Animal Spirits Podcast - How to Spend Your Money (EP.162)

Episode Date: August 21, 2020

On this episode, we do a deep dive on budgeting, conscious spending, classflation, the two types of budgets, how to plan for infrequent expenses, how to make your budget obsolete and much more as it pertains to one of the most important topics in all of personal finance. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

This episode of Animal Spirits is sponsored by NaviPlan by Advicent. Built on the most precise calculation engine in the financial planning market, NaviPlan powers advisors to cater their services to any client from simple goals-based assessments to advance cash flow planning analysis. To see how Naviplan helps model some of these concepts and strategies discussed on this episode, visit at Vicent.com backslash animal spirits. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what their reading, writing, and watching. Michael Batnik and Ben Carlson work for Ritt Holtz Wealth Management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management.

This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain positions in the securities discussed in this podcast. So today we're going to be talking all about budgeting and cash flow, which is advice since bread and butter. And last week, they did a companion video, or two weeks ago, I should say, to talk about the economics of homeownership. They're going to do something similar with this, with budgeting.

So we'll put all of that in the show notes. All right, let's start off with this, Ben. Jeff Levine on Twitter put out a question earlier this week or last week. Other than regularly saving and investing, what do you think is the single most important to achieving long-term financial success? I'll go first. Establishing and maintaining good credit. It can save someone hundreds of thousands over the course of their lifetime. So that was a good answer. One response we pulled out, and this was a theme that kept coming up in its replies. Somebody wrote, create, keep, and maintain a budget.

Not bad. Thoughts. Pretty good. I think budgeting is something that people either A, hate, B are scared of. Guilty. Yes. Or C, yeah, just don't want to deal with it. First of all, it's something that we're never taught. They don't teach personal finance in school, but no one ever sits you down and teaches you how to spend correctly and what the important things are. You have to figure out for yourself. Budget is one of the four letter words in finance. No one wants to sit down and keep a budget and track everything that they do, except for someone like me who when I first got into the working world, I basically kept a budget in a notebook by hand. Get out. I like wrote my expenses out. I'm kind of, I'm weird like that.

Do you still do that? I have a spreadsheet now. I use a spreadsheet on Excel to keep track of stuff. But back then, I made nothing out of college. My income was so low. I had to track everything. Well, this is stating the obvious. No income is high enough if you can't live within your means. And we spoke about this earlier in the year, how allegedly Bobby De Niro is broke. Great. I wrote about in my last book how Johnny Depp has made close to three quarters of a billion dollars. How much should he spend? three quarters of a billion? He lives paycheck to paycheck now. So yeah, if you can't keep your spending on control, it doesn't matter what you mean. And you get to the extremes of you have the

fire people who spend 20 grand a year or something and save the rest. But then you have these people that make millions a year and spend even more than that. So it is hard because again, no one teaches this to this. So one of the old tropes about budgeting is someone says, show me your calendar and your checkbook and I'll show you your priorities. That's the idea here, right? is just figuring out how to spend your money in a way that aligns with what you want to get out of your life. So if you never actually go through the process of tracking what you spend and figuring out where your money goes, actually looking through that and looking through your statements every once in just to see which categories you spend in can be really helpful

because it makes you look in the mirror and say like, oh, buying this stuff doesn't even matter to me. Why don't I just cut this out? Or this stuff really matters to me. Let's focus on this and get rid of the other stuff that doesn't matter. I think this is a story in CNBC that triggered the entire internet. This couple makes $400,000 and they can't pay their bills. Do you remember that? And they broke it down. And the line times were hilarious.

It was like $40,000 for savings, $20,000 for investments. Oh, and at the end, there's nothing left. Right, of course. But honestly, that's the goal. You have every piece of your paycheck that comes in has some sort of job. Personally, I view saving and investing as almost like a monthly bill. I view that as one of my fixed costs that's sort of non-negotiable. If I need to spend more somewhere, I won't take it from there. I'll take it from somewhere else because I view that as it's almost like its own bill.

Well, one of the challenges with keeping your spending in check, especially for people that are advancing throughout the career, is something that Tom Welsh wrote about. He did a post on humble dollar called five lives. And he talks about the progression that people go through in their financial lives. And I think this was ages, this is early career. So ages 30 to 45, Ben, lucky for you, you're still in this, but not for long. Ben celebrated a birthday early in the week. He said, quote, often this is a time of rapid career advancement. Plus, you may be starting a family with all the cost that that entails. Along with these comes the temptation of what I call classflation, borrowing to acquire large homes, expensive cars, and other status symbols.

So you appear a social class above what you can truly afford, end quote. I thought class inflation was an incredible quote. We normally refer to this as lifestyle creep. Lifestyle inflation, yeah, lifestyle creep. That's the old commercial. There was a commercial where a guy said, I have a boat, and I have a huge house, and I have a pool, and his neighbor said, how do you afford it? And he said, I'm dead up to my eyeballs.

