What’s Wrong With Budgeting – Episode 071

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[00:00] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler, and No BS Money Guy, Todd Strobel. Hey everybody, welcome to another edition of the Prosperity Podcast. This is No BS Money Guy, Todd Strobel, and once again, I have my bestselling financial author. He’s all of our bestselling financial author, but my co-host, Kim Butler, with us. Welcome, Kim. Thank you, Todd. Happy to be here. Yeah, that’s a good way to put it, owned by the clients and the listeners. That works for me. Super. Well, today we’re going to be talking about budgeting. And almost every traditional financial planner is going to say you need a budget.

[00:50] And our advice today is stop it. Stop budgeting. Don’t do it. So once again, flying against the grain, but writing books to prove she was right is Kim Butler. Well, thanks for the intro. It is so amazing how this pervasive concept of budgeting is out there everywhere. And all of the typical financial planners do it. And I know when I was first in the business, that’s the first thing you did is you were taught to get a client’s list of expenses. Well, what poor client wants to give anybody a list of their expenses? They don’t want to see it themselves, much less show it to anybody else. It’s horribly embarrassing for somebody to do that with even somebody that they would consider a professional advisor.

[01:36] It’s just too personal. And so even if you just lumped them together and you said, oh, okay, my nut every month is two grand or 10 grand or 100 million or whatever the number is, it’s still not a fun subject for people to get into. But that’s not my reason why I say stop budgeting. And I also want to admit that another reason that is not the reason is that I’m a very big picture person. And obviously, our country is filled with people that are very detailed, thankfully for them, and also filled with people that are big picture. But if you just figure it’s half and half, which I’m sure there’s some other categories in there. But your big picture person is not going to want to know that information of themselves.

[02:18] They’re not going to have the data. They’re not going to have the time frame. They’re not going to have the detail, nor are they going to want to dig in and look at it. And yet again, that’s not another reason to stop budgeting. So what are some reasons to stop budgeting? And the biggest one to me is that it doesn’t work. Do you think it works? Well, I mean, when I think of the term budgeting, I automatically think of sacrifice and sacrifice automatically breeds resentment and resentment eventually has to be dealt with. And we’re kind of in a unique position because we get to witness one of the greatest disasters in this country. And that’s a spender marrying a saver and sit between them. Yes.

[03:02] So if you look at this issue of budgeting and you say, OK, we know we need to save. We talk about how important the habit of saving is. And you even hear people say this. Well, then you should just save first or pay yourself first. And yet that’s not what all the financial planners are recommending. They’re recommending that you budget. And so I can say without a shadow of a doubt that for literally my entire life, I’m sure there were a couple of weeks of an exception where I actually tried to budget. But I can literally say that I’ve never done it. And yet we save money and we’ve built net worth and we have cash flow, which, as we all know, is the fourth principle of prosperity and way more important than

[03:43] the net worth. So how did that happen? Well, it goes back to the habit of saving. And then, obviously, the habit of saving first, you know, it’s interesting. Somebody asked me recently about my background right out of college, and I had an opportunity to work at a bank where I saw hundreds of families’ finances, hundreds and hundreds of them, possibly even thousands of them, where I was looking at their checking accounts, their saving accounts, their loans, their car loans, their mortgages, everything. This was in an era when banks didn’t do investments nor did they do financial planning. And I didn’t even know what financial planning was. But we had a situation where we were able, as a loan officer, to look at all these

[04:29] people’s finances. And the people that built wealth didn’t budget. The people that built wealth saved first and spent the rest. It was that simple. You commit to a savings level, whether it’s 10 percent, 5 percent, 20 percent, whatever your comfort is, whatever your capability is, plus a little more, right? We always want to give a little bit more, stretch a little bit more. And then you spend the rest. And literally, if you don’t have it, you don’t spend it. It’s that simple. And when a family can rally around that and operate that way, it’s so much more effective. I love what you’ve said about, let me catch the words, something breeds resentment. What is it that breeds resentment? Sacrifice.

[05:18] Sacrifice breeds resentment. That’s a great line. And not that we don’t all sacrifice sometimes. But if we turn that around and we say, rather than focus on the sacrifice, focus on the stretch a little bit, focus on the give a little bit more or the give first or whatever it is, then not only do you get better results, but you don’t get the resentment. It’s a great turn of a phrase that we can actually bring into our lives and make a big difference with. I want to take this and kind of maybe turn it around to a practical example so that it becomes a little more clear and see if you could agree with this. I’ve had a couple of clients that continually maintained a credit card debt of thirty five to fifty thousand dollar range.

[06:00] And again, it’s all relevant based on your income. But this was very difficult for them to face. And several advisors had put them on debt snowballs or whatever, where you pay off the littlest credit card, the biggest credit card or the highest payment or whatever theory. And it really just never worked for them. When we started them down a savings plan and they were able to get that first five thousand dollars, that first five thousand dollars that, you know, for this people was probably a month’s net income. I mean, after taxes was a month’s net income. But to take a couple of months and have that five thousand dollars, it was almost like we were planting something like a seed was there that they could physically

[06:45] see. And then they continued to build on that five thousand and pay down that credit card debt. Is this the kind of stuff you’re talking about? Absolutely. And let’s look at what happened there. They got to see an opportunity fund, call it emergency fund if you want. But if you look at your savings as an opportunity fund, it’s so much more fun. And you said it beautifully. They planted a seed and with that seed and its growth, they got to be engaged. It’s so much more beneficial than seeing debt go down. And while, yes, absolutely, we need to get debt down, it’s so much more exciting, motivating, challenging, opportunistic if we save money for an opportunity fund. And that’s what these people probably did.

