people's financial budgetsand long-term habits.
So the name of the book is theAlgebra of Wealth A Simple
(01:51):
Formula for Financial Securityby Scott Galloway.
Like I said, it foregoes thenumbers and it's interesting
because he'll even say, like youknow, if you're well-versed in
financials, you can skip thischapter.
You don't have to listen tothis or you don't have to read
this.
Interesting because he'll evensay, like you know, if you're
well-versed in financials, youcan skip this chapter.
You don't have to listen tothis, or you don't have to read
this.
And I still listen to it justbecause I think it, you know,
(02:13):
listening to the basics.
I think I get this from thesports background, where every
sport you know, no matter whatlevel of sports you play at,
there's practice sessions thatyou have that are specifically
on the basics, because you'regoing to touch something, you're
doing wrong or you'll noticelittle tweaks that you need to
make, or something will justlook different for you.
And that's definitely appliedin this chapter, which got to
(02:34):
the topic of budgeting, whereI've had clients say we sat down
, we do the budget and thenthey're like oh, oh, this budget
isn't working for me and italways like blows my mind
because I'm like well, we satdown and we wrote everything out
and you told me what yourexpenses were.
You told me what your incomewas.
So what number is wrong is whatmy mind always goes to.
(02:58):
It's like what, what expensedid we leave out?
Okay, let's grab your bankingstatements, let's do an audit,
let's see what you're spendingmoney on.
That you're not that you didn'tdisclose or that you just it's
not even I don't want to say itin the sense of you didn't
disclose and it's just thenature of there's clearly some
extra expenses that you're notseeing or that you're not used
to seeing, because it's $10 atStarbucks every other week or
(03:22):
twice a week instead of once aweek, and you said you know if
it was every other week.
You said you don't do it at all,or you said you do it once a
week and it's really twice aweek, every other week or every
week, and so those littleincremental adjustments cause
issues down the line long-term,and some of that has to do with
the timing of the calendar thatwe follow, because most people
(03:44):
are paid every two weeks.
But even if you're paid everyweek, every week, payments have
less of this issue.
But if you're paid every twoweeks, some months you have two
payments a month and some monthsyou have three payments in a
month, and so the timing of,like your rent or mortgage
payments typically will offsetand mess up your cash flow if
(04:04):
you're not following this reallyclosely.
So you need to know what paymentcycle is the rent coming in at
and which payment cycle are thepayments coming in at to line
those up, because for a lot ofpeople that rent, payment is
going to take up a good portionof one of your paychecks, and so
(04:25):
if you're only having twopayments in a month.
You're living off of one andthen you're covering your
housing expense off of the other.
But what a lot of clients do,and I didn't even realize until
I was listening to this book.
But we sit down and we do abudget, we make a budget, but
that's only half of the equation, Because that's just the theory
.
Because that's just the theory,that's just the concept.
(04:46):
Is that okay, this is theamount of income, this is the
amount of expenses.
If you don't ever actually goback and track your expenses in
each one of those categories,you're most likely going to be
off in one of those categoriesbecause of those extra expenses.
Or maybe you thought I fill upmy gas tank once a week at $40 a
(05:06):
tank, so I need $160.
And it's not really every week.
So let's round that down.
We'll say $150 a month for gas,and then you take extra road
trips.
That week or that month you goon a long one-day trip or
two-day trip with some friendsand you decide that you're going
(05:28):
to be the one that drives, andyou do that once a month or
twice a month and you don'tthink about it.
But now you had an extrafill-up of your gas tank.
So now your $160 actually was$200, but because you weren't
tracking it, you still stayed at$150, and then for the next
month you still stayed at $150,and you never readjusted for
that extra $40, $50 of expense.
(05:50):
And so the actual habit of OK,this is a budget, but each month
we also, or each pay cycle wealso need to go in and mark down
what did we actually spend,what did we do here, what did we
do there?
And as I'm reading the book,there are little habits that I'm
doing that I wasn't doingbefore, wasn't as religious
about that.
(06:10):
Now achieving those goalsbecomes a lot easier because
you're seeing where yourdeficiencies are, where you're
overspending, where you'reunderspending, and then you can
reallocate that budget.
But a lot of times peoplearen't doing the work after they
create the budget.
If we created the budget, we'reall set.
