MN-Investor
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Post by MN-Investor on Jul 18, 2019 17:12:54 GMT -5
Edelman's article is junk. "We surveyed 5,000 financially successful Americans... and one thing they had in common was this: They don't use budgets." After listing various financial challenges (wedding, unexpected medical expenses, major car repairs), he asserts "Budgets don't prepare you for these expenses." Then he concludes "So instead of a budget, do this: Identify how much you need to save each month to achieve your long-term financial goals. Once you save that amount, feel free to spend the rest of your money however you wish." Mistake 1: Surveying folks who have already achieved financial success. For a lot of folks, maintaining a budget is a tool used to achieve financial success. Once a person has achieved financial success, and is used to spending money in a financially responsible manner, the need keep a detailed budget diminishes. Mistake 2: Assuming that an emergency fund is not a part of a budget. Mistake 3: It would be nice if he defined "long-term financial goals." The average person reading this may assume that he is only talking about retirement or children's college expenses. Saving in a taxable account to handle emergency expenses or to pay for large expenses - new cars, PCs, vacations, etc. - should also be part of your financial planning. I don't consider those long-term financial goals. They're part of your normal expenses in the next 10 years.
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Tiny
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Post by Tiny on Jul 18, 2019 17:34:10 GMT -5
For those of you with no budget - if you had an unexpected expenses with something like say your car. What if you had a $3,000 bill to fix it? Sure, you'd put that on your credit card to buy some time (and it's convenient) but when the CC bill comes due - where does the money come from to pay your bill in full? I would assume the CC balance due will also have your regularly scheduled spending with the 3K on top of that. I'm assuming most people that don't budget (on YM, not in the world in general), still have savings and contribute to it regularly. It's just not broken down into categories. Yes. Once you've got a good financial foundation going (and a steady income) and the "everyday stuff" is predictable and you've got the everyday stuff covered... a budget becomes less critical. It becomes critical when something big changes (marriage? a new baby? moving to a new city for a job, or job loss, or a big drop in pay, or retirement....). When everything is running smmoth/predictable a working budget looses it's importance - because it's working. And even though they say they don't budget - they actually do... because I suspect they'd know if they could afford to buy a $50K widget (regardless of weather they WANTED it or not.) JUST if spending $50K on a shiny new widget was doable and how it would effect their overall financial life. Amd the only way financially secure people know what they can afford is if they have a "budget" in their heads (how much their expenses are/how much their income is/ what big expenses are coming up a year or two out, etc.. all the things a budget outlines.)
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Tiny
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Post by Tiny on Jul 18, 2019 17:40:14 GMT -5
What I am hearing, though, is that a lot of you used to budget but don't now. Some of you are tracking your spending, but after you have spent it rather than before. Maybe Edelman is right. Discouragingly, I think that he's right. That is, actual wealth-building and financial security are achieved mostly by folks who have substantial discretionary income and have pretty much automated much of their finances. At least that's what I've experienced. If you look at my net worth, it only started taking off after I had achieved those two goals (in my case, there was almost no income growth).
But getting to the point where you have a decent amount of discretionary income and the confidence to automate it is hard. I never would have gotten to that point without first doing some heavy-duty study of where my money was going.
Edelman seems a tad uninterested in the folks that aren't already positioned for launch.
This is my experience too. You might not need substantial discretionary income - having a consistent lump of it works too (just takes longer) and having savings automated is the key. Real wealth building happens once you have a Pile O' Money that you can put to work for you. All the budgeting and saving and not spending or spending wisely, COUPLED with having consistent income (even if it is small) is what builds that Pile O' Money.
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Gardening Grandma
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Post by Gardening Grandma on Jul 18, 2019 19:23:20 GMT -5
I always start with an annual budget and break it down to monthly. Ideally, I'd be paid once a year. Ideally, I'd be paid without having to work. It’s called “retirement”
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lynnerself
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Post by lynnerself on Jul 19, 2019 1:15:20 GMT -5
This is how we figured our retirement needs: How much are we taking home? (All savings was automatic). What will change (more or less money needed)? Then that's how much we need to have a month in retirement.
