Untucked Episode 95 – Spend tracking and budgets

Coach’s Corner – Today we’re going to talk a little bit about budgets and bill paying. Uh, we get a lot of questions about best practices when it comes to creating and servicing a budget and different bill paying strategies.

So today we wanted to talk about some of the ways we’ve seen budgeting, uh, maybe work well, some of the ways it maybe hasn’t worked as well, and then, um, maybe some of our kind of personal tactics. What are the most effective ways to kind of manage a budget? Like, people do, [00:15:00] like, old school, like, people did, like, envelopes.

Mm hmm. Envelopes for, like, utilities, for cars, for vacations, for Christmas. Mm hmm. With, like, literal cash. Cash envelopes, yeah. We can all agree that’s probably not the best way to go about it. I mean, it works, but, like, nobody operates in cash anymore. Yeah, and you can, you can Mimic that now with different online tools, right?

Bucketing your bank account, for example, in digital envelopes. But yes, I think the cash piece of it is silly. That’s my goofy way of doing it. Like, I record entries in my, like, electronic My digital checkbook that I run of, like, Roth IRA contribution. Which I’m not making until January of 2025. But, you know, 600 a month.

So it brings my Checking account balance to a negative because I have all these pockets of things that I’m like [00:16:00] putting money aside for Not outside of my checking account but outside of my checking account balance digitally, which makes probably no sense You’ve described to me how you operate your And I’ve never, I don’t think, fully grasped it.

Well, let me try to explain it to you again. Like, I have to pay a life insurance premium of 3, 000 every September. So every month, I put, I have an entry for 250 this month for that life insurance premium. Next month, I change that from 250 to 500. The next month, I change it to 750. So it did it as if it left my account now, it didn’t leave my account right still there, right?

But my system says it left the account. Yeah, I’ve already counted it as out. Yeah, it’s not money. I can use It’s not money. I can spend sure where that kind of [00:17:00] strategy stinks right now is I’m probably losing a couple bucks in interest where I could have that money somewhere else earning and outside of my checking Yeah, I think for me.

I think the best way to run a budget is You have your fixed expenses, which all get debited in one form or fashion, whether it be a check, a debit, an ACH payment. All your fixed expenses get debited from a checking account, monthly. Again, I don’t care how you do it, if you write checks or if you set up automatic payments.

And then everything else you do, you charge through a credit card and pay off every month. And then all of that is all categorized for you for your review at the end of the year. Right, so what are the advantages of a budget? It’s to understand where your money is going. So when you say budget, I’m a little confused.

Are we talking about tracking your expenses or a budget, which to me kind of means you [00:18:00] have figured out how much you’re going to allocate towards various categories of spending in the future. And then you kind of try to stick to that or, you know what I mean? I feel like that’s different. So no, it’s the same.

Oh. Okay, sorry, but no tracking what you spend is not a budget to me. Well, I think tracking what you spend gives you the Ammunition to then create the budget right like understanding where the money is going so you can say well I’m spending too much money going out to eat. Yeah, or I’m not spending enough money on something else So it’s probably saying same.

Yeah one leading to the other doing it my way, which is the best way Allows us to say like right here’s all my fixed expenses And then I can spend, for my lifestyle, 4, 000 a month on my credit card and then pay it off at the month. That, if I [00:19:00] exceed that 4, 000, then I have a system that I can go to and figure out why.

Why I exceeded the 4, 000. Because it’ll break it all down. Wah wah, gas, food, booze, out to dinner, clothes. Hockey. Hockey. Hockey. Hockey. So you tie it to a credit card limit. Like you tie it to how much lands on your credit card? I personally set myself the limit, right? Like if I make 10, 000 a month, fixed expenses are 5, 000, uh, I want to save 2, 000 in my 401k, well then the remaining 3, 000 is what I can use for my lifestyle.

And I’ll charge it all on a credit card. And then the theory is to pay it off at the end of the month. If that exceeds, if it’s 3, 500 one month, then I can go into that system and see why. Seems pretty straightforward, right? How do you do it? Does anybody do you book a vacation and put it on your credit card, that’s a one time, that’s a kind of a one time significant [00:20:00] expense that is outside of your normal 4, 000 in your example.