Now we don't track the expenses.
(06:31):
But tracking the expenses isalmost more important than the
actual budgeting piece itself.
Speaker 2 (06:38):
Yeah, I think we've touched on this before with when
we were going over.
What is it?
net zero or yeah, net zerobudgeting yeah, and I I
mentioned before that that'susually how I did did it.
But I kind of like the creditcard method where I want to
switch to that because I feellike that's more on the topic of
this, because, like I saidbefore, one time things would
(07:02):
come up that you wouldn'taccount for in your budget when
you make it and they're hard toaccount for them because they're
different.
It's not like even like theexample you used, if you take
consistent road trips but don'tthink about them because they're
just these events coming up.
But, like for me it was like aone time thing here and then a
one time to get a completelydifferent area.
(07:22):
So it's hard to even accountfor that because there's
literally no routine.
Speaker 1 (07:25):
And I think you should do both together.
So you should have a net zerobudget and then use the credit
card method to borrow fromdifferent categories, but make
it so that and even for mybudget, like I have, I have my
debt obligations and like fixedpayments, you know your
everything that has to come outof your bank account you can't
pay with a credit card your lifeinsurance, your mortgage, your,
(07:47):
you know your other insurances,any other loans that you have,
your credit card payments.
But, then I make the credit cardwhich covers all of those other
expenses one large item, andthen I actually create a sub
budget for the credit card whichcovers all of those other
expenses one large item.
And I actually create a subbudget for the credit card the
credit card I'm allowed to spendwe'll say $2,000 a month on and
then I break out what that$2,000 a month goes to.
(08:08):
So then I can track it in eachcategory.
But, like you said, now you canborrow from each category as
long as the total stays belowthe $2,000.
Because you can borrow fromeach category as long as the
total stays below the 2000.
Because you can borrow fromeach category and say, ok, I
spent less than gas this month,so now I can go buy, you know,
splurge on some clothing or on anight out, or take an extra
night out for date night or goto a little bit nicer restaurant
(08:30):
because we didn't spend inthese other categories towards
the end of the month.
And I think it allows for theease of recording.
But again, you've got to makesure that.
Okay, I said 3 000, but am I or2 000?
Am I actually hitting that 2000 number or am I going over
and hitting 3 000 and thencausing an issue in that budget
(08:50):
or 2100.
You know a thousand dollardifference is going to be
significant in your budget.
But building that habit ofactually going in and tracking,
that's when you'll start to seewhere you're overspending or
where you're.
You know you don't think youeat out that much and then you
realize, oh, I don't eat out atsit down restaurants that much,
but I do stop on my way home andgrab fast food because I don't
(09:12):
want to have to cook that night.
So it's only 10 bucks, only 15bucks.
Let me just stop grab it andthen not have to cook that night
.
But that offsets your entirebudget throughout the week or
throughout the month.
Speaker 2 (09:24):
So are those from what you've read so far or if
you've finished it, are thosemainly the tips and tricks is
just being a lot more diligent.
Speaker 1 (09:31):
There's a lot in the book.
That's one of the big ones thatstuck out to me.
The other big one was and we'vetalked about this before as
well where the habits associatedwith maintaining your finances
are a muscle and you have tobuild that muscle.
So one of his recommendationswhich, if you have the room and
the budget, I do think it's agood thing is he believes that
(09:58):
if you're saving, if you'retrying to build a savings which
most of us are even if you justtake $10 a month, $5 a paycheck
and put that into a savingsaccount, yes, it's not going to
build quickly, but what it'sdoing is it's creating the habit
that a portion of your paycheckgoes to saving every single
month.
(10:18):
And so, even for me, I'm in aperiod of my financial journey
right now where I think in thenext you know two to three years
, the economy is going to pullback.
A lot of things are going tocome up for sale.
There's going to beopportunities to acquire assets
at a reasonable price and moveinto those.
So I'm trying to deleveragemyself, reduce my debts in order
(10:41):
to be able to take on moredebts in the next two to three
years.
So I haven't been putting asmuch money towards savings.
But after I read this I was like, no, that's a really good point
.
Continue to have that incomestream open or that savings
stream open.
Just set it at $10 a month andthen, as you adjust your budget,
you're just going to move moremoney into that savings category
(11:04):
.