Very rough, but it came out surprisingly close.
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buystoys
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Post by buystoys on Jul 19, 2019 7:01:01 GMT -5
For those of you with no budget - if you had an unexpected expenses with something like say your car. What if you had a $3,000 bill to fix it? Sure, you'd put that on your credit card to buy some time (and it's convenient) but when the CC bill comes due - where does the money come from to pay your bill in full? I would assume the CC balance due will also have your regularly scheduled spending with the 3K on top of that. Do you just cash flow it from your next paycheck/income (which then begs the question how do you pay for all the things your paycheck was suppose to pay for)? Do you pull money out of savings? (would this money come from a sinking fund? that you expected to use? Would it come from your "savings" in general? ) If you do take money from "savings" do you adjust your future spending to replace it? How does that effect what your short term plans (if you suddenly don't have as much spending money as you thought you would) ? Maybe my life is just complicated - I can't "cash flow" more than a 1K expense... without it effecting my future day to day life (and cash outgoes). In my example, I would put the expense on a CC, and then pull 3K out of my "sinking fund" account and the rest of the amount due would come from my checking account (as it's expected and part of the "budget"). Since I allocate a fixed amount from each paycheck to go to the sinking fund AND if the expense was for one of the things I use the sinking fund to pay... I might not have to change anything - my current and future life/plans stay the same. I don't have to belt tighten or change outing plans and if an opportunity comes along I don't have to take into consideration that I just hemorrhaged 3K. The "budgeted" amount I send every month to the "sinking fund" smoothed it out. Of course, if I have a string of big somewhat unexpected expenses.... I would probably have to sit down and review how much was in the "sinking fund" (I NEED to be able to pay my property taxes)... and I might have to up the amount I send to it every month to "replenish" it... Just wondering... if you don't have a "budget" of sorts and you DO have a big expense how do you know how much you should cut back - and what happens to future things you were planning to use future cash flow money on? What is the effect if you have a string of big expenses? I just had this happen. I have "sinking funds" (savings) that covers unexpected/large unusual expenses such as car repairs. These are a line item in my budget and the money just accumulates in my short term savings until it is needed. I know I will need it at some point, so I don't spend my savings down to zero. I also fund house maintenance/repairs the same way.
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Deleted
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Post by Deleted on Jul 19, 2019 9:23:44 GMT -5
My approach is also a "sinking fund" approach, with multiple categories. Once in awhile I'll move $$ from one to another if one gets higher than I think I need. I don't keep more than $1,000 in out-of-pocket medical since I'm on Medicare and not exposed to a giant deductible.
When I think about it, my major constraint is keeping my withdrawal rate at 3.5%. I do look closely at current spending and spending by category but as long as I'm within that safe withdrawal zone I don't get crazed over spending more on travel but less on home improvement, for example, compared to previous years.
Most financial gurus have a few "always do this" and "never do that" rules that don't apply to everyone.
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jkapp
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Post by jkapp on Jul 19, 2019 9:30:33 GMT -5
Edelman's article is junk. "We surveyed 5,000 financially successful Americans... and one thing they had in common was this: They don't use budgets." After listing various financial challenges (wedding, unexpected medical expenses, major car repairs), he asserts "Budgets don't prepare you for these expenses." Then he concludes "So instead of a budget, do this: Identify how much you need to save each month to achieve your long-term financial goals. Once you save that amount, feel free to spend the rest of your money however you wish." Mistake 1: Surveying folks who have already achieved financial success. For a lot of folks, maintaining a budget is a tool used to achieve financial success. Once a person has achieved financial success, and is used to spending money in a financially responsible manner, the need keep a detailed budget diminishes. Mistake 2: Assuming that an emergency fund is not a part of a budget. Mistake 3: It would be nice if he defined "long-term financial goals." The average person reading this may assume that he is only talking about retirement or children's college expenses. Saving in a taxable account to handle emergency expenses or to pay for large expenses - new cars, PCs, vacations, etc. - should also be part of your financial planning. I don't consider those long-term financial goals. They're part of your normal expenses in the next 10 years. Exactly...there are unexpected expenses that come up (which is why you should have an emergency fund) but other big expenses can be known and budgeted for. For instance, I know I will need new tires next year...so I can find out about how much they will cost and then find a good time in my budget for that expense. If you didn't budget, then you may begin to spend these big expenses too close together and end up carrying a balance on a credit card or having to use other lines of credit when spacing them out better may have prevented extra interest costs.