That is a separate budgeting technique. Now we’re getting to it. That’s when you speak to your partner. Uh, what’s our vacation plan this year? And then he or she says, okay, well for that one, I’m going to budget 500 bucks a month. That’s going to come out of like my spending limit. And it’s going to go into this account over here so that we can pay for the rental at the Jersey Shore when that comes up in June.

Kind of similar strategy, but it just has to be planned for. We can’t just say, oh, let’s take a vacation and then just book an Airbnb for three grand and then not be able to do anything that month. So, okay, I get it. You do it differently? It sounds like you do it differently. Yeah. Yeah. I don’t think I’m going to like your way.

But, but before that, so people that use debit cards, so I don’t use a debit card ever for anything. Yeah. Every single thing that can go on the credit card goes on the credit card. Something that wouldn’t would be [00:21:00] somewhere where they’re going to charge me 3 percent for something that’s a big. God, I hate it, dude.

Yeah. No, it’s not just if it’s big. Yeah. Yeah. No, you’re right. It pretty much a hockey registration tryouts for a hundred dollars. That’s a, they charge 4.9%. Yeah, that’s a good example. Jeez. Which I ate. So you just pay that ? No, I, well, I put it on my card. Oh. I paid the extra five bucks to put it on my credit card.

Yeah. Because I got points for it. . Well, that’s the thing. I mean, the points are I got 1% in points and paid 5% in fee. . No, but no, you’re right. Stupid. You’re right. You do. You get one or maybe two. But um, for the stuff that is not. There is no surcharge for it. It’s like, why would you not put every single thing on a credit card that you could?

If you don’t have Do the people that use debit cards just know that they have no self control? Yes. And they have to put it on a debit card because they know the money’s there and if they put it on the credit card, they’re not gonna, they’re gonna end up buying stuff that they can’t afford. Yeah. I think that’s a big part of it.

I think, and even if they don’t, if that’s never happened to them, I think they’ve been [00:22:00] Scared. They’ve been made to feel scared of using credit cards. Like, I think it’s completely psychological. Yeah. That’s it. I don’t know how, again with my system, I can’t use a debit card. Because I, I like schedule all the payments or I have things scheduled that come out of my checking account at different times of the month, right?

Car, 529 contributions, like all this stuff. So just looking at my balance on one day doesn’t give me an accurate balance. Sure. You’re right. I guess. So how can you use a debit? I mean, I guess if you have a 50, 000 buffer in your checking account, you can debit away. Yeah. You don’t need a 50, 000 buffer. No, but like, let’s say you have a 3, 000 buffer, it can easily get debited away.

That’s why I don’t like auto pay. So I’m, I’m a little bit of a control freak in that sense. You? I do limited auto pay stuff because. Like when I [00:23:00] get utility bills or anything that comes in that’s a regular monthly thing, I, I like manually make the payment. I do online bill pay, but I don’t set it up to automatically debit for that reason.

Because I want to, I don’t want to be like, Oh shit, like I forgot about that auto pay for my homeowner’s insurance or you know, whatever it is. And then like forgot about it. Right. And then didn’t have enough like balance a 75. 89 charge for T Mobile. Yeah. Yeah, I hear you. Yeah. I manually, like, e pay everything from TD Bank.

For the most part. Yeah. I’m with you. And then I have, like, probably half I do that manually, the other half, like, like my mortgage I do manually. The T Mobile just gets debited from the account and I just record it every, every, um, the 529s get pulled from Vanguard, from my bank account, I just get recorded.

So it’s just I don’t know how you would debit unless you had a pretty significant buffer [00:24:00] because I don’t think anybody’s like balancing their checkbook No, no those days are over I mean, I do like when I was like do it every month out of college and stuff because I was kind of like told This is what you were told today.

Yeah, and then after a while you’re like, why am I what am I I do it every month? Why and like the purpose being? Yeah, I mean it’s a legit question. To make sure that like I have everything and I know how much is in my account. Like I know what came in and I know what went out and it’s all accurate. And I didn’t miss anything.