As you eliminate some of theseexpenses, there's an income
stream that goes into the stockmarket investment account and
with that, as you have moremoney, you can put more money
into that category.
But having that income streamopen or that saving stream open
(11:27):
allows you to have the musclebuild of being used to doing it,
and that allows for thatpathway Instead of having to go
in and like, oh, now I got tofigure out a savings account and
I have to figure out how toautomate this or how to set it
up, and there's all the hurdlesthat you have to go through if
you have that stream open.
It's just a matter of adjustingit, and you're already used to
doing it, so it builds that thathabit much faster.
(11:49):
He's a big proponent, too, ofusing apps like acorn that round
up every transaction you haveand then put that change into
savings.
Because, again, his argument isthat that's not going to save
your entire financial outlook,but it is going to build that
habit.
It's going to allow certainthings to just start to be put
(12:10):
in the way and then eventually,over time, you will have
something that's amassed into asizable, either investment or
savings or whatever the case maybe, but it's about building
those habits.
So a lot of the topics that arediscussed are topics that we've
discussed, but it might betaking it from a different
(12:30):
perspective and it makes it verysimple, very cohesive and it's
just education focused.
There's no numbers, it doesn'tdrag you into that, and it also
just justifies or explains whatcauses the lack of financial
education in the world.
Really and he even brings upthat high schools, colleges
(12:54):
unless you go into a businesstrack in college, the amount of
financial education we have inour educational programs is very
minimal, and so the vastmajority of individuals learn
their financial habits fromtheir parents, and he argues
that the reason why the rich getricher has some to do with
(13:17):
economics, but has more to dowith the education that they
receive from their parents.
If you have wealthy parents,you get a wealthy mindset around
money, and when you have lessaffluent parents, you get a less
affluent mindset around money,and so it starts to compound.
Those habits continue to buildoff each other, because if
(13:37):
you're come from a less affluentfamily and you're used to
overspending on stuff or youdon't have the budget, then when
you have a little bit of money,you can go and splurge and use
that extra money to have someenjoyment short--term, immediate
enjoyment because you weren'table to have it for the past
year, two years, three years,ten years, whatever the case may
be.
And so what this is saying isthat that's not what you should
(14:03):
do.
Okay, take 40% of it and go dosomething fun.
Take 60% of it and put ittowards savings, put it towards
building towards that retirementyears and just breaking down
those different elements thatare tricky to navigate and tough
to hear.
But I think one of the biggestthings that I always hear with
(14:24):
my clients that are lessaffluent or come from a less
affluent upbringing is that thegoal is to get to never thinking
about money and that is just sowrong and so not true.
I even used to be in thatmindset of like, let me just
amass the amount of money, andmost amount of money I can, and
then that way I won't have toever think about money.
(14:47):
And the more and more I learnabout finances, the more and
more I realize that if you wantto get into a secure position
with finances, you need to havea healthy obsession with money.
You need to have a system totrack it.
You need an outline of, youknow, a roadmap, which is your
budget, a system to track it andmake sure that you're on course
(15:08):
, which is what we talked abouttoday of tracking those expenses
, keeping on top of those things.
And then you need theaccountability piece that if
you're falling behind, it's notokay, I'll just do better next
month, it's no, I'm going toreadjust next month, replenish
what I overspent by, reduce mybudget next month by those
numbers and then get back oncourse as quickly as possible.
(15:31):
You'll never get to a pointwhere you don't think about
money.
The only outcome from notthinking about money is being
broke.
Spending it all yeah, just spendit.
All, it's just.
If you don't give your money ajob, it will magically disappear
on its own give your money ajob, it will magically disappear
(15:55):
on its own.
Speaker 2 (15:56):
Find a job for someone else, um, it's.
The other thing I like too isit's just one of those things of
like.
Even if you look at smallhealth habits you think you're
too big for them or you thinkyou're above them, and it's not
about that.
Like you said, it's just sogood to keep that muscle going,
like even for you.
The difference, of sure, whenyou pick up your savings again,
if you completely stopped it, itmight not be that hard for you
(16:16):
versus someone else.
But, like you said, $10, 10cents, it just keeps that muscle
alive versus it completelywithering away.
So it's hard to remember thatso it's hard to remember that.
Speaker 1 (16:27):
Keeping that flow of consciousness of I need to do
this.