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jkapp
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Post by jkapp on Jul 19, 2019 9:51:27 GMT -5
I've found after talking to people at work that people don't seem to understand what a budget actually is, or even use it correctly. A budget is more like a plan...the proper way to budget is to create a schedule (usually by month) of what you "plan" to spend. But these are not exact numbers and will most likely not be correct numbers (except for those few expenses that are the same month-to-month, like a fixed-rate mortgage). But the idea is to try to get as close to what you will actually spend.
Most people just lay out what they spend each month and call that their budget. But that is their "actual" spend, which is what you use to compare to your budget. The comparison being: Did you spend more or less than you thought you would? Why? Is your spending on a certain item consistently more than you budgeted for? If so, can you cut back on that spending or is that expense just trending higher so you now have to budget for a larger amount each month? Now I get it...who the heck wants to go through all that? Well, I do! I create excel spreadsheets that lay out the entire budget for a year, and then overwrite the budgeted amounts with Actual spend as it happens during a month. This way I can see if expenses are way off compared to budget and "reforecast" to new budget numbers if need be. But I also tie it to my bank account, so that I know how much money I should have at the end/beginning of each month, that way I can see when I might have a cash crunch at certain points in a month/year. It helps me limit my spending during that time (there's an element of willpower involved in that, too, though) But that is how to create and utilize a budget. And I'm sure the look on your faces right now is exactly the look I get when I explain this to my co-workers...the look that says, "I'm not doing that shit...you're crazy!"
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jd2005
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Post by jd2005 on Jul 19, 2019 10:59:08 GMT -5
We budget. We use everydollar.com. Free, easy to use, and DW and I can be up to date at all times.
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resolution
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Post by resolution on Jul 19, 2019 16:38:06 GMT -5
For those of you with no budget - if you had an unexpected expenses with something like say your car. What if you had a $3,000 bill to fix it? Sure, you'd put that on your credit card to buy some time (and it's convenient) but when the CC bill comes due - where does the money come from to pay your bill in full? I would assume the CC balance due will also have your regularly scheduled spending with the 3K on top of that. Do you just cash flow it from your next paycheck/income (which then begs the question how do you pay for all the things your paycheck was suppose to pay for)? Do you pull money out of savings? (would this money come from a sinking fund? that you expected to use? Would it come from your "savings" in general? ) If you do take money from "savings" do you adjust your future spending to replace it? How does that effect what your short term plans (if you suddenly don't have as much spending money as you thought you would) ? I keep around $10k in our savings/checking account and just pay for unexpected expenses out of that account. When my car needed $4k of repairs in its last year (RIP car), it just came out of the checking account. So far I haven't had any unexpected expenses that cost more than what was available in checking/savings. All of our expenses that exceeded the $10k were planned, and I had time to save up for them. We dug a well ($12K), replaced a roof ($14k), and bought a car ($29k). For the well and the new roof, we just saved up for a few months until our savings account had the amount needed plus a cushion so that it wasn't completely drained dry. For the car, I had to pull money out of our money market account at the brokerage. Once I pull from savings, I reduce my non-retirement investing until it is replenished. We typically have about $2k a month left over after our expenses, retirement, and donations. If we really cut back (like we did for the car) we can build up about $3k per month in savings. When the savings gets too high I move it to the brokerage into the money market account or an index fund.
