Is there power in budgeting your money?

“You want to account for everything you spend and always keep your receipts son!”

Note. Like my Compounding Interest and Net Worth pieces, the subject matter of this blog post is not new. It has been known for years by those who’ve learned about it in their families, learned about its concepts in business school, or who have discovered it on their own. It’s a discussion from my personal perspective which I think is worth visiting. In the spirit of the first principle of my blog, Creating Ecosystems of Success, I’m simply introducing a concept and discussing why it’s important for the lay person, so they can make their own life choices.

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As described in my piece entitled, I still don’t have a car in 2018, a good friend recommended that I craft something regarding budgeting. That piece described a key budgetary decision I made several years ago to fortify my financial future. In that piece I highlighted several financial vocabulary words which are pertinent to budgeting including: Assets, Cash Flow, Liabilities and Minimalism. In this piece, I’ll get down into the actual ‘nuts and bolts’ of budgeting.

“You know I always stay within my budget, honey,” my Auntie Adeline said to me on numerous occasions throughout our lives. Of my Aunts and Uncles, Auntie Adeline was always the most vigilant about staying within her budget and messing with her budget was literally playing with your life! Mom was also wise with her money and budgeted.

“You want to account for everything you spend and always keep your receipts son!” Dad was also very particular about his money and was very meticulous about where every dollar went. Though not formally trained in budgeting, I got the sense from many relatives that keeping track of where my dollars went was important. I started budgeting in my mid- to late-twenties though not effectively as I’ll describe later.

Simply put, a budget is a means of numerically accounting for tracking the money you earn and how much you spend every month. As described in earlier pieces, I have considerable experience with Dave Ramsey’s Financial Peace University (FPU). In it, Dave refers to a budget simply as a ‘Cash Flow Plan’ where you’re telling your money what to do and where to go. I’m going to come back to Dave, but first I’m going to tell you about one of my experiences.

“I don’t keep a budget and I don’t have the patience to do so every month!” These words were typed by someone who’ll remain anonymous in one of my text groups. A regular budgeter now myself, I came very close to challenging his position, but I decided that it wasn’t worth it. From experience it’s not wise to argue with people who have taken staunch positions on things to try to get them to see your point of view. Sometimes it’s best to just let them be and let them figure it out on their own, if at all.

What this person’s comments showed was that while budgeting is important, there’s a negative view of it for some. In fact, in Trish Reske’s article entitled, How Many Americans Use a Budget?, she cites data from a 2017 study by U.S. Bank which found that 41% of Americans said they used a budget while whopping and 59% said they did not. That number was up from data reported by Gallup in 2013 which stated that only 32% of Americans used a budget.


Again, a budget is simply a written plan where you’re telling your money where you want it to go and what to do. For example, if you believe purchasing recyclable food packaging will help you save money in the long-term – they can be cleaned out and used multiple times – then you should include this within your strategy. You’re looking at what’s coming in and what’s going out and trying to figure out what’s leftover, if anything. What are the two skills you need for this important exercise? You need something we all learned in the first or second grade; the ability to add and subtract. You also need discipline and the abilities to think, and to sit and plan.

Okay, get ready for the magic. Specifically, you want to look at your monthly income and subtract your monthly expenses from it. If you’re working a 40-hour work week, this should be relatively simple. If you get paid weekly, you should get four paychecks every month and if you get paid bi-weekly, you’ll get roughly two pay checks a month. The Federal Government has 26 pay periods a year, so there are two months when employees get paid three times. How long is a check good for? Well that depends on how you budget your money.

Your income is your ‘Net Pay’ – your pay after all your deductions and retirement savings have come out – that’s if you’re saving into your retirement which is a different story. Underneath that number you want to list out your monthly expenses. The difference between your income and your expenses is called your ‘Cash Flow’, and that’s the money you have left to spend in any way you see fit. This sounds straightforward right? Well actually it depends.

This is a good place to introduce two new vocabulary words; “Surplus” and “Deficit” – concepts I recall first hearing about from Presidents Bill Clinton, and then later argued about by Al Gore and George W. Bush as they battled for the 2000 Presidency. Financially when you run a Budgetary Surplus, you have money left over once all your expenses and obligations are paid for. This is where you want to be – your expenses being less than your income, and you want them to be as low as possible.

If you’re running a Budgetary Deficit, your expenses are exceeding your income. This is where you don’t want to be. Here you either must: make more money, cut your expenses, or borrow and go into debt to cover your expenses – the worst option of the three.

