Why We Approach Financial Planning and Budgeting Differently

Picture of Jesse Mecham, founder and CEO of YNAB.
Jesse Mecham, founder of online budgeting tool “You Need a Budget.”

Disclaimer: Neither the author, nor Providers & Families Wealth Management, LLC or its employees, are affiliated with, compensated, or endorsed by You Need A Budget (“YNAB.”) This is not an endorsement of YNAB and should not be read as such.

On his company’s website, Jesse Mecham (founder and CEO of online budgeting tool “You Need a Budget,” or YNAB for short) explains in his like-titled book how budgeting and financial planning are different:

If it is impossible to perfectly predict your expenses, a budget needs to be nimble and adaptable, right? Except most budgeting systems are decidedly “set it and forget it.” You make a budget at the beginning of the month, set it in stone, valiantly try to bend the fates and laws of the universe to make the month turn out exactly like the numbers you guessed, er, projected. Oh, and then beat yourself up and feel guilty when it doesn’t.

In retirement planning, “forecasting” is very useful. We forecast what we will spend, how much things will cost, and how much more expensive they’ll get over time. We even forecast how are investments will perform, even though there’s no guarantees.

Related: Yes, You Can Keep a Budget

When it comes to budgeting, forecasting is much different. If we forecast what we’ll have, we’ll forecast how we can spend it, and often make the mistake of spending it now. This is why YNAB’s approach to budgeting is so unique: you only focus on what’s in your bank account today, and you split it up into bitesize pieces designed to accomplish its own tasks.

Budgeting is a fluid, active process that requires dilligence and awareness.

Most budgets are backward. You start by projecting or guessing what your income will be, then plan how to spend that money. The farther out you go with this exercise, though, the less accurate your guesses–about your income or your expenses–are going to be. (Go ahead, I dare you to try and perfectly predict your expenses even for a week). The result? You are always in the dark, guessing, and waiting for the other shoe to drop.

With YNAB, you only budget money you have right now. It’s an allocation system, rather than a forecasting system. Therefore, you are on solid ground, fully aware of what you have and where you are going.

What about that big bill next month? Slow down, we aren’t there yet. With YNAB’S approach, we focus on what are current money is doing. And if it our current money isn’t helping us achieve our objectives, then we need to rework it.

Check out YNAB for yourself here.

About the Author

Scot Whiskeyman is Founder and Partner of Providers & Families Wealth Management, LLC., and is a CERTIFIED FINANCIAL PLANNERTM . His primary focus is on retirement planning for established professionals and estate planning for seniors. He can be reached by e-mail at scot@providersandfamilies.com.

A New Year’s Toast

Cheers!

In the spirit of New Year’s Eve, I’d like to make a toast. If you’re reading this, join me in raising your glass, coffee mug, water bottle, or whatever.

It seems like just yesterday 2018 was beginning. Scary how the years seem to zip by faster and faster as we get older, isn’t it? But that’s not what this toast is about.

This New Year’s Eve, I’d like to make a toast in your honor. I may not know you, but I believe you have the power to be great – so here goes.

Here’s to your potential. To the greatness and success that lies just around the corner from you. To your wealth, our prosperity, and generosity. To your success.

Here’s to all of the love you have to give, and all of the love you were born to receive. To new beginnings, and to the great places they’ll lead.

I’m not saying it will all be easy. In fact, the average person may cower away when challenges arise. But not you. You’re anything but average. So here’s to your bravery in the face of the impossible, and your ability to overcome it.

You are brave – braver than you knew in 2018. In 2019, you’ll worry less, because you know there’s plenty of time, and plenty of love to give and to get. And you know that you’re edge greatness. Any challenge life might decide to throw in your way is only temporary, and yours to overcome.

Because in 2019, you’ll be fearless. Whatever you’re faced with – financially, professionally, or personally, you’ll think to yourself “I’ve got this.” And you’ll be right.

Here’s to fearlessness.

About the Author

Scot Whiskeyman is Founder and Partner of Providers & Families Wealth Management, LLC., and is a CERTIFIED FINANCIAL PLANNERTM . His primary focus is on retirement planning for established professionals and estate planning for seniors. He can be reached by e-mail at scot@providersandfamilies.com.