This is something I need to bedoing.
Okay, let's continue to put itthere.
And if you put it into a highyield savings, like we suggest
and like what I do, you keep infront of inflation, because if
you just have it in a checkingaccount and it's making 0.25%
and inflation's at 2.5%, 3percent, you've lost 2.75
(16:51):
percent of that money, whereasand this is part of what the
book does to it, like it givesyou the education on these
topics that if you hit, ifyou're in the high yield savings
, like both of us are, you havea five percent rate of return,
but your real rate of returnafter inflation is really 2% if
inflation's at 3%.
So you're really only making 2%on your money above and beyond
(17:14):
inflation, which is why you callit the real rate of return,
because your purchasing power,if you keep pace with inflation,
is the same.
You can buy the same amount ofstuff.
If you don't keep pace withinflation, your money isn't able
to buy the same amount of stuff.
Speaker 2 (17:28):
Right yeah.
So, it gets into that piece.
Speaker 1 (17:39):
And then part of the reason why you want that saving
stream open is there's two waysthat you can go about trying to
amass wealth higher rates ofreturn or larger amount of money
making that rate of return.
Larger amount of money makingthat rate of return, because if
you take $1,000 and you make 50%on that, you've made $500.
(18:00):
But if you take $100,000 andyou make 5% on that, you've made
$500.
5% is much more obtainable than50% consistently year over year
, and we're doing it in a highyield savings right now because
of the interest markets thatwe're in.
But the difference in how muchmoney you're getting out of it
is the amount of capital thatyou have in there, and so slowly
(18:20):
putting away more money andbuilding that capital up is why
you're able to then generate alarger sum of money off of it,
but taking it on less risk yeah,yeah, it sounds like a a good
reminder of the basics, but agreat book for beginners as well
(18:41):
yeah, I think personally I've.
there's a financial advisor thatI work very closely with and
I've told him the same thing.
I was like you should buy 15 to20 of these books, have them in
your office and the people whoare very interested in learning
about it and actually gettingthemselves to a stronger
financial position should readthis book.
(19:02):
Yeah, especially if they youknow if you're building a budget
with this client or if you'relistening to this podcast and
building a budget.
I would, 10 out of 10,recommend reading this book,
grabbing a copy of it and justdigging into it.
But it's going to be the best$15 to $20 you've ever spent to
(19:28):
start your financial educationjourney, because it breaks down
the basics.
It gives you a fundamentalunderstanding of how markets
work, how budgeting works, howmoney works, and then from there
you're going to be able toposition into more in-depth
financial planning.
But I have always said, and willcontinue to say, that your
financial plan should be verybasic.
(19:48):
You should be able to explainyour financial plan to an
8-year-old and they should beable to understand it.
If you're getting into acomplex financial plan, it
should be because you alreadyhave a solid foundation that
you're building off of, and youshould still be able to explain
your complex plan to aneight-year-old in a way that
they understand it, and it'sbecause you have the mastery of
(20:10):
that financial plan and soyou're able to distill that into
something that aneight-year-old can understand.
You cannot explain yourfinancial plan to an
eight-year-old.
It is too complex and you'reprobably being taken advantage
of.
Speaker 2 (20:22):
Fair.
Thanks for listening to ourpodcast.
Speaker 1 (20:25):
We hope this helps you on your balance freedom
journey.
Speaker 2 (20:27):
Please share your thoughts in the comments section
below.
Speaker 1 (20:29):
Until next time, stay balanced.
Welcome to the Balanced Blueprints podcast,
where we discuss the optimaltechniques for finances and
health and then break it downand create an individualized and
balanced plan.
I'm your host, justin Gaines,here with my co-host, john
Prober.
In this episode, john and I aregoing to not talk about the
numbers.
Talk more about the habits andthe behaviors that allow for
your budget to actually work foryou and allow you to find a
(00:23):
path to financial freedom.
Thank you for listening and wehope you enjoy.
So I just started this new book.
I just started listening to ita couple weeks ago Hopefully
this doesn't screw up ourrecording, because I'm going to
switch over here to Audible tosee the title of it and it was
one of these things that youknow because I listened to and
(00:47):
read so many books.