If you haven’t been budgeting, you must start from scratch. Where do you start? First you need a way to create and track the budget. You could do it on paper with a pen or pencil which will be cumbersome and time consuming initially, but it’s okay to start here just as long as you start. There’s also software like Quicken or Quickbooks. I simply use Microsoft Excel spreadsheets, but it’s up to you. You want to be able to adjust the numbers easily.

Second you need to know how much money you have coming in weekly and monthly and I think we all know that. The fun part is figuring out what your expenses are. If you don’t know where to start for your expenses, first think about what Dave Ramsey calls your ‘Four Walls’: clothing, food, shelter and transportation. These are your basics. Think about everything else after these four.

If you’ve been swiping either your credit or debit cards, go to your online banking accounts and see what your averages are. My high school basketball coach always used to tell us that, “We are creatures of habit!” In this case you’ll probably find that there are trends and patterns in your spending – the amount of times you go to Starbucks and what you get there, the restaurants you frequent, the amount of gas you put in your car every week, etc. Some months such as November and December may take you out of your normal spending patterns so be aware of those unusual months or times of the year. The end of the summer is another noticeable time, as people like to take vacations.

Once you see what your averages are, ask yourself if there are ways you can cut back. Can you catch more sales? Can you bring your lunch to work? Do you absolutely need to upgrade your phone or your car along with everyone else? Are there discounts you can take advantage of (being a senior, being military, being a government employee, etc.)? Do you need to make more money at least temporarily to pay off excess debt, for example? These are all questions you should start asking yourself when doing your budget. This brings me to my next point.

If you haven’t been living on a budget, and want to start one, it helps to have goals in mind. Do you want to retire one day? Do you want to become financially free? Do you want to not have to hit your friends and relatives up for cash whenever you get into a jam? These are all questions you should ask yourself. Not having to ask friends and relatives for money ever again is a huge motivator for me.

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I described this in my last financial blog post entitled, I still don’t have a car in 2018. There I described how I got rid of my car and held off on getting another one so that I could grow an Emergency Fund and get to the point where I could acquire some investments. I also wanted to make sure I’d have a chance to retire one day.

For at least a year, I thought about what I needed to do to be able to save 15% into my retirement account going forward. When I looked at my budget, I did the math and figured out how much money I’d have to save into my retirement account from my first and second paychecks of the month to consistently do it. I then looked at what I could cut from my expenses and my eyes focused on my Cable bill which, at the time, was a whopping $176 per month.

Think about that. That’s $2,112 per year – money that could’ve been ‘compounding’ somewhere. I finally got to the point where I was willing simply use an antenna signal and just kept my landline and internet access which came to $90 a month – that’s a 50% savings which gave me the extra money to save into my retirement account. It felt strange at first, but it was very necessary, and I was okay watching Star Trek reruns every night.

I’m going to close with three points from Dave Ramsey because I’ve helped teach Financial Peace University and know it well. The first is the ‘Zero-Based Budget’. The key tenet of this term is, “giving every dollar a name.” That is, if you’ve done your budget and you have money left over, you should assign it a name like “Extra Discretionary Spending” or “Money For The Next Check” – don’t just leave it there because it will get spent on something random.

Consider using cash for at least some of your purchases – “Discretionary Spending” and “Eating Out” for example are two categories I use. Using cash may be scary at first as our world has become digital to the point where we pull out plastic and swipe everything using credit and debit cards. The problem with that is that you don’t ‘feel’ the money leaving your possession and are more likely to spend – businesses know this and bet on it. Using cash helps you feel the transaction, but it’s also the fact that its finite, and it exerts more control over your budget and overall spending.

Lastly, as Dave points out in the budgeting lesson, it takes about three months or so to get into a rhythm to the point where you’re budgeting effectively. The first couple of months aren’t going to be very good, but if you stick in there, eventually you’ll start to roll. Keep in mind your motivation for doing this. And lastly, once you get good at it and you’re able to use the budget to plan over a series of months, you’ll see some really great things happen in your life.

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Perhaps the most important point to make in all of this is that while you’re budgeting and working towards your goal, you must still allow yourself to have some fun. That’s going to vary depending upon you and your lifestyle. Whether it’s concerts, the movies, or if you have a restaurant you like, you can’t completely choke yourself off from pleasurable things because that’s not sustainable long-term – like dieting.

Earlier I briefly mentioned the concept of an Emergency Fund. I must mention this because these things all go together: budgeting, emergency savings, retirement savings, and investments. While this piece is about budgeting, having emergency savings is arguably the most critical component. It protects your budget when life’s inevitable and unforeseen emergencies come crashing into you – some by your doing and some not. Ideally you eventually want three to six months or more saved. How do you build your emergency savings? You budget for it!