Free Employee Benefit Available for 2019: Naps

Pictured: how napping can make you feel.

Here’s a riddle: you can’t put a price on it, but it’s tremendously valuable. Without it, you wouldn’t be alive. What is it?

Did you guess “the mind?”

Few things peeve me more about our culture than the value we put on a single key ingredient to a healthy mind: sleep. Isn’t it insane that we still give people 15 minute smoke breaks (one of my first jobs offered two fifteen minute smoke breaks each day) – and yet napping is stigmatized?

I don’t have time to point cite any studies, but you can them up, and you’ve likely heard about what research shows about sleep. Well rested individuals get more done, are more effective and getting things done, and are at a lower risk for a myriad of diseases. In short, if you get plenty of sleep, you’ll be healthier and richer.

When it comes to employee benefits, we offer insurance, gym memberships, onsite cafeterias, retirement plans, company cars, and more. I even read an article recently about businesses building sound-proof phone booths for personal phone calls. Employers offer these things because they know that healthier, happier employees = more productive (read: profitable) employees.

Wait, you want to sleep? Stop being lazy!

Think about how absurd that is. As an employee benefit, it wouldn’t cost more than a mattress pad like these ones available on Amazon and semi-private designated sleeping quarters (i.e., an office.)

But to do all that, we need to stop stigmatizing sleep. Being well rested is not about just “going to bed earlier” (although that certainly helps.) We now know that sleep cycles, when interrupted, results in us feeling more tired and groggy…regardless of how many actual hours of sleep we got.

Don’t get me wrong: this is not me saying “forget the rules! Stay up until 4am! Take a 6 hour snooze after lunch!” Try to go bed at a normal time, and try to get up at a normal time. But if you can’t make that happen, don’t punish yourself. A 20 minute snooze can give your mind that extra push to get you through the rest of your day.

Last week I wrote about us living in an abundant universe. One of those things that is abundant in our universe is time. Therefore, don’t feel bad for giving yourself time to rest. You don’t owe anyone an explanation. If anyone asks why you were sleeping, there’s a simple answer: “I was tired.” If you get pushback, such as, “you need to go to bed earlier,” you can respond, “I did, but I couldn’t sleep.” If you then run into “you have things to get done,” simply respond “no one knows better than me what I need to get done, which is why I wanted to get some rest so I could concentrate.”

I’ll say it. I’m not ashamed. I take naps. I take them during the day. I take them in my office. I take them in my car. I know this totally spoils your image of me (lol) but I promise you that I am a hardworking individual. Sometimes I work so hard that I get tired. And sometimes that getting tired happens at 2:15pm instead of 10:00pm.

 

Welcome To Your First Day of Financial Independence

Fun fact: Mario is always happy and confident because he doesn’t spend any of the coins he collects.

When I was a kid, all of the joy I got out of life came from simple things. Two of those things were a pencil and a piece of paper. I loved to sketch – I would sit on the couch in my living room with a TV tray and recreate the room. I’d often create concept art for video games – sometimes for games I played, other times for games I dreamed of creating. I’d spend hours creating comics with my own heroes and villains.

My childhood was not fraught with the newest gadgets.  But don’t get me wrong: I had, and loved toys. It’s just that my parents earned modest livings. Some things I got – stuffed animals, action figures from yard sales, cheap matchbox cars every now and then. As for getting the expensive things – they taught me that I needed to save. I earned a weekly allowance by doing household chores – vacuuming, polishing furniture, and sweeping the stairs. It was only a few dollars per week, but I eventually saved up enough money to buy my biggest purchase in my life: a Super Nintendo.

What kept me going was my powerful vision of owning a video game console. When I closed me eyes and imagined it, I could feel it. Nothing was going to stop me. Sure, I wanted it now, but “now” wasn’t an option. Working was. Dreaming was. So I worked and I dreamed, continuing to create imaginary video game levels with a pencil and paper.

As kids, we find creative ways to keep ourselves entertained. We don’t always get exactly what we want, and we certainly don’t get it when we want it. We have to wait. We have to work. We have to have patience. And even then, sometimes our patience doesn’t pay off. But we move on.

Then we become adults.