I was at that point whereeverything on my wish list you
know wish list, my upcoming,like read list, one listen list,
whatever it is on audible uh,all those books, like they just
weren't speaking to me and so Iwas like, ah, you know I got.
I had two credits that I neededto use.
And then this recommendationcame up.
I was like, oh, that's, youknow I got.
I had two credits that I neededto use and then this
recommendation came up.
I was like, oh, that'sinteresting, let me, let me give
(01:07):
it a listen.
I'm so glad I did.
I definitely I'm going toincorporate this book when I
work with clients because itcompletely foregoes the charts
and the numbers and all thatstuff and just gets down to the
basic concepts, behaviors,habits and education around the
topic.
It's very easy to jump into thenumbers and say, oh, this is
(01:29):
the percentage and the ratios,but this just explains the
background behind where mostpeople get their financial
education, which is theirparents and the people that
they're around consistently, andthen how that domino effects
into people's financial budgetsand long-term habits.
So the name of the book is theAlgebra of Wealth A Simple
(01:51):
Formula for Financial Securityby Scott Galloway.
Like I said, it foregoes thenumbers and it's interesting
because he'll even say, like youknow, if you're well-versed in
financials, you can skip thischapter.
You don't have to listen tothis or you don't have to read
this.
Interesting because he'll evensay, like you know, if you're
well-versed in financials, youcan skip this chapter.
You don't have to listen tothis, or you don't have to read
this.
And I still listen to it justbecause I think it, you know,
(02:13):
listening to the basics.
I think I get this from thesports background, where every
sport you know, no matter whatlevel of sports you play at,
there's practice sessions thatyou have that are specifically
on the basics, because you'regoing to touch something, you're
doing wrong or you'll noticelittle tweaks that you need to
make, or something will justlook different for you.
And that's definitely appliedin this chapter, which got to
(02:34):
the topic of budgeting, whereI've had clients say we sat down
, we do the budget and thenthey're like oh, oh, this budget
isn't working for me and italways like blows my mind
because I'm like well, we satdown and we wrote everything out
and you told me what yourexpenses were.
You told me what your incomewas.
So what number is wrong is whatmy mind always goes to.
(02:58):
It's like what, what expensedid we leave out?
Okay, let's grab your bankingstatements, let's do an audit,
let's see what you're spendingmoney on.
That you're not that you didn'tdisclose or that you just it's
not even I don't want to say itin the sense of you didn't
disclose and it's just thenature of there's clearly some
extra expenses that you're notseeing or that you're not used
to seeing, because it's $10 atStarbucks every other week or
(03:22):
twice a week instead of once aweek, and you said you know if
it was every other week.
You said you don't do it at all,or you said you do it once a
week and it's really twice aweek, every other week or every
week, and so those littleincremental adjustments cause
issues down the line long-term,and some of that has to do with
the timing of the calendar thatwe follow, because most people
(03:44):
are paid every two weeks.
But even if you're paid everyweek, every week, payments have
less of this issue.
But if you're paid every twoweeks, some months you have two
payments a month and some monthsyou have three payments in a
month, and so the timing of,like your rent or mortgage
payments typically will offsetand mess up your cash flow if
(04:04):
you're not following this reallyclosely.
So you need to know what paymentcycle is the rent coming in at
and which payment cycle are thepayments coming in at to line
those up, because for a lot ofpeople that rent, payment is
going to take up a good portionof one of your paychecks, and so
(04:25):
if you're only having twopayments in a month.
You're living off of one andthen you're covering your
housing expense off of the other.
But what a lot of clients do,and I didn't even realize until
I was listening to this book.
But we sit down and we do abudget, we make a budget, but
that's only half of the equation, Because that's just the theory
.
Because that's just the theory,that's just the concept.
(04:46):
Is that okay, this is theamount of income, this is the
amount of expenses.
If you don't ever actually goback and track your expenses in
each one of those categories,you're most likely going to be
off in one of those categoriesbecause of those extra expenses.
Or maybe you thought I fill upmy gas tank once a week at $40 a
(05:06):
tank, so I need $160.
And it's not really every week.
So let's round that down.
We'll say $150 a month for gas,and then you take extra road
trips.
That week or that month you goon a long one-day trip or
two-day trip with some friendsand you decide that you're going
(05:28):
to be the one that drives, andyou do that once a month or
twice a month and you don'tthink about it.