Who should budget? Everyone should. There’s a saying out there that you should run your personal finances like a business and when you think about it, each of our households are mini-businesses where some are getting steadily wealthier and others are going further into the hole.
If you’re an entrepreneur and have a business idea, or you’ve already started your business, you should have a budget because the control of your capital and expenses are critical. Everyone should do it if even just to avoid paying the banks overdraft fees. According Julia Chang from Forbes, Americans paid $34 Billion to the banks in overdraft fees in 2017, and this is something the banks count on.

One last important piece from FPU – maybe the most important. In the budgeting lesson Dave describes both budgetary ‘Nerds’ and ‘Free Spirits’. The former enjoys sitting down with the numbers and doing the budget while the other doesn’t and naturally lives with reckless abandon. I’m absolutely and proudly a Nerd and enjoy going over the numbers, making everything balance and doing the planning. If you’re a Free Spirit this might all seem unnatural for you, at least initially, and you may need someone’s guidance and encouragement. Ultimately, it goes back to your drivers and goals. What are you pushing for and how badly do you want it?

So that’s my take on budgeting. I hope you were able to get something beneficial from this. Again, there many, many financial writers and teachers and FPU is but one. It has worked well for me and I recommend it. However, for you someone else or something else might work better. I also enjoy reading Michelle Singletary’s work for example.  No matter who you learn it from though, the principles remain – you want to make smart and wise decisions with your money.

Thank you for taking the time to read this post. If you enjoyed it, you might also enjoy:

•  Your net worth, your gross salary, and what they mean
A look at the Law of Compounding Interest and why you should care
The difference between being cheap and frugal
We should’ve bought Facebook and Bitcoin stock: An investing story
Challenging misconceptions and stereotypes in class, household income, wealth and privilege
My personal experience with Dave Ramsey’s Debt Snowball revisited
Mother’s Day 2017: One of my mother’s greatest gifts, getting engaged, and avoiding my own personal fiscal cliff

If you’ve found value here and think it would benefit others, please share it and or leave a comment. To receive all of the most up to date content from the Big Words Blog Site, subscribe using the subscription box in the right-hand column in this post and throughout the site, or by adding the link to my RSS feed to your feedreader. Please visit my YouTube channel entitled, Big Discussions76. Lastly follow me on Twitter at @BWArePowerful, on Instagram at @anwaryusef76, and at the Big Words Blog Site Facebook page. While my main areas of focus are Education, STEM and Financial Literacy, there are other blogs/sites I endorse which can be found on that particular page of my site.

I still don’t have a car in 2018: A story about playing financial chess

“Most successful people operate off a healthy fear of failure!”

Three of the principles of my blog are: Creating Ecosystems of Success, Wealth Building and Long-Term Thought. Hell, I’ll also pull in both Creative and Critical Thought. As we’re riding into December of 2018, I’ve wondered what to write next. A friend of mine who runs her own magazine and has her own audience suggested that I write something about budgeting. I do intend to do that, but my mind thought back to something I wrote on the Examiner several years ago which will serve as a nice prelude to budgeting. It involves several important considerations when budgeting, and it might admittedly ‘trigger’ some people, but try to keep in mind the overarching messages.

I originally published a series called, You Still Don’t Have a Car Yet? around 2012. It was inspired by a question from a lady friend who went to my church and whom I briefly dated. We bumped into each other again one Sunday and she was surprised that I still didn’t have a car after getting rid of my old Saturn SL2 which was on its last leg. I heard in her voice that there was more to her question – something I’d experience again in the future.

Now, driving is expensive. It’s by no means cheap to get on the road. You have to undergo a series of driving lessons with a professional to ensure you have a proper license and don’t face issues revolving around Complaint Fraudulent License/ID down the line. When you get a car, it costs. On top of the original outlay, you need to make sure you can afford fuel, maintenance, tax, insurance and more. Upgrading really does require a lot of thought and financial commitment.

It’s a topic that never gets old, and instead of resurrecting and republishing the entire series, I’m simply going to pull out its main points and discuss why I still don’t own a vehicle six years later. Keep in mind that this piece was written from the perspective of a single man (due to life circumstances), and your life may be different. I hope you enjoy it and that it inspires discussion in your own circles. So, let’s dive in.

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My personal finances crashed and hit rock bottom right around 2011 – two years into my federal science career. I started my career with very little savings based upon my educational path and life circumstances. I was still a new homeowner and just paid out my entire $8,500 “Obama Tax Credit” for a condominium project I didn’t know about before closing – the first of many ‘assessments’ over the years which ended up equaling the price of a brand-new car. I also tried my hand in the investing world, at one point trying to do too many things at once, both money- and time-wise. The result was getting into a debt hole of greater than $20,000 on top of my student loan and other bills.