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Apple
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Post by Apple on Jul 19, 2019 20:47:57 GMT -5
For those of you with no budget - if you had an unexpected expenses with something like say your car. What if you had a $3,000 bill to fix it? Sure, you'd put that on your credit card to buy some time (and it's convenient) but when the CC bill comes due - where does the money come from to pay your bill in full? I would assume the CC balance due will also have your regularly scheduled spending with the 3K on top of that. Do you just cash flow it from your next paycheck/income (which then begs the question how do you pay for all the things your paycheck was suppose to pay for)? Do you pull money out of savings? (would this money come from a sinking fund? that you expected to use? Would it come from your "savings" in general? ) If you do take money from "savings" do you adjust your future spending to replace it? How does that effect what your short term plans (if you suddenly don't have as much spending money as you thought you would) ? I keep around $10k in our savings/checking account and just pay for unexpected expenses out of that account. When my car needed $4k of repairs in its last year (RIP car), it just came out of the checking account. So far I haven't had any unexpected expenses that cost more than what was available in checking/savings. ... Once I started doing well financially, but before I decided to budget (in order to achieve $$$ goals faster), this is how I handled everything. I had a $10k base, so goal was to never dip below that unless really needed. Then I just made sure that the end of the month had my account showing more money than the beginning of the month (by how much I thought it should). After a couple months, anything over $15k was sent to a different account (the better interest rates were capped at $15k). Savings built up nicely, I pretty much spent what I wanted (within reason), and most forms of emergencies or "unexpected" repairs were covered. If I did have a big expense happen, I'd just reduce future fun spending until that $10k base was rebuilt, and continue as usual.
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princessleia
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Post by princessleia on Jul 20, 2019 7:56:52 GMT -5
What I am hearing, though, is that a lot of you used to budget but don't now. Some of you are tracking your spending, but after you have spent it rather than before. Maybe Edelman is right. Discouragingly, I think that he's right. That is, actual wealth-building and financial security are achieved mostly by folks who have substantial discretionary income and have pretty much automated much of their finances. At least that's what I've experienced. If you look at my net worth, it only started taking off after I had achieved those two goals (in my case, there was almost no income growth).
But getting to the point where you have a decent amount of discretionary income and the confidence to automate it is hard. I never would have gotten to that point without first doing some heavy-duty study of where my money was going.
Edelman seems a tad uninterested in the folks that aren't already positioned for launch.
I agree with Haapai. I think Edelman is right. The trick is living beneath your means and having the ability to cash flow just about everything. I do not budget and my expenses tend to fluctuate wildly. Like in the month of December when restaurant gift cards offers abound, I would spend up to $1000 on it to get good deals on discounted gift cards for restaurants that I frequent. Another example was last month (because Chase Freedom offer was 5% cash back on groceries), I loaded up on the grocery stores gift cards (up to the cash back limit for 2 cards) just a couple of days before the offer ended (and after the statement cycle ended ) I also pay my auto insurance in 1 annual payment in March every year because it saves me $$ rather than to spread it over monthly. I just received a offer to get 5% cash back if I were to make payments on my Amazon Visa credit card on my utilities and phone/cable bills. I will be prepaying most of them this month since most utilities do charge a convenience fee for credit card payments and I like to minimize the fees. In the events of things breaking down or I need a new car, it does not faze me. I can cover them. It took me a few years to get to this position to be able to cash flow all these big payments that help me to save additional $$.
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Deleted
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Post by Deleted on Jul 20, 2019 12:09:28 GMT -5
Discouragingly, I think that he's right. That is, actual wealth-building and financial security are achieved mostly by folks who have substantial discretionary income and have pretty much automated much of their finances. At least that's what I've experienced. If you look at my net worth, it only started taking off after I had achieved those two goals (in my case, there was almost no income growth).
But getting to the point where you have a decent amount of discretionary income and the confidence to automate it is hard. I never would have gotten to that point without first doing some heavy-duty study of where my money was going.