But now you had an extrafill-up of your gas tank.
So now your $160 actually was$200, but because you weren't
tracking it, you still stayed at$150, and then for the next
month you still stayed at $150,and you never readjusted for
that extra $40, $50 of expense.
(05:50):
And so the actual habit of OK,this is a budget, but each month
we also, or each pay cycle wealso need to go in and mark down
what did we actually spend,what did we do here, what did we
do there?
And as I'm reading the book,there are little habits that I'm
doing that I wasn't doingbefore, wasn't as religious
about that.
(06:10):
Now achieving those goalsbecomes a lot easier because
you're seeing where yourdeficiencies are, where you're
overspending, where you'reunderspending, and then you can
reallocate that budget.
But a lot of times peoplearen't doing the work after they
create the budget.
If we created the budget, we'reall set.
Now we don't track the expenses.
(06:31):
But tracking the expenses isalmost more important than the
actual budgeting piece itself.
Speaker 2 (06:38):
Yeah, I think we've touched on this before with when
we were going over.
What is it?
net zero or yeah, net zerobudgeting yeah, and I I
mentioned before that that'susually how I did did it.
But I kind of like the creditcard method where I want to
switch to that because I feellike that's more on the topic of
this, because, like I saidbefore, one time things would
(07:02):
come up that you wouldn'taccount for in your budget when
you make it and they're hard toaccount for them because they're
different.
It's not like even like theexample you used, if you take
consistent road trips but don'tthink about them because they're
just these events coming up.
But, like for me it was like aone time thing here and then a
one time to get a completelydifferent area.
(07:22):
So it's hard to even accountfor that because there's
literally no routine.
Speaker 1 (07:25):
And I think you should do both together.
So you should have a net zerobudget and then use the credit
card method to borrow fromdifferent categories, but make
it so that and even for mybudget, like I have, I have my
debt obligations and like fixedpayments, you know your
everything that has to come outof your bank account you can't
pay with a credit card your lifeinsurance, your mortgage, your,
(07:47):
you know your other insurances,any other loans that you have,
your credit card payments.
But, then I make the credit cardwhich covers all of those other
expenses one large item, andthen I actually create a sub
budget for the credit card whichcovers all of those other
expenses one large item.
And I actually create a subbudget for the credit card the
credit card I'm allowed to spendwe'll say $2,000 a month on and
then I break out what that$2,000 a month goes to.
(08:08):
So then I can track it in eachcategory.
But, like you said, now you canborrow from each category as
long as the total stays belowthe $2,000.
Because you can borrow fromeach category as long as the
total stays below the 2000.
Because you can borrow fromeach category and say, ok, I
spent less than gas this month,so now I can go buy, you know,
splurge on some clothing or on anight out, or take an extra
night out for date night or goto a little bit nicer restaurant
(08:30):
because we didn't spend inthese other categories towards
the end of the month.
And I think it allows for theease of recording.
But again, you've got to makesure that.
Okay, I said 3 000, but am I or2 000?
Am I actually hitting that 2000 number or am I going over
and hitting 3 000 and thencausing an issue in that budget
(08:50):
or 2100.
You know a thousand dollardifference is going to be
significant in your budget.
But building that habit ofactually going in and tracking,
that's when you'll start to seewhere you're overspending or
where you're.
You know you don't think youeat out that much and then you
realize, oh, I don't eat out atsit down restaurants that much,
but I do stop on my way home andgrab fast food because I don't
(09:12):
want to have to cook that night.
So it's only 10 bucks, only 15bucks.
Let me just stop grab it andthen not have to cook that night
.
But that offsets your entirebudget throughout the week or
throughout the month.
Speaker 2 (09:24):
So are those from what you've read so far or if
you've finished it, are thosemainly the tips and tricks is
just being a lot more diligent.
Speaker 1 (09:31):
There's a lot in the book.
That's one of the big ones thatstuck out to me.
The other big one was and we'vetalked about this before as
well where the habits associatedwith maintaining your finances
are a muscle and you have tobuild that muscle.
So one of his recommendationswhich, if you have the room and
the budget, I do think it's agood thing is he believes that
(09:58):
if you're saving, if you'retrying to build a savings which
most of us are even if you justtake $10 a month, $5 a paycheck
and put that into a savingsaccount, yes, it's not going to
build quickly, but what it'sdoing is it's creating the habit
that a portion of your paycheckgoes to saving every single
month.