That's the idea. I do think, especially for young people that are just getting out of school and just starting in the working world, it's far easier to keep that lifestyle in check and pretend like you're still in school and have that same lifestyle than it is for someone who's older. It's easier to pretend that you can live a lower living standard when you're younger than when you're older. So I think the time to like supercharged that stuff is when you're younger. For some people, it's the opposite though, where younger people try and impress and show status and buy things that they can't afford where as you mature and you get older, you're like, you know what,

I don't need to drive a fancy car or to buy a big home or whatever it is or buy a nice watch to show how much money I make. Yeah, so much of the financial world and your financial life cycle is almost backwards in a lot of ways. So one of my favorite anecdotes about the whole budgeting thing, because really budgeting in a lot of ways is a form of mental accounting. You're bucketing, your spending into different fixed and variable costs and savings and investments, but it's all one pool of money, but it has to go somewhere. So apparently Gene Hackman and Dustin Hoffman used to live together back in the day. How about him calling him Dusty in the video. I didn't realize that Dustin was a Dusty. Yeah. So Hoffman used to use this

approach where he put his money in Mason jars every month. Gene Hackman tells a story about how he went there and Dustin Hoffman asked him for some money. I'll tell you a story about Dusty. I know what you're going to tell you about the money you lent me. I know you're going to tell us a fucking story, I think. I go over to Dusty's a little apartment in Pasadena one time and he says, hey, can you loan me some money? Yeah. My wife was working. I wasn't working, but my wife was working. I said, how much you need?

He said, I don't know, five bucks or whatever. More than that. So I go into his kitchen, and he has these mason jars up on a ledge. And one of them says rent, one of them says entertainment, one says books, one says, about five of them. All the label. And they all had money in it, except the one that said food. And that didn't happen to have any money. So I said, dude, you don't have any money.

He says, I can't. take the money out of the other jars. Maybe this is the way you should think about money in some ways, that if your rent is already there to be paid in your food or whatever, and you need it from somewhere else, you have to figure out places that you can take it from that don't mean as much to you. We have to have non-negotiable areas of your budget. Do you think that one solution for people that really are into this sort of thing is to create multiple accounts, like literally have multiple bank accounts, and this one is for rent, this one is for food. Is that too much?

That might be a little too much. I think as much as you can automate the process, that helps. And there are certain online savings account where you can create specific line item goals. This one is for my wedding. This one is for vacations. This one is for emergency savings. You can do that within an account. So I think that's kind of a simple way to do it. From everything I've read in personal finance, when I first started getting into blogs and when I got out of school, I really was paying attention to the personal finance blogs because I realized I didn't really have a system for personal finances, even though I was doing a budget by hand, I realized that was never going to last because I didn't

really have a whole functioning system in place to manage my finances. And you need to have some sort of overarching philosophy or something that's guiding your actions. As well, you're just constantly trying to figure out what to do and you're always playing catch-ups. So the two ones that I've seen that sort of resonate with most people. So Rameit Satie at I will teach me to Rich, who we had on a video, I guess last year, time horizon means nothing now with a pandemic. But I think it was last year. So his whole thing. thing is having a conscious spending plan and you basically set aside money for your saving and bills and automate and then you spend whatever's left over. So savings is automated,

bills are automated, rent is automated, all this stuff. It goes in. It comes out automatically. He's saying like you have the option. That's what you can spend. He's not saying that you should spend whatever's left over. Right. Instead of doing the old approach where you spend what you are going to spend every month and then whatever's left over at the end of the month, then you save it, that never works because that's like the old Jerry Seinfeld thing where it's amazing that all of yesterday's news fit exactly on the newspaper. It's that thing where you're just going to spend it if it's there. So the idea is to save up front. That's like the whole pay yourself first kind of thing. Speaking of Seinfeld, I think one of the difficult things about budgeting is today guy versus

tomorrow guy. On the one hand, you want to enjoy yourself today and you don't want to deprive yourself, but you don't want to put tomorrow guy yourself in five years, 10 years, 20 years, in a position where you're like, shit, I really messed up my budgets and now I'm going to pay for it on the back end. And that's probably the hardest thing about your whole financial life is figuring out how to delay gratification but also enjoy yourself now. Because what's the point of living if you're not going to enjoy some of the fruits of your labor right now?