Around that time, I was fortunate that two friends shared Dave Ramsey’s “Financial Peace University (FPU)” with me and over the course of the next five to six years, they invited me to help teach the class with them at our church. I was also fortunate that I met a mentor who ‘adopted’ me into his group of proteges. He was very strong-willed and had a business background. He both taught me and stayed on me about some important aspects of money including: understanding what a ‘Net Worth’ is, saving into my retirement account and getting my ‘Matching Contribution’, and understanding the ‘Law of Compounding Interest’.

Now armed with this new information, it started guiding my decision making. FPU is admittedly just one of many financial programs out there, and it works very well. There are several others, but for the sake of my familiarity with it I’ll discuss it. A major pillar of it is budgeting – numerically think about your ‘needs’ and ‘wants’ with the aim of getting out of debt, building up an ‘Emergency Fund’ and then positioning yourself to stay ‘liquid’, invest, and give. To get a feel for why this important, I’ll once again refer you to back to Ylan Q. Mui’s 2016 article from the Washington Post entitled; The shocking number of Americans who can’t cover a $400 expense.

This is a good place to introduce the concept of ‘Cash Flow’. Cash flow is simply the amount of money you have left over once all your monthly bills and obligations are paid. The greater your expenses and debts are, the less cash flow you’ll have. The less they are, the greater your cashflow will be and the more life choices you’ll have. You’ll probably also have a healthier state of mind and body as financial stress can impact your overall quality of life.

When I looked at my budget in 2012, I sought to identify where I was trying to go in life and then what my needs and wants were. I wanted to live in a place of abundance, and I didn’t ever want to feel the shackles of debt again. I also didn’t want to be in position to have to ask relatives or friends for financial help ever again. Finally, I wanted to go that next step where I had an emergency fund, where I could get some investments, and lastly where I could help others – giving back to my alma maters for example.

While there were quite a few surprises in my condominium complex, it was a smart buy because it was right next to the metro. As such owning a car became less of a priority. Let’s unpack that a little bit. Keep in mind that I’m not telling anyone that they should get rid their car.

For you it might be something else and this would admittedly my approach may not work in cities like: Atlanta, Buffalo and Charlotte. In any case when I looked at my budget, getting rid of my car meant getting rid of: car insurance, gas charges, upkeep and maintenance, having to renew the vehicle’s registration, and any other associated costs. The state of Virginia charges personal property taxes on vehicles for example.

Yes, it was strange at first not having a car in my parking space and not being able to jump in a vehicle and drive off whenever I wanted to. As I describe later though I adjusted. It was a ‘trade off’ as the great Dr. Thomas Sowell says – giving up something in the short-term for what I saw as a greater gain in the long-term. I included the game of Chess in the title because like this, winning that game involves an understanding of the value of the pieces in your army, and in some cases, sacrificing your lesser pieces early on to ultimately win the game.

Let’s move on to some other important concepts. Among the things I learned from Robert T. Kiyosaki’s Rich Dad Poor Dad books were the concepts of ‘Assets’ and ‘Liabilities’. Under Robert’s definitions, assets are things that put money in your pocket every month, while liabilities are things that take money out of your pocket every month.

One of the things he described in his books under liabilities was cars. Was he saying not to buy cars? No, but he was encouraging his readers to look at finances in alternative ways – in this case while cars are symbols of power for some people, they also ultimately take money out of our pockets.

Speaking of which, something that’s been documented in numerous books and which wasn’t explained to me early on was that brand-new cars depreciate significantly as soon as you drive them off the lot. This is something I pondered as I decided to get rid of my car and not immediately get another one. I also realized that I was never really a ‘car guy’ meaning that I never really fantasized or obsessed over them. In fact, I got to a point where saw them as ‘necessary evils’ in a way which were put here to keep us dependent on the energy and auto industries, and at the mercy of those running them.

I’d like to now introduce the concept of ‘Minimalism’. Though this was always a part of my nature, I didn’t know what exactly it was though I had been called both ‘cheap’ and ‘frugal’ in my lifetime. Minimalism is basically the practice of getting what you need, and not wastefully looking to consume more. I credit writer and YouTube content creator Aaron Clarey for the term because I first heard it from him – something he encourages – something which goes against the grain of most of our society. If you’re in the mood for a laugh, his video content on culture and economics are both very funny and insightful.