(10:18):
And so, even for me, I'm in aperiod of my financial journey
right now where I think in thenext you know two to three years
, the economy is going to pullback.
A lot of things are going tocome up for sale.
There's going to beopportunities to acquire assets
at a reasonable price and moveinto those.
So I'm trying to deleveragemyself, reduce my debts in order
(10:41):
to be able to take on moredebts in the next two to three
years.
So I haven't been putting asmuch money towards savings.
But after I read this I was like, no, that's a really good point
.
Continue to have that incomestream open or that savings
stream open.
Just set it at $10 a month andthen, as you adjust your budget,
you're just going to move moremoney into that savings category
(11:04):
.
As you eliminate some of theseexpenses, there's an income
stream that goes into the stockmarket investment account and
with that, as you have moremoney, you can put more money
into that category.
But having that income streamopen or that saving stream open
(11:27):
allows you to have the musclebuild of being used to doing it,
and that allows for thatpathway Instead of having to go
in and like, oh, now I got tofigure out a savings account and
I have to figure out how toautomate this or how to set it
up, and there's all the hurdlesthat you have to go through if
you have that stream open.
It's just a matter of adjustingit, and you're already used to
doing it, so it builds that thathabit much faster.
(11:49):
He's a big proponent, too, ofusing apps like acorn that round
up every transaction you haveand then put that change into
savings.
Because, again, his argument isthat that's not going to save
your entire financial outlook,but it is going to build that
habit.
It's going to allow certainthings to just start to be put
(12:10):
in the way and then eventually,over time, you will have
something that's amassed into asizable, either investment or
savings or whatever the case maybe, but it's about building
those habits.
So a lot of the topics that arediscussed are topics that we've
discussed, but it might betaking it from a different
(12:30):
perspective and it makes it verysimple, very cohesive and it's
just education focused.
There's no numbers, it doesn'tdrag you into that, and it also
just justifies or explains whatcauses the lack of financial
education in the world.
Really and he even brings upthat high schools, colleges
(12:54):
unless you go into a businesstrack in college, the amount of
financial education we have inour educational programs is very
minimal, and so the vastmajority of individuals learn
their financial habits fromtheir parents, and he argues
that the reason why the rich getricher has some to do with
(13:17):
economics, but has more to dowith the education that they
receive from their parents.
If you have wealthy parents,you get a wealthy mindset around
money, and when you have lessaffluent parents, you get a less
affluent mindset around money,and so it starts to compound.
Those habits continue to buildoff each other, because if
(13:37):
you're come from a less affluentfamily and you're used to
overspending on stuff or youdon't have the budget, then when
you have a little bit of money,you can go and splurge and use
that extra money to have someenjoyment short--term, immediate
enjoyment because you weren'table to have it for the past
year, two years, three years,ten years, whatever the case may
be.
And so what this is saying isthat that's not what you should
(14:03):
do.
Okay, take 40% of it and go dosomething fun.
Take 60% of it and put ittowards savings, put it towards
building towards that retirementyears and just breaking down
those different elements thatare tricky to navigate and tough
to hear.
But I think one of the biggestthings that I always hear with
(14:24):
my clients that are lessaffluent or come from a less
affluent upbringing is that thegoal is to get to never thinking
about money and that is just sowrong and so not true.
I even used to be in thatmindset of like, let me just
amass the amount of money, andmost amount of money I can, and
then that way I won't have toever think about money.
(14:47):
And the more and more I learnabout finances, the more and
more I realize that if you wantto get into a secure position
with finances, you need to havea healthy obsession with money.
You need to have a system totrack it.
You need an outline of, youknow, a roadmap, which is your
budget, a system to track it andmake sure that you're on course
(15:08):
, which is what we talked abouttoday of tracking those expenses
, keeping on top of those things.
And then you need theaccountability piece that if
you're falling behind, it's notokay, I'll just do better next
month, it's no, I'm going toreadjust next month, replenish
what I overspent by, reduce mybudget next month by those
numbers and then get back oncourse as quickly as possible.
(15:31):
You'll never get to a pointwhere you don't think about
money.
The only outcome from notthinking about money is being
broke.
Spending it all yeah, just spendit.