So finding that balance is really difficult. Here's a great solution to this called the Nick Majuli Rule. And Nick told me about this where if you're going to treat yourself to a luxury, let's say you buy yourself a new pair of AirPods. And you don't really need them, but you want them. Okay, whatever. Whatever it is. If you can afford to splurge on a new belt or AirPods or anything, match that into an investment account or a savings account. So if AirPods costs 200 bucks and you're going to buy them, simultaneously put $200 into an investment account. I think that's a great way to spend and not feel guilty about it. And it's a way to force yourself to look yourself in the mirror and say,

is this really something I want to do? Because it's going to force me to double up what I'm going to spend in terms of savings. So I think it's a good way to look at what you're buying and realize people always ask themselves, can I afford this? But it's also like, do I need this? Maybe you can't afford it, but do you really need it? If you are not able to match that, then you probably can't afford it or don't really want it. So that's a great way to keep yourself in check, to spend guilt-free. And I have an account at betterment where I put money automatically and we'll get into this. I automatically put money into this program every month. And whenever I buy something, and I use a Nick Majuli rule, and you put an extra deposit,

it says to you, what is this money for? So you could say AirPods, for example. Yeah. So the other line of thinking besides the remit, automate everything up front, including your bills and saving, and then spend the rest. And you can do it, his whole idea is you can do it guilt-free then. Because if you've taken care of everything that you need to do, whatever's left over is stuff that you can spend on whatever you want. The other way is the Dave Ramsey approach where you take your money and you split it up. I know friends who did this right out of school who took the cash from their paycheck, the cashed their paycheck, which this is, I think, for people who are in more dire straits in terms of their

spending, either they have a spending problem or they have a low income and they need to really watch every single dollar is they would take money and put it in envelope. So there'd be one for food, eating out, groceries, clothes. And I remember it was a husband and wife and the husband said, you know, I didn't really care about clothes as much. So I would give my clothes, to my wife every month because she liked spending on clothes more than I did. I liked going out to the bar with my friends. She would give me from her entertainment thing. So people actually put the money in there. And once the money's gone, that's it for that. And so the reason to do this is to really see it and is this to also avoid credit card debt? Yes. And so this is a way where

you can't go above and beyond because it's in cold hard cash. So I think that's the type of thing where it's probably a really tough case or someone who just has to penny pinch and watch every single thing they spend or they just have a spending problem. But that's one way to limit yourself where you give yourself a budget for the month where you're budgeting for specific items. And then if you want to go over above and beyond on something else, you have to take from somewhere else and figure out as a way to help you prioritize. I think that's for people who really are in a tough place. Spending cash feels different than swiping your card, obviously. It's like chips at the casino. You think nothing about putting 25 bucks on the table,

50 bucks on the table. I'm not going to put $50 on the table. I'm not going to put $50 on the table. psychologically it's different. Can you imagine if they allowed us to use credit cards at a blackjack table? They do. Isn't that what chips are? Yeah, that's true. Yeah, I guess just without seeing it. But I actually think that it's a double edge sword for credit cards because it's easier to spend than ever on you're on Amazon. You just click buy it now and it just goes away. But it's also easier to track than ever because you don't have to go through your checkbook ledger and balance. So I spend anything

and everything I can on my credit card. And you can look on your online bank. either on your phone or your computer, and you know exactly how much you've spent. So it's way easier to track. And they have it in categories as well. So the online banking stuff does make it easier to track your spending. You just have to make sure that at some point you're checking in and not going over whatever amount you allotted to that. I use this website called Tiller HQ, I believe. And I was really into the idea of really getting granular on where my money goes. How much am I spending at Starbucks, for example? I know how much I'm spending. I think spending $300 a month, something like that. And then I just, I lost track of it because it's not

in my personality to stand pop, something like that forever and ever. So I did revert back to just the credit card bill that breaks it down for you in the pie chart. I have an idea of where everything goes. But the website for people that really want to know line by line, how much money you're spending at Walmart or Home Depot or whatever, and you can group them into home improvement, for example, or child care or whatever, Tiller HQ is a pretty neat tool for that. I definitely follow the remit line of thinking in terms of, I automate. everything. My mortgage is automated. My bills are automated. Every fixed expense. So I have all my fixed expenses listed in my spreadsheet. And then the variable stuff, I'd never track how much I'm

eating out or how much I'm spending on gas or whatever because that stuff, I figure that that's the leftover money. So that's what I was basically getting at. I know my fixed cost because I did a post called, where does my money go? Where I showed, okay, these are my fixed costs. These are my subscription costs versus my salary. I broke it down by subscriptions, which now there's like a billion of them. And I was really curious about my variable cost. How much am I really spending going out? How much am I spending on dinner, drinks entertainment? And that I sort of large track of because, well, first of all, I guess I disappeared recently with Corona. So let's talk about like fixed costs, variable costs. Did you learn something from that exercise? Because that's, I think, the exercise that people who,

because there are people who throw up their hands in the air and say, like, I just do not know why I can't get ahead financially. And those are the people that have to go through that type of exercise that you did, I think, and have to really look at what they're spending on to realize that there are probably certain areas that they can cut back on. I underestimated how much money I spend on