Community Discussion: How’d You Get into 5-Figure Credit Card Debt?

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Green Visa

For some reason, credit card debt is on my mind this week. At the moment I have no balances, I’m living on (and loving) my budget, and the only card I use automatically pays itself off every month – things are good.

But I’m not getting cocky.  The debtors anonymous survey tells me I should be very careful with any kind of credit instrument. Heaven knows I’ve spent the last 10 years on and off the credit card roller coaster:

  • In college, I ran up a balance of about $1,500 on my first credit card. I’m sure the money was spent on normal college kid stuff: fast food and rent.
  • When I started my business in 2008, my income dropped but my spending didn’t. I ended up with around $15,000 on the credit cards before my income caught back up to my spending habits.
  • When my daughter was born, her hospital expenses totaled around $9,000 – all funded by Visa.
  • While building one of the businesses I sold in 2012, I carried roughly $7,500 in balances until the proceeds of the sale zeroed the debt.

Nickels and Dimes, or Big Chunks?

I see three ways we bury ourselves in credit card debt:

  1. Daily living beyond our means. We use the cards to buy groceries, gas, clothes, meals out, utilities and the like. Balances creep up slowly, but steadily.
  2. Conspicuous consumption. Furniture, vacations, private school tuition, home improvement. That sort of thing.
  3. Emergencies and “emergencies.” Car breaks down, taxes are due, kid breaks his arm and you have to cover your insurance deductible, water heater breaks. You get the idea.

So How Did You End Up in Credit Card Hell?

You can see I’ve walked through doors 1, 2, and 3 on the credit card gameshow. I’m wondering about your story? How’d you end up with big balances? Have you cleared them now? Are you snowballing? Or still mired down, wondering how you’ll pay it all off?

(I’d love to hear your story. If you’d like to comment anonymously, just make up a name and email address for the comment form.)

 

What I Learned About Budgeting from a 2.4 Mile Walk with a 40 lb Sandbag on My Shoulder

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I carried my 40 lb sandbag 2.4 miles from home to the YNAB office on Tuesday.  It was like the Costco walk, only twice as heavy and half a mile farther. It was hard.

Why would I do such a thing?

Because Jesse basically dared me to. We were talking about putting a couple pieces of exercise equipment in the office (I take a few minutes every hour to move around and shake off the desk stiffness), and I said I was going to drive one of my sandbags over Monday night.

“Oh, I thought you liked to walk,” Jesse said (with a bit of a tone).

Well, that settled that.

Tuesday morning I arrived at the office pretty beat. But I’d done it.

See, you’ll always do more with someone in your ear than if left to yourself.

Lugging my sandbag to work had crossed my mind before, you know, just to see.

But had Jesse not given me the (half-joking) challenge, I probably would have driven the thing to work and missed out on the experience.

And it was a great experience – I got some prolonged double-takes from a few mini-van moms. If only it were for my good looks and ripped physique instead of the large duct tape pillow draped over my shoulder. Ah, well. 

So what could this possibly have to do with budgeting?

We budgeters can be pretty smug in the presence of non-budgeters, with our 4 Rules and our peace of mind.

But are we in budgeting cruise control?

Where’s the 40 lb sandbag in our budget we can throw over our shoulder just to see what it feels like?

In a recent podcast (Episode 078: The Black Box of Spending), Jesse described how you can really move the needle in your budget by digging into your “Miscellaneous” category, pulling a recurring expense out of it, and making that expense its own category.

By setting it apart, you’re already triggering the power of awareness, which will automatically reduce your spending in that category.

Now take it a step further. Just for kicks and giggles, cut the number in half.

Then sit back and be wildly entertained by the frantic yelling in your head:

“That’s ridiculous!”

“You couldn’t feed a dog on that, let alone a family of four!”

“I didn’t start budgeting so I could live like a homeless person!”

Give it a shot. You’ll learn great lessons about yourself and the category.