All, it's just.
If you don't give your money ajob, it will magically disappear
on its own give your money ajob, it will magically disappear
(15:55):
on its own.
Speaker 2 (15:56):
Find a job for someone else, um, it's.
The other thing I like too isit's just one of those things of
like.
Even if you look at smallhealth habits you think you're
too big for them or you thinkyou're above them, and it's not
about that.
Like you said, it's just sogood to keep that muscle going,
like even for you.
The difference, of sure, whenyou pick up your savings again,
if you completely stopped it, itmight not be that hard for you
(16:16):
versus someone else.
But, like you said, $10, 10cents, it just keeps that muscle
alive versus it completelywithering away.
So it's hard to remember thatso it's hard to remember that.
Speaker 1 (16:27):
Keeping that flow of consciousness of I need to do
this.
This is something I need to bedoing.
Okay, let's continue to put itthere.
And if you put it into a highyield savings, like we suggest
and like what I do, you keep infront of inflation, because if
you just have it in a checkingaccount and it's making 0.25%
and inflation's at 2.5%, 3percent, you've lost 2.75
(16:51):
percent of that money, whereasand this is part of what the
book does to it, like it givesyou the education on these
topics that if you hit, ifyou're in the high yield savings
, like both of us are, you havea five percent rate of return,
but your real rate of returnafter inflation is really 2% if
inflation's at 3%.
So you're really only making 2%on your money above and beyond
(17:14):
inflation, which is why you callit the real rate of return,
because your purchasing power,if you keep pace with inflation,
is the same.
You can buy the same amount ofstuff.
If you don't keep pace withinflation, your money isn't able
to buy the same amount of stuff.
Speaker 2 (17:28):
Right yeah.
So, it gets into that piece.
Speaker 1 (17:39):
And then part of the reason why you want that saving
stream open is there's two waysthat you can go about trying to
amass wealth higher rates ofreturn or larger amount of money
making that rate of return.
Larger amount of money makingthat rate of return, because if
you take $1,000 and you make 50%on that, you've made $500.
(18:00):
But if you take $100,000 andyou make 5% on that, you've made
$500.
5% is much more obtainable than50% consistently year over year
, and we're doing it in a highyield savings right now because
of the interest markets thatwe're in.
But the difference in how muchmoney you're getting out of it
is the amount of capital thatyou have in there, and so slowly
(18:20):
putting away more money andbuilding that capital up is why
you're able to then generate alarger sum of money off of it,
but taking it on less risk yeah,yeah, it sounds like a a good
reminder of the basics, but agreat book for beginners as well
(18:41):
yeah, I think personally I've.
there's a financial advisor thatI work very closely with and
I've told him the same thing.
I was like you should buy 15 to20 of these books, have them in
your office and the people whoare very interested in learning
about it and actually gettingthemselves to a stronger
financial position should readthis book.
(19:02):
Yeah, especially if they youknow if you're building a budget
with this client or if you'relistening to this podcast and
building a budget.
I would, 10 out of 10,recommend reading this book,
grabbing a copy of it and justdigging into it.
But it's going to be the best$15 to $20 you've ever spent to
(19:28):
start your financial educationjourney, because it breaks down
the basics.
It gives you a fundamentalunderstanding of how markets
work, how budgeting works, howmoney works, and then from there
you're going to be able toposition into more in-depth
financial planning.
But I have always said, and willcontinue to say, that your
financial plan should be verybasic.
(19:48):
You should be able to explainyour financial plan to an
8-year-old and they should beable to understand it.
If you're getting into acomplex financial plan, it
should be because you alreadyhave a solid foundation that
you're building off of, and youshould still be able to explain
your complex plan to aneight-year-old in a way that
they understand it, and it'sbecause you have the mastery of
(20:10):
that financial plan and soyou're able to distill that into
something that aneight-year-old can understand.
You cannot explain yourfinancial plan to an
eight-year-old.
It is too complex and you'reprobably being taken advantage
of.
Speaker 2 (20:22):
Fair.
Thanks for listening to ourpodcast.
Speaker 1 (20:25):
We hope this helps you on your balance freedom
journey.
Speaker 2 (20:27):
Please share your thoughts in the comments section
below.
Speaker 1 (20:29):
Until next time, stay balanced.
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