We place value on the stuff we own. The difference is that stuff as kids meant fun. Stuff as adults means status. Think of it: the brand new, shiny black Mercedes. The five thousand dollar engagement ring. The brand-name suit or dress. Is it realistic to afford these things? For the average person, no. So companies offer payment plans, and accept credit cards. And we cough up the money any way we can, because we’re convinced that owning stuff is what defines success.

We all know the truth: people don’t die regretting never having gotten to own a luxury sports car. They don’t spend their final moments wishing that had bought a bigger house. People look back at their life and wish they had spent more quality time with loved ones. They wish they had spent less time caring about how other people saw them, and more time pursuing their creative passions. No one dies wishing they had owned more stuff.

It took me years to understand this. Throughout my twenties, I thought being successful meant being someone else’s brand of success. So I wasted money on expensive bar tabs, restaurants, clothes, and household items that became nothing more than clutter. None of it led to happiness…..it just led to tons of credit card debt. Until one day, I had enough. I cut up my credit cards, and threw them in a shredder. And that worked, for a while. Until I got new credit cards in the mail. I threw them in a drawer, “just in case.” It wasn’t long before I was back at bars and restaurants swiping the cards again. Not the “just in case” I planned for.

Read Also: Yes, You Can Keep A Budget

The reason I failed was because I hadn’t solved the problem. My problem was the entire way I was thinking about money and success. First, I held the semi-unconscious notion that superficial experiences at bars and buying things would pay for themselves (although I had zero notion as to when.) The second was that because I had graduated from business school I was now entitled to financial independence that I had not earned. The truth eventually hit me: those that have achieved financial independence don’t buy things and let them “pay for themselves,” they buy things, and they pay for them with money they already have.

This new mindset has allowed me to draw a clear line between what’s necessary, and what isn’t. And it doesn’t mean I have to sacrifice my lifestyle. I count myself fortunate to live in one of the most wasteful societies in the world. You’d be shocked at the things people literally just throw away: cherry cabinets, flat screen televisions, washing machines, wooden end tables, books, and more. All of which can either be used, or converted to cash, which can they be spent on something useful. The reason more people don’t take advantage of other people’s wastefulness? Two reasons: first, they aren’t trained to look. Second, they can’t swallow their pride. There is a shame that goes with being middle class and not spending money. It’s almost expected. The trick to getting around this is to remember this: your money, your choice. No one pockets money to make it sit there and collect dust. We do it to achieve financial independence.

We can’t be financially independent if we pay companies interest on overpriced stuff that loses half its value in the first year we buy it. We can’t be financially independent if we spend money because of others’ perceptions of us. These things are the opposite of financial independence. I’d even just call them “financial dependence.”

Financial independence begins with a mindset, and ends as accumulated wealth. You can begin enjoying financial independence today. How? Think about your budget. What can you give up now – something that is taking your money? The cable bill? The brand name cereal? Even if it’s only an extra dollar you keep in your pocket, that extra dollar is yours. With the mindset of financial independence – keeping more of your money, and spending less – that extra dollar will become lots of extra dollars.

If you’re scared, my advice is this: stop tying your identity and sense of self worth to the stuff you own. It’s a never ending game with rules that are constantly changing. At the end of the game, somebody else is rich, and you’re still working at age 70.

Being financially independent means not depending on what your financial status means to others. Again: your money, your choice. You earn it, don’t you deserve to decide what you’re spending it on?

A final note: you can’t undo yesterday’s bad spending habits. You (likely) can’t just erase all of your debt and have a million dollars in your bank account. But it doesn’t matter, because that’s not what financial independence is. To be financially independent, you just have to accept an obvious, but easy to overlook truth: money can’t buy happiness. You already know this. Now it’s time to live it.

Forgive yourself for your past mistakes, and fight to keep the money you bust your ass to earn. Enjoy the simple things in life – the ones that don’t require money (there are plenty!) Welcome to your first day of financial independence.

Do you agree? I’d love to hear your thoughts – comment below!

About the Author

Scot Whiskeyman is Founder and Partner of Providers & Families Wealth Management, LLC., and is a CERTIFIED FINANCIAL PLANNERTM . His primary focus is on retirement planning for established professionals and estate planning for seniors. He can be reached by e-mail at scot@providersandfamilies.com.