Yeah. I, I’ve never No, no, and I, I understand that like the, the cash flow is a little bit different. I just, in, in any case, the, the balancing of the checkbook, the actual act, when you have, with the click of a couple buttons, the ability to scan transactions. It just, it doesn’t make sense to me. I have a lot more [00:25:00] transactions than you.

Yeah, okay. So maybe that makes it a little easier if you just scan the four transactions that you have in each one. Alright, alright. I’m starting to hate again, I don’t know why. So back to your comment, Meg, um, you mentioned that, or maybe it was Jeff, that some people like have this fear of credit, using credit cards.

It’s funny because I made, Caroline and Will made them. I did, I made them get credit cards. And I’ve said just when you spend, don’t use a debit card, use a credit card, and then set up auto pay for the balance at the end of the month to link it to your thing and pay it off every month. Um, cause you’ll, you’ll build credit and then also, you know, you’ll, you’ll get 3 worth of points at the end of the month or whatever.

But, um, but they were the same way. Like they were like, I don’t, I’m, Caroline was like, I’m, I’m, I’m really scared to use a credit card. She was just like. You’re naturally reluctant. Yeah, do it. It’s weird. How many times have you had to go into their accounts and add money? [00:26:00] Like on short notice because their auto pay was gonna happen and there wasn’t enough not yet Nothing yet.

So my credit card is the only bill that’s not on autopay. So I’m the opposite of you like Uh, everything is autopay. If it’s auto payable. Yeah, I am. I don’t care what day of the month I would just me going in and manually paying a bill, uh, that’s would lead to me forgetting. Right. So what you’re describing, like your active balancing your checkbook to make sure nothing was forgotten.

Autopay gives me confidence that nothing will be forgotten. Now, could I get charged double what I’m supposed to be? Absolutely, would I notice? Probably not in a particularly timely manner. That’s another reason, I’ve busted many a vendor for trying to overcharge me for stuff, or you just, you’re like, wait, I’m on, I’m on like this plan, and I should, like that kind of stuff, you’re right.

Yes, so I definitely like try to pay attention, but it’s [00:27:00] not, there’s no like system in place to double check, so if I notice something that looks incorrect, I’ll figure out why it’s incorrect, but it could be like, So neither one of you understand the stress of like, putting all the debits in, putting all the deposits in, and then there’s, it’s off like 2.

96, and then having to go back and figure it out. No. Uh, uh, no. The going back and figuring it out part, that’s a waste of time. You would just click reconcile. Whatever. Yeah, whatever button you click. I don’t even know what that is. For 2. 90, that’s a rounding error. I mean, if it was 1, 000, I’d be like, all right, I messed something up.

My bank, so I have my checking account and then I have like a, they called a reserve and then they have like long term savings. So I have. My everything goes in and out of my checking my reserve I use as like my travel account So like [00:28:00] every time I get paid I put some money there So if I do want to book something on a whim and don’t want to add it to the credit card I have like a little bit of a buffer and then the long term one is just where I put like the tax money but because of that reserve Being like overdraft protection or whatever like balancing to the scent Doesn’t matter.

I have a buffer now. It’s not a 50, 000 buffer, but it would Theoretically cover me if I Venmoed somebody 500 bucks and didn’t mentally account for it or something Jeff where does your gambling account reside? within the app Just within the app. I make a deposit in the beginning of the year. I hopefully have winnings and to this point, like, we’ve never gone negative.

So I’ve been basically playing with house money. So I guess to get back to maybe something constructive, um, [00:29:00] Budgeting and understanding lifestyle is important because it allows us to, one, again, kind of fine tune month to month, are there opportunities to save more, are there opportunities to service debt differently or more effectively, and then it also allows us to project, right?

If I need to live off of, or if I’m living off of X today, well now I can do some rough math and figure out how much I should have saved by a point in time, maybe when I want to retire. So there’s value in this information. And I think we often find people who are like, Oh, should I go out to dinner one less time a week?

