Budgeting – Foundations of Financial Freedom Part II

Last week we began the Foundations of Financial Freedom with savings rate. That is – how much money you saved as a percentage. As of right now, we don’t really care too much for what that means specifically. What we do care is that at the end of the month, there is more money going into your bank account than is being taken out of it. Now this week, we are going to take a look at the logical next step – budgeting. Or if you’re great with money, I’m going to consider anti-budgeting. And most importantly, we will touch on the mindset of abundance over scarcity.

People Don’t Really Budget, Do They?

Well, according to this survey, it’s about half and half. About half of the population budgets, and the other half do not. I will come out to say that I do not really budget. It’s quite light for me. This is because I am already conservative in what I’d like to spend money on. I do not use it frivolously, but I use it. If I was to become indifferent, I’d more than likely end up spending a bunch on too many video games and too many Bubbakoos Burritos.

But I don’t.

I just don’t really like spending it all. That used to come from being scared it will be gone one day but most of it comes from finding it joyful to watch my numbers get larger and larger.

I also don’t personally know anyone who budgets. And quite frankly, most of them are doing fine. While others…are not so much.

It would most definitely be prudent to have a good grasp on what money is coming into your life, and what money is exiting from your life, and if that money will come back to you. But I don’t necessarily believe you need to have a great grasp and end up getting rope burn.

How to Budget?

This can be either really simple, or complex. It is supposed to be easy, though. First, gather as much information as you can about how much after-tax money comes into your bank account each month. After-tax is important because it is essentially your effective money. Those tax dollars aren’t precisely working for you, as much as I’d like to see the potholes fixed, so disregard them for calculations.

So you have your income. Great. Now what are your expenses. List everything you can think of. This might be hard. You might forget. There might be some subscription service that is siphoning your money away each month you don’t use. There’s no need to be militant or beat yourself up about it. However, you must have an inkling of an idea where your money is leaving your pocket.

And I mean everything, you can trim or gather different items into a group later but below is a list of items I typically pay for and would consider.

1. Rent/Mortgage
2. Renter’s/Homeowner’s Insurance
3. Utilities
4. Car (Loan, Gas & Insurance)
5. Gym
6. Groceries/Food
7. Loans/Debts
8. Business Expenses
9. Continuing Education
10. Entertainment
11. Spontaneity
12. Savings
13. Investments

This is not meant to be an end-all be-all list. It is meant to throw some things at you to get an idea at what you may need to pay for in a month. And as you may know, housing, transportation and food are the three biggest expenses. Yes, you can cut out the gym if you’re an animal. Yes, you can cut out that silly little Netflix and Disney Plus to save an oh so grande 20 dollars a month. Yes you can skip your silly little avocado toast and frozen coffee milkshake for $5 every morning to save an extra $100 a month.

But is that eating away at you, really? Do you really get that coffee every morning? Do you really spend so little time on Netflix that it’s not worth the price of a movie ticket for one movie? Are you really going to enjoy your life without the sanctity of a gym?

You might not. You might guess which of those might not for me.

So don’t spend so much energy trying to shave off those little things. Yes, it can add up if you are terrible with money. But you might not be. So let’s discuss –

The Anti-Budget

In case you did not notice a moment ago, I had saving and investing as the very last thing on the list of items to consider budgeting. Why? After last post being solely about saving money, why would I put it as the 12^th thing on my list of things to consider budgeting?

Because it’s already priced in.

I don’t even think about, because like I said earlier – I just naturally desire to save money. Which may be unusual, but it just makes life easier. Specifically, it makes it more efficient – less brain cells are used to think about budgeting. And I love efficiency.

As Paula Pant says here:

1. Decide how much you want to save.
2. Save it.
3. Don’t worry about it anymore.

See, that sounds relaxing. Breathtaking even. This ties in directly to the mindset about the mindset of abundance versus scarcity.

But before we venture there, how much should you save? How much should you budget for? When I had nothing to do except buy video games at 14, it was half at least. Usually more. That was a 50-70% savings rate. When I was working, I was aiming for about 25% because I had a lot of things to pay for, being out on my own. I’d like to aim for 50% or more. But I am not there right now. If nothing, aim for 20% at minimum. If you do not make enough money for that minimum, we will deal with that later. Make a target, so you know where you are going.

Abundance > Scarcity

Culture might tell you that there’s never enough. Greed might tell you that. You have heard, and you have repeated the phrase “Money doesn’t grow on trees.” It may sound conspiratorial, but the society we live in intrinsically believes that resources are scarce and running out. And that’s not true. But it is literally not true about money. And I don’t have to support that with any facts or links. Because inflation exists, and each year more and more money is printed and put out into the world. It literally is created out of thin air. There is plenty to go around.

If you want a mindset-shifting book, read Think and Grow Rich (This is an affiliate link). It’s practically all about this. You can make money out of thin air. Out of a thought. There is plenty of money to go around. And you may be angry with me. You may ask “Well then, where is it?” Unfortunately, I do not have a great answer. It may simply be you are not ready for it. Or you may not believe you are allowed to have it.

And the last comment on scarcity is that the word itself contains the root emotion – scared. To think and believe life is scarce, you are living in fear. You worry if your car will run out of gas, if you will ever make enough money, if you will “make it”. But to believe that the world has everything it could ever offer you, and of course it does, you find fear will leave the mind. Whether it’s slowly or rapidly.

Finitone

Budget, anti-budget, or don’t budget at all. I find anti-budgeting to be relaxing and great for your brain. Just aim for what you want to save, hopefully around 20% or more of your after-tax pay, then send the rest towards expenses. Anything extra saved is a cherry on top. And start switching gears into the abundance mindset, because living scared all your life is not a life to live. Fear is the mind-killer.

As we have covered saving money and what a budget and anti-budget is, next time, we will examine a few tools to assist in (anti-)budgeting.

Godspeed,

Dennis