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“If you live right next to the metro, why would you own car?” I’m going to say something controversial here. I’ve gotten this reaction from a certain group of people. It’s the same group of people who are content to eat soup and sandwiches according to my Dad as described in my piece entitled; Challenging Misconceptions in Wealth, Income and Privilege. I’ve gotten the ‘side-eye’ from another group of people, and for the single guys reading this, I’ll just say that many ladies frown upon a man who doesn’t own a car. Interestingly the other more important aspects I described above usually don’t come up in conversations about why I don’t own one.

I’ve also been ‘clowned’ about it in some instances. When you’re doing something like this, knowing in your heart why you’re doing it, and keeping your goals in mind is very, very critical when someone challenges you. Oh, and if you’ve thought it out and it’s working, don’t argue with anyone over it. It’s not worth it. This is an instance where even in adulthood, being the leader of your own life and not caving into peer pressure is key.

How does one get by without owning a car? Well again it helps to live right next door to a metro system. My first year of college at SUNY Brockport, I was amazed by the number of classmates from New York City who didn’t have their driver’s licenses. Where they were from, they just didn’t need them and openly admitted that.

Once I got rid of my car, I now noticed that there were quite a few other people in the Washington, DC metro area using “Zipcars”. Then within the last couple of years ‘ride share’ programs and ‘apps’ like “Uber” and “Lyft” became prevalent. Admittedly if you need to go to an area that’s further out, it usually requires some planning – maybe using a Zipcar, or maybe just renting one, but again you must keep your overarching goals in mind.

Again, it’s a tradeoff. There’s a definite convenience to getting in your car whenever you want to and zipping off some place, and that’s what you’re paying for when you own one unless of course it’s giving you some sort of social prestige or personal confidence boost. How much is that convenience worth to you?

So in summary, again I’m not telling anyone what they should do with their lives. I chose to make a tradeoff (a car and certain people) with specific goals in mind. Now that I had a grasp on money and finance as described above, my new ‘drivers’ (no pun intended) were:

• To become ‘financially peaceful’ and to build wealth;
• To be able to handle all the costs associated with homeownership – something I stumbled into which came with its own set of financial costs and surprises and;
• To maximize my cashflow so that I could save, invest and to be able to give.

In terms of giving, we often think about giving to our churches and alma maters but sometimes there are other needs. A fellow alumnus from Johnson C. Smith University recently needed to raise money to buy winter clothes for the students at his school in Grand Rapids, MI. Because of some of the personal choices I’d made, I was easily able to support his effort and help the kids in his community stay warm this winter.

Again, major components to all of this are long-term thought, and budgeting which I’m going to cover shortly in its own blog post. Another important piece is being a secure individual, following the beat of your own drummer and not being peer pressured into keeping up with other people’s thoughts of what’s acceptable for your life. The other piece is being malleable and willing to continue to learn more information and applying it to your life.

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I’m going to end this post with some quotes. The opening quote for this piece is from the popular and outspoken sports talk show host Colin Cowherd who weaves life parables into his sports commentary. This one involves our personal drivers and motivations. “My investing advice to the average individual, is don’t be average,” is a quote that has stayed with me from Robert Kiyosaki’s books. It involves thinking outside of the box and doing the opposite of the crowd.

Dave Ramsey’s famous quote is, “We’re going to live like no one else, so later we can live like no one else!” It involves making temporary sacrifices for greater gains later. Finally, one of the content creators on a YouTube show I regularly watch often says to, “Keep your savings high, and your overhead low!” I think you get the picture. What are your motivations and where are trying to go in your life?

Thank you for taking the time to read this blog post. If you enjoyed this one, you might also enjoy:

Your Net Worth, Your Gross Salary, and what they mean
A look at the Law of Compounding Interest and why you should care
My personal experience with Dave Ramsey’s Debt Snowball revisited
The difference between being cheap and frugal
We should’ve bought Facebook and Bitcoin stock: An Investing and technology story
Challenging misconceptions and stereotypes in class, household income, wealth and privilege

If you’ve found value here and think it would benefit others, please share it and or leave a comment. To receive all of the most up to date content from the Big Words Blog Site, subscribe using the subscription box in the right-hand column in this post and throughout the site, or by adding the link to my RSS feed to your feedreader. Please visit my YouTube channel entitled, Big Discussions76. Lastly follow me on Twitter at @BWArePowerful, on Instagram at @anwaryusef76, and at the Big Words Blog Site Facebook page. While my main areas of focus are Education, STEM and Financial Literacy, there are other blogs/sites I endorse which can be found on that particular page of my site.