Or, you know, like making decisions around the budget that while they’re probably important and impactful, the broader conversation, in our opinion, should be like, again, how much we can save, right? And are we doing and spending in a way that Maximizes our saving, [00:30:00] savings opportunities, right? Yeah, and if you’re doing like the, if you don’t want to do the credit card thing that we do, then it’s like, I make 10 grand, have everything auto pay for your bank, 5 grand is that, it goes out, I put 2, 000 in my 401k, you know you have 3, 000, you can debit during the course of the month.

And you can’t go over that number. Right, and there are tools, you know, Mint is one of them. There’s other apps where you can load all of your lifestyle and spending information. It’ll help you with the categorization that we’re talking about our credit cards doing. So there are tools that can help compile the information.

But ultimately, like, the effectiveness of it is up to you. Yeah, I think one of the biggest, like, Mistakes people make is they don’t account for those like quarterly or annual ones and break them down monthly and set that aside. Right? You have to [00:31:00] do that. If you have a quarterly payment that’s due for whatever, you gotta take money each month and put a third of it into, like, aside.

I 100 percent agree with that. You have to kind of, it’s the way businesses account for their own expenses that are One time lump. Yep. They don’t it’s not an expense that quarter It’s it’s spread throughout the year and they account for it that way and that way you you recognize that it’s a It’s an expense that covers like the whole year’s worth of stuff and Jeff the way you do it is perfect because you’re Doing exactly that we have clients that don’t do it that way that are retired and they like live on a fixed budget And that screws them up and screws up their plan every year all the time It’s like yep.

All I all we need is five thousand bucks a month. We send it to them and then I get an email. Hey, um, you know that that auto and homeowners and uh, Insurance bill just came in. Can you send us six grand like? Six grand. That’s a big [00:32:00] number. Like, why don’t we just send you an extra 500 a month? Cause they just can’t, they’ve never done it that way and they can’t do it.

Yeah, I think that’s, that’s part of this too, right? Is like, people come to us and ask for advice. Um, with tracking expenses, or with building a budget, or sticking to a budget, and it’s like, whatever you’re gonna do, like, whatever is going to be most effective to you, um, and, and I would say most honest, because I think a lot of times people are, maybe intentionally so, or not intentionally so, kind of forgetful of expenses, and it leads to that.

These one off things that, aren’t actually one off. So in terms of building and compiling the information and sticking to it, it’s a matter of a system and that you’ll stick with. Um, and then again, hopefully promotes conscious spending with the ability to save. [00:33:00] Yeah, the one other thing I’ll say is, um, I think it’s so important for young people especially, especially, which is you paying yourself first.

So like Jeff, you mentioned your, your savings thing is, is there. So like when I started my first job out of college, I made 17 grand a year and so like 1922, it was a recession, but seriously, and, and, but at the time I put, I set up the automatic like 50 or 100 or 150, whatever it was a month to go directly into like some mutual funds.

Yeah. Right. So, and that, and that was just systematically set up from the get go. And I, that was going on for years and it ended up being huge because it provided number one, the habit of doing it. And number two, You know, it compounds. I mean, we talked about that separately. It’s just, it’s so important.

And I think that’s, um, something that that piece of advice I think is [00:34:00] critical for young people to whatever, however little it is just systematically set aside from your 401k contribution. You do that, you know, up to the match or whatever the company you’re working for, if there is a match, but aside from that, Even if it’s 25 bucks a month, do that and don’t touch, don’t touch it cause you’re, you’re, you don’t even think about it.

It’s gone. It’s at another, it’s, it’s, it’s not like landing in your bank account and then you have to do it. It’s gone. So I, I would, I would say that’s really important. No, I’m like that advice is good, man. I think that’s what holds most people back is when they think about, well, it’s only 25 a month.

That’s only 300 a year. Right, but it’s 300 that you save that year that you would otherwise would not have and it’s the habit. Yeah, because then the 25 You don’t even feel it and then when you get a raise like well, maybe I’ll make it 125 Yeah, I’ll make it 50 and then it starts to become something because it’s habitual now.