The Unexpected Benefits of Challenging a Budget Category

A couple of months ago Kate and I canceled DirecTV, saving us $100 per month.  We’d hemmed at hawed about it for a couple months; after all – satellite TV was a big part of our post-work, post-kids-going-to-bed routine. In hindsight it seems strange to have anxiety about dropping a TV service, but it was an uncomfortable couple of days.

Fast forward two months, and I’ve never missed DirecTV. Kate and I find we’re spending the time in ways that make us happier:

  • We talk more.
  • We read more.
  • I’m teaching myself to code – building software that will help me improve my writing output.
  • Kate updates the family blog more often.
  • Our kids are watching much less TV (we still have Netflix).

The experiment has been a big win.

Listen, I get it. You can’t cut your grocery budget in half (unless, of course, you can). Could you do a  30% experiment? 20%? 10%?

Giving yourself this kind of challenge is all upside. You’re either going to come out of it:

a) Enjoying the same level of happiness while spending less, or…

b) Fully confident that spending more is making you happier.

So, what’s it going to be? Which category are you going to wrestle for the next few weeks?

 

Deconstructing ‘Available to Budget’: Clarity on One of Your Budget’s Most Important Numbers

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Listen, I realize it’s not the most scintillating headline. I’d love to be able to use something along the lines of “Pics of Britney Spears’ Chihuahua Entering Rehab – Again!” But sometimes we just need to slow down and make sure you’re clear on some of the nitty gritty points of your favorite budgeting software. So stick with me.

Yesterday Jesse and I were discussing different aspects of the YNAB interface, and I mentioned how useful I found the “Monthly Header” – which is what we call the area above each month’s budget. The main feature of the header is ‘Available to Budget’ – the number of dollars in your budget that haven’t yet been assigned to a specific category.

Jesse’s reply was “I’m afraid the header confuses the heck out of most people – they don’t know how we come up with ‘Available to Budget,’ and they don’t know which of their actions affect it.”

Jesse’s comment reminded me that I’d quit YNAB a couple of times due to confusion about ‘Available to Budget.’

If that’s you – if you find ‘Available to Budget’ confusing – I have two pieces of advice:

1. Attend one of our live classes (and/or review the very thorough Quick Start Tutorial).
2. Read on to find out how we determine your ‘Available to Budget.’

Dollars Enter the Budget

$1,000 enters my budget through my checking account.

Click to enlarge.

$1,000 enters my budget through my checking account.

‘Available to Budget’ Reflects the Inflow

The $1,000 inflow gives me an 'Available to Budget' of $1,000.

Click to enlarge.

The $1,000 inflow takes my checking account balance to $1,000. In the ‘Available to Budget’ area above May’s budget, you’ll see the $1,000 reflected as ‘Income for May’ – which takes my ‘Available to Budget’ to $1,000.

Dollars Are Assigned to Categories

After allocating $900 of the available $1,000, my 'Available to Budget' number goes to $100.

Click to enlarge.

I assign $900 of the $1,000 to various categories in my budget, leaving me with an ‘Available to Budget’ of $100. Normally, I’d assign every available dollar to one of my categories; I’m only leaving $100 available to budget for the purposes of the tutorial.

See how my checking account balance didn’t change? That’s because account balances only change when money enters or leaves the budget (usually in the form of income or expenses).

Assigning ‘Available to Budget’ dollars simply moves them around within the budget – which is why account balances are unaffected.

You’ll notice I’ve updated some of my category names to show the typical amount for that category as well as the day of the month they bill is due.

Spent Dollars Leave the Budget

$50 leaves my budget (through my checking account) to pay for my home internet connection. This reduces my checking account balance and my 'Internet' category balance, but does NOT affect my 'Available to Budget.'

Click to enlarge.

$50 leaves my budget as I pay my home internet bill. I record the transaction on my checking account register.

Current Month’s ‘Available to Budget’ Unaffected By Normal Spending

5-a-budget-with-internet-paid-and-still-100-atb

Click to enlarge.

The $50 outflow reduces my ‘Internet $50 (21st)’ category balance to $0 and lowers my checking account balance to $950, but does NOT impact my ‘Available to Budget.’

Two Options for Dealing with Overspending

6-a-budget-with-22-overspend-popout

Click to enlarge.

Another $72 leaves my budget when I pay my electric bill. My checking account balance reflects the outflow, and the ‘Electricity $50 (17th)’ category shows a negative balance of -$22.00 because I’ve overspent in that category.

Here’s the important part: May’s ‘Available to Budget’ number still hasn’t changed. If you click on a negative category balance, YNAB gives you two options for handling overspent money:

  • I can subtract it from next month’s ‘Available to Budget’, or…
  • I can subtract it from next month’s category balance.

To keep things as simple as possible, I’d recommend choosing the default – subtract the money from next month’s Available to Budget.

This Month’s Decisions Affect Next Month’s ‘Available to Budget’

7-a-june-atb

Click to enlarge.

Clicking over to my June budget, I can see how June’s ‘Available to Budget’ is impacted by May’s decisions:

I have $100 ‘Not Budgeted in May’ and $22 ‘Overspent in May,’ leaving me with $78 ‘Available to Budget’ in June.

Ideally, I’d like to get June’s ‘Available to Budget’ to $0 – reducing the opportunity for confusion later on.

Cover Overspending with Available Dollars

8-a-may-atb-78-after-covering-elec-overspend

Click to enlarge.

My first step is to go back to May’s budget and budget an extra $22 in the category called ‘Electricity $50 (17th).’ This takes my budgeted amount to $72 – which matches my $72 outflow.

Up in the ‘Available to Budget’ area, ‘Budgeted in May’ jumps by $22, which reduces May’s ‘Available to Budget’ to $78 – because I’ve assigned those $22 to cover the overspend in my Electricity category.

If I didn’t have any dollars ‘Available to Budget,’ I’d have either allowed the overspend to roll into June (which is part of a realistic budgeting method), or I’d have taken available dollars from another category to cover the overspend in my Electricity category.

(Again, notice how these moving money within the budget doesn’t affect my checking account balance.)

9-a-june-atb-with-no-may-overspend

Click to enlarge.

Going back to June’s ‘Available to Budget’, the ‘Overspent in May’ has gone to zero, and the ‘Not Budgeted in May’ has dropped to $78, leaving June’s ‘Available to Budget’ at $78.

Getting ‘Available to Budget’ to $0

10-a-may-atb-budgeted-to-0

Click to enlarge.

Because I want to give every dollar in my budget a job, I (arbitrarily) allocate the remaining $78 to my ‘Phone’ category, increasing my ‘Budgeted in May’ to $1,000 and taking May’s ‘Available to Budget’ to $0.

11-a-june-atb-after-budgeting-may-atb-to-0

Click to enlarge.

With no unassigned dollars and no overspending in May (and no income yet for June) my June ‘Available to Budget’ also sits at $0.

You’ll also notice how I have positive balances in several categories of June’s budget, but those positive balances don’t affect June’s ‘Available to Budget.’ Why? Because those dollars already received their jobs, and now they’re sitting in their respective categories waiting to be spent.

Hopefully this tutorial gives you some insight into how YNAB determines your ‘Available to Budget’ number.

As always, the education team is ready to support you with free live classes, and your questions are always welcome in the YNAB community forums.

Status on Part-Time Support Rep Position

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Hey all, for those of you interested in the support rep position, just a quick status update.

We received just shy of 200 applications, so we’re still working through the first phase.  We’ll be finished with the first phase by the end of the day on Tuesday.  On Wednesday, if you hear from us, that means you’ll move on to Phase Two :)

If you don’t hear from us, it means you didn’t make the cut :(

Our plan is to have about 20% of the candidate pool move to Phase Two.

The applications have been great, and it’s been fun getting to know some of you YNABers a bit better.  You’re voracious readers, and have added a lot of books to my “To Read” list!

Everybody, Meet Harriet. Does She Need YNAB?

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One of the last comments on my post about keeping Monopoly money out of your budget was from Harriet, whom I’d classify as a borderline financial rock star. Read on to get a sense of her situation, then help me help Harriet decide whether she needs YNAB.

I am trying to decide if I should buy this software, and am having trouble understanding how it works. I took the intro class, and I’m still confused.

The deal with us is that we have a year’s living expenses either in the bank or fairly easily accessible.

I have set up all of our regular bills to be paid automatically.

I keep track of all of this in my checkbook, generally recording payments way ahead of the time they are due.

On the rare occasions when the balance runs a little too low in the checking account, I move money from savings to make sure there’s enough there. When I get an unexpected bill (e.g., medical co-pay), I pay it right away. If we want or need to buy something outside of regular expenses, we usually put it on a credit card for convenience (in fact, we use cards for almost everything), but I know the money is there to pay for it, and those CC bills are paid in full each month. I have operated this way for years, well before I got married.

In essence, we ARE paying bills on previous income. We don’t have any debts other than mortgage. Included in the regular expenses are transfers into a savings account, with some of that earmarked for larger expenses later on (contributions to IRAs, home improvements).

My interest in trying YNAB out was to get a better handle on where smaller amounts were going — for eating out and things like that. It’s not that we can’t pay for those things, but I have been feeling like we may be frittering money away without thinking about it.

So is there anything YNAB can do for us that we’re not already doing? Thanks — Harriet

Harriet, your main goal in trying out YNAB was to manage your discretionary spending more effectively, wanting to avoid “frittering away” (great phrase) your hard-earned and hard-saved cash.

Here are three big benefits you’ll enjoy by adding YNAB to your life:

1. The Observer Effect Will Automagically Reduce Your Spending

Have you heard of the observer-expectancy effect? Here’s the gist: people perform better when they’re being watched. In the case of YNAB, we’re using our budget to watch ourselves.

When you establish a spending ceiling for a given category (eating out, for example), your spending in that category will naturally decline simply because you’re watching it. I recently confessed to eating out like a Wild-eyed Burger Demon in 2012, spending over $300 per month at restaurants – often on food I didn’t even like.

Last month (April, 2013), my wife and I spent a total of $70.96 at restaurants. I’m sure our “steady state” spending on restaurants will be as much as double our April amount – but that’s half our historical average. YNAB gets the credit for helping us spend more consciously.

2. Clean Categories Create Consumption with Clear Conscience

My mom (whose transition to YNAB we’ve recently discussed) is loving the program. She (like you, Harriet) has always been financially mindful, but at times she goes to the extreme of feeling like she can’t (or shouldn’t) spend any money – especially on herself.

Thursday night we were chatting about YNAB, and she said “I have $300 in my clothing category, and I can see that everything else is handled, so now I get to go shopping guilt free.”

Right on, mom.

3. Budgeting Your Discretionary Funds Frees Your Mind

Your system works, but I’d wager it requries too much thinking and pen-and-paper reconciliation. Based on your description of pen, paper, and checkbook, you’d find YNAB a breath of fresh air.

Here’s how I use it:

1. Money comes into my life (usually in the form of a paycheck).
2. I assign dollars to jobs (categories) until there all new money is spoken for.
3. I spend money, logging transactions on my phone.
4. I take three to five minutes every couple of days to reconcile my checking and credit card accounts against YNAB, ensuring all is square.

With this workflow in place, I’m shocked at how little time I spend thinking about my expenses, bills, due dates and the like. YNAB lets me think about other things; it’s a major stress reducer.

Overall, Harriet, I’d say you’re doing great. Add YNAB to your workflow and you’ll find yourself spending more consciously and with less anxiety, while reducing mental overhead.

 

It’s Probably Not the Best Idea to Make a Costco Run on Foot

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groceries

It seemed like a good idea at the time.

My wife is no big spender, but during her regular visits to Costco she’s been known to throw this and that into the cart along with items from her list. Problem is, “this and that” at Costco can easily add $50 to your bill.

So when she told me she needed a few things from our favorite bulk food outlet, I offered to go instead. “Just text me your list,” I innocently said.

Driving to work that day left me missing my morning walk to the office. To ensure I hit my mileage for the day, I decided to walk to Costco, pick up the food, walk back to the office, and then drive home.

You Decided to Walk to Costco?

You’re probably asking:

  • How far from your office is Costco?
  • How did you plan to get the groceries back to your office?
  • But, seriously, how were you going to get the groceries back to the office?

My answers:

  • Google Maps (which is a lying liar) pegged the distance at 1.4 miles (for a 2.8 mile round trip). As I flashed my membership card to the nice lady at the Costo entrance, my iPhone gps app registered 1.9 miles. Uh oh.
  • I had no plan for transporting the groceries back to the office. Actually that’s not true. My brilliant plan was: carry them.

As I headed out of the office, Chance (YNAB COO), said (with some confusion in his voice) “Do you think you maybe want to take your backpack?”

My backpack! No wonder Chance gets the fancy title.

After grabbing my backpack, I confidently strolled out of the office and marched myself to Costco.

I quickly made my rounds through the store, picking up the items on Kate’s list:

  • Four loaves of bread.
  • A six-pack of Orange juice concentrate.
  • A large bag of spinach.
  • A big plastic container of grapes.
  • A block of Tillamook sharp cheddar.
  • And…four dozen eggs.

As I headed to the checkout, my confidence in the mission wavered. The pile of food in my cart seemed like a bad combination of big and heavy.

I checked out, loaded everything into a pretty good-sized fruit box (you know how they do it at Costco) and headed for the door.

Once I cleared the door, I ditched my cart, loaded the spinach and the cheese into the backpack (thanks Chance), which left the juice concentrate, grapes, and the eggs in the box.

Welp, I thought to myself, we’ll see how this goes.

You’ll be shocked to hear the box made for an awkward carry.

I hefted it onto my shoulder, busboy style, and walked about 10 steps. My shoulder tired quickly, and I switched to a more traditional forklift approach.

Ten or twenty more steps, and I was ready to set the box down on the nearest mini-van and call my wife to bail me out.

No! That’s the coward’s way out. Finish the mission.

I made it to a stoplight and rested my load on the crosswalk button. One of my neighbors happened to drive by, giving me a confused look and a wave.

Only then did I realize how ridiculous I must look. Grown man, walking out of the Costco parking lot wearing a stuffed backpack and carrying a large box of groceries on his shoulder.

The light changed; I marched on. After a couple hundred yards I realized the box just wasn’t going to work out – it was too blasted awkward.

Luckily, I was right next to one of the two grocery stores I’d passed on my way to Costco. Did I forget to mention those?

I walked up to the store, set my box down on the ground in front of the big sliding doors, went in and grabbed five or six grocery bags.

Am I shoplifting? I remember wondering.

Back outside, I transferred the eggs, orange juice, and grapes into the bags, and took off, hoping there wasn’t a teen-aged grocery bagger behind me dialing up the cops.

Ahh, yes. The bags made for easier carrying.

Although I do have to hold them out from my sides to keep from banging them into my legs…

And, man, these bags are heavier than I thought. My arms are going numb…

And, hm, I don’t think I got the weight distributed quite evenly between the two bags, and the fingers on my left hand are dangerously close to giving out.

With dead arms and purple fingers, I picked up the pace. Fast enough to cut my time down, but not fast enough to risk blowing out the bottoms of the bags. So, instead of Strange Guy with Backpack and Big Box of Food, I’m now Weirdo Gently Speed-walking with Two Grocery Bags in Each Hand.

Finally I turned a corner and my office came into view.

I shouldered the door open, plodded up the stairs, and unloaded the food in the office’s kitchen area, cursing my own stupidity.

Chance walked by just then, and cheerfully asked “How’d it go?”

Panting and sweating, all I could think to say was,

“I hope the eggs survived.”

Keep Monopoly Money Out of Your Budget

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A couple of my recent posts have mentioned Rule 1. Yesterday’s sparked a conversation with a good friend who told me he’s been breaking Rule 1 without even realizing it (which I’ve also done).

He gets paid twice monthly, on the 1st and 15th, and he’s not fully buffered yet (meaning he isn’t able to live on last month’s income).

Rather than budgeting twice per month (one budgeting session for each paycheck), he estimates his expenses for the entire month when he gets his paycheck on the 1st.

By the way, Jesse tells me that 80% of YNAB users get paid other than monthly, so my friend’s situation – and the way he handles it – are normal. Less than ideal, but normal.

Another way of saying “he estimates his expenses for the entire month” is “he budgets money he doesn’t have.”

Which turns his whole budget into Monopoly money. If any of your budget is fake, all of it is fake.

Things Fall Apart When You Break Rule 1

When you break Rule 1, the other three rules break down, and YNAB becomes a simple expense tracker instead of a finely-tuned money happiness machine.

How so? Because Rules 2, 3, and 4 are extensions of Rule 1:

“Estimating” detaches your budget (and spending) from your real account balances (in checking, savings, etc), creating undesirable outcomes:

  • You always have to check your bank account balance before making a purchase.
  • You’re missing out on the magic expense reducing-power of a real budget (because your brain knows those category balances are made up, and don’t have to be honored).
  • As your budget becomes less and less meaningful, you have less reason to use it, and you run the real risk of quitting.

Make a Fresh Start

First of all, don’t feel bad. Feeling guilty about your money is a waste of energy (No shame, no blame – right?).

Second, consider a fresh start with your budget. I don’t know how many times I’ve fresh-started YNAB – could be a dozen or more.

After fresh-starting (which, you might not realize, is an actual feature in the software under the “File” menu), resolve never to budget money you don’t have.

When money enters your life, assign it to those jobs that need to be done before you get paid again. In the unfortunate event you have to use a credit card to get by (we’ve all been there), you’ll be doing so with full awareness.

For those of you paid weekly or twice monthly, use your category names (or the notes feature in YNAB) to estimate your bills and remind yourself of their due dates. (I just made this change myself.)

Bottom line: “Available to Budget” is a sacred number. As long as you treat it accordingly, you’ll be using YNAB to its full potential.

5 Questions My Mom Asked Me About Getting Started With YNAB

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My Mom, the budgeting rock star (no joke), is currently experimenting with a transition from Quicken to YNAB. She’s already signed up for an intro class, but last night we spent a few minutes sharing screens and talking about her first pass with YNAB and the 4 Rules.

Five questions came out of the conversation:

1. How do I manage my car loan on the budget?

You don’t. Make the loan an off-budget account and budget the payent as a normal category and outflow.

(Yes, you technically can manage loans on budget, but it’s messy – with no benefit to your budgeting success.)

2. Is there a difference between a known, infrequent expense and a Rainy Day fund?

Nope. YNAB vernacular throws new folks a little. Traditionally you’d think of saving for a rainy day as something that only refers to unexpected expenses. For YNAB’s purposes, Rainy Day funds refer to any expense that gets paid less frequently than every month.

Your choice of jargon doesn’t help or hurt your ability to live the 4 Rules. Mom has a master category called “Known Infrequent Expenses” (or something to that effect), and another called “Rainy Day Funds.” That’s fine. She’s giving her dollars the right jobs; naming conventions don’t matter much.

3. Do I have too many on-budget accounts?

Okay, Mom didn’t actually ask me this question. Looking at her budget, I said: “Ma, you have too many on-budget accounts.”

Now, I realize having multiple on-budget accounts doesn’t break YNAB or any of the 4 Rules in particular. But it breaks simplicity.

I told her I’d only put accounts on budget if they were directly involved in my monthly outflows and inflows. Turns out she does have money flowing into and out of several accounts at any given time –  but out of habit, not necessity.

In my opinion, working with lots of on-budget accounts creates unnecessary mental overhead, and creates opportunities for mistakes.

I’m a fan of “as few accounts as possible,” so for me it’s:

On Budget:

  • Checking
  • Credit Card (zeroed monthly)

Off Budget:

4. Is it okay to budget a month in advance?

Well…

YNAB isn’t going to boot you off the software if you’re budgeting ahead of the current month.

But you are breaking Rule 1, and as a beginner, the practice of allocating money you don’t have (“forecasting”) is a threat to a successful budgeting habit.

The True YNABer keeps “Available to Budget” at a radiantly green $0.

Okay, but here’s the deal. I use next month as a placeholder for my typical category allocations. Am I breaking Rule 1? The shame of it.

5. Should I create a second budget for the rental properties or manage them in my main “Household” budget?

As far as I’m concerned, this could go either way. The key factor in Mom’s situation is that rental income and expenses flow into her personal bank accounts.

The mix of personal inflow and and outflows with property incomes and outflows told me she should manage the properties on her main budget, and use YNAB’s Payee field and slick reporting features (where you can filter by Payee and export to a spreadsheet) to pull relevant data out of the budget at tax time.

I’d be curious to hear how other YNABers deal with property management.

The beauty of YNAB is its flexibility. Could my mom go completely against my advice? Sure (it’s typically the safe move). What matters is finding a work flow that helps you make better, more thoughtful decisions about your money.

How would you have answered my mom’s YNAB questions?

Why do Most Serious Budgeters Neglect Their Biggest Category?

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Why on earth don’t budgeters talk more about income? It’s your biggest budget category – bigger than all others combined (hopefully).

As YNABers we spend time each day, week, and/or month reviewing our spending: How are we on groceries, what’s left in the misc category, how soon until we can buy the thing we’ve been saving for?

Why wouldn’t we also spend a few minutes during that same meeting thinking about income?

Wasteful non-budgeters don’t benefit from pay increases the way budgeters do – our expenses are so dialed in that any bump to our pay makes a big difference to the bottom line.

In my case:

  • A 15% increase in income would cover all my Rainy Day categories (and that’s allowing for taxes and charitable contributions coming off the top).
  • Or…a 25% jump in income would cover my mortgage.
  • Or…a 35% pay increase would cover everything in my “Monthly Bills” master category (everything but debt service, savings, rainy day funds and charitable contributions).

Is it easy to bump your income 15% to 35%? Probably not – that’s a topic for another day. Salaried people tell me increasing their income involves performance and patience – but also politics and positioning. In other words, they have some influence over their income, but not a lot.

So what? Exert whatever influence you can. The return on effort toward increasing your income is much bigger than the return on figuring out how to cut your grocery budget by $50 per month.

Budgets are Bones; Earning Power is Muscle

Without your financial skeleton (budget), your muscles (income) are a worthless pile of mush. But if your money bones are strong, building your earning muscles lets you do more work (saving, paying off debt, and even spending) in less time.

Which is why that rare person who is both a dynamic earner and disciplined budgeter is so easily identified by his/her enormous smile and overflowing bank and investment accounts.

April Podcast Roundup

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From taxes to IRAs, and patience to happiness, we talked a lot about retirement this month.  We hope you enjoyed April’s podcasts!

076 – Taxes and Timing – Having the choice to create a taxable event (or avoid one) is extremely powerful when it comes to minimizing your life’s single biggest expense.

077 – Why Roths are Better than Regular IRAs – This is the end of that debate.

078 – The Black Box of Spending – Your “Miscellaneous” category is a black box of spending. Is that spending a reflection of your values? Or are you being lazy? And should you care anyway? We discuss :)

079 – Patience – The pathway to wealth is paved with patience.

080 – The Idea of Retirement is Really Starting to Bug Me – This should probably just be a replay of my interview with Leo from ZenHabits.net.  The key to money (and probably everything else in life) is to be happy in the moment.

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