[07:31] And then they were able to get their debt paid off. One of the things that we do that also encourages people is we establish what I like to call is a run rate. And all this simply is is taking the current amount of savings that you have in all of its various places, regardless of the interest rate that you’re getting on that and divide that by your monthly expenses. And this is simply the amount of time that you could exist if your current cash flow or income was interrupted because you lost your job. Yes, you probably would get unemployment or if there was a death, hopefully you have life insurance, but there’s a number that you know, and it’s amazing if you happen to have a paid off house that doesn’t contribute to a run rate.

[08:20] But if you have a hundred thousand dollars and a thousand dollar a month mortgage payment, and it’s your only debt, you now have a hundred month run rate, very different ways to look at things. Yeah. That’s a great mathematical exercise to go through. So tell us again, the calculation you take your current assets, no matter where they may be and divide them by your minimum current monthly expenses. So that would include credit card debt, car payments, you know, whatever else that you happen to be obligated to pay each month. And it allows you to know that if you cease bringing in income, which the odds of ceasing bringing in income is low. I mean, chances are you would have alternate forms of income, but it

[09:02] still gives you a number and that number can give you comfort. And like I said, home equity is not something you can spend if you’re unemployed because you can’t even mortgage your house because you have no income to pay it back. But at the same time, savings does. So you get to the point where I never will forget. I did this with one of the vice presidents of Nabisco and we rearranged his finances so that he had 15, 16, maybe even 17 years that he could go without another dime of income and maintain his current lifestyle that built confidence. Absolutely. Financial confidence is an interesting thing. And it’s something that we should talk more about because when we’re feeling confident, or we could even say when we’re feeling prosperous,

[09:51] we make so much better decisions. We handle our money better. We handle our lives better. We’re more giving. We tip better. I mean, there’s just a ton of things that go better when we have that financial confidence. And so back to our stop budgeting message, budgeting doesn’t create confidence, savings creates confidence. Saving saves families. And you can start saving as a 10 or 12 year old. Every child should absolutely be given an opportunity to start to build savings and to see like that couple did what a little bit of money in the bank does for their confidence, their capability, their outlook. They’re going to lift their heads up. They’re going to look out further into the future than if they

[10:38] don’t have any savings at all. And there’s just no reason that that can’t happen because even the person with the lowest income has a little bit of ability to save. I don’t care if it’s a penny a day. It can go into the jar and create savings. And then maybe it’s a dollar a day and then it’s a little bit more and a little bit more. And it’s just a habit. It’s just developing the focus, the singular focus that this is important to me. And so I would so much prefer that people focus on the saving, not the budgeting. It’s way more fun. And that, you know, run great is another great way of looking at that because it’s relevant. I mean, if you have a hundred thousand dollars and $5,000 a month in expenses is a different picture than a hundred thousand dollars

[11:24] and $2,000 a month in expenses. So it’s gives you a number or a satisfaction that is relevant that you can understand. Wow. I have, I am prepared to handle the next five years without income. That’s awesome. Absolutely. That, that confidence, that peace of mind will just create so many opportunities for you. And that’s really what we want everybody to have. And I want to just address those that are maybe thinking about retiring or something in that realm as well, because it’s so important to continue to save. And when you are not earning an income, the budget becomes the all important driver of the house. And so I would so much rather people continue to earn a little bit of income and of course, continue to save because then the

[12:13] budget is not the driver of the house. The income creates opportunity, flexibility, chances to go on trips, et cetera, et cetera. And when you’re giving and you’re out there in the marketplace, being active and helping other people, that too is a much better focus than the budget and the bills and all the things that really are just not that fun. Yeah, we got to deal with them. So put all your bills on autopay so that you don’t have to be focused on them and, or get a bookkeeper. Can’t recommend that enough for people that have the capability to do that or have businesses that require that and put your focus on the savings and the building of assets, not the automatic thing that has to get paid every month.

[12:54] And I would think that maybe in here it would appropriate to mention multiple sources of income. Yeah, absolutely. And that can be you and a spouse, but it can also be you and other people in the family and even more better. How’s that for good English? I think is to have a business that creates an opportunity to help others and also pays you. And every business should be looking at that. Just, if you create one product, great, we’ll create another one that can help more people or in a different way or what have you. If you don’t own a business, start to check out opportunities that you can create some business activity in your life, not for the purpose of owning a business, but just for the purpose of helping others.

[13:39] Because if you create those opportunities, then you know that income is going to be forthcoming from those activities. Well, and if you look at a business as in, wow, I want to go out and form a company, it could be intimidating. But if you look at a business as its purpose is to solve a problem and you look at the problems that you talk most about, that you focus most about, and that you feel most called to solve and your business is nothing more than the tool that solves the problem for the people who have it and are willing to pay to get their lives ahead by eliminating that problem. Yeah, perfectly said. The definition of business should be to solve problems. And when we’re doing that, then everybody benefits.

[14:25] It’s huge win-win for everyone. Super. Well, anything else you want to add to our listeners? Well, just in case they do happen upon this at either holiday time or New Year’s, it’s just a great time of year to rearrange things, add some new habits, create some good and get started on a good foot. It’s, it’s not the right foot. It’s a good foot. And if you feel like there’s bad, then focus on the good and find some new habits to install and make savings be one of them. Super. And we invite you to come on over to the blog partners, the number four prosperity.com. Once again, this is no BS money guy, Todd Strobel for the prosperity podcast. There is once again saying budgeting, stop it. Special thanks to Kim Butler.

[15:12] Take care of everybody. Thank you for listening to the prosperity podcast to take control of your money and have it work for you. Visit us at partners for prosperity.com. If you liked this episode, make sure you subscribe and leave a review.