Edelman seems a tad uninterested in the folks that aren't already positioned for launch.
I agree with Haapai. I think Edelman is right. The trick is living beneath your means and having the ability to cash flow just about everything. I do not budget and my expenses tend to fluctuate wildly. Like in the month of December when restaurant gift cards offers abound, I would spend up to $1000 on it to get good deals on discounted gift cards for restaurants that I frequent. Another example was last month (because Chase Freedom offer was 5% cash back on groceries), I loaded up on the grocery stores gift cards (up to the cash back limit for 2 cards) just a couple of days before the offer ended (and after the statement cycle ended ) I also pay my auto insurance in 1 annual payment in March every year because it saves me $$ rather than to spread it over monthly. I just received a offer to get 5% cash back if I were to make payments on my Amazon Visa credit card on my utilities and phone/cable bills. I will be prepaying most of them this month since most utilities do charge a convenience fee for credit card payments and I like to minimize the fees. In the events of things breaking down or I need a new car, it does not faze me. I can cover them. It took me a few years to get to this position to be able to cash flow all these big payments that help me to save additional $$. I budget and still pay insurance annually or semi-annually and take advantage of stocking up on groceries or gift cards. It seems like a lot of people think having a budget means you have X dollars to spend per month on whatever, it's planned to be exhausted and you start all over again next month.
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haapai
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Post by haapai on Jul 20, 2019 14:31:06 GMT -5
I budget and still pay insurance annually or semi-annually and take advantage of stocking up on groceries or gift cards. It seems like a lot of people think having a budget means you have X dollars to spend per month on whatever, it's planned to be exhausted and you start all over again next month. We probably think that because that was what we were taught. All of the things that were called budgets that I was introduced to three decades ago had clockwork expenses and an emphasis on self-discipline. I also seem to recall that if you found a way to reduce monthly expenditures in one category, you were supposed to stock up within that category instead of switching things around between categories. That is, if you found a way to spendjust less on groceries, you should stock up on non-perishable, canned, or frozen items. Lower-than-expected energy or gasoline expenditures were to be pushed into credits or full gas tanks Holding onto cash was heavily discouraged, like it is discouraged in bureaucracies where use it or lose it applies.
No, I don't think that these lessons lead to healthy marriages, or healthy attitudes toward money or marriage.
But I swear on a stack of skinny Good Housekeeping hardback specialty publications that these attitudes were really common.
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dogmom
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Post by dogmom on Jul 21, 2019 7:46:21 GMT -5
I don't really budget, but, I do know our costs. We do pay ourselves first (savings, investments) I do keep one extra account, checking that I "escrow" our real estate taxes in. That comes out of my check into that account for no other reason than the taxes. Just increased that one because this last round had a bit more of an increase than I expected. Still good though. Otherwise, healthy savings and emergency fund. ALL bills paid, no consumer debt. No mortgage.
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AgeOfEnlightenmentSCP
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Post by AgeOfEnlightenmentSCP on Jul 22, 2019 19:34:53 GMT -5
I get Ric Edelman's newsletter every week, and this week's lead is about not bothering to budget. He argues that people who are successful with money don't use them. This includes people like nurses, etc. so he's not talking just high earners. The key is to figure out how much you need to save and then spend the rest however you please. linkI do try to figure out how much to save, but that's part of my budget. I only get paid once a month, but bills come in throughout the month If I didn't lay the bills out for the month at the very beginning, I wouldn't be able to pay stuff like car insurance, etc. I have $2000 in my checking account right now, but most of it is accounted for. I had to lay out everything to get prepared for the decrease in income that comes with retirement. Otherwise, I would worry that I couldn't make it. I won't call it budgeting in the sense that YNAB talks about budgeting, but it is a close cousin. So do you budget? Don't you mean Rice Delman? But seriously, we have pretty much always taken his recommended approach. We feel differently about "saving" and we have some definite different ideas about "investing"-- but in principle we do what he suggests- and we always have. I can't remember ever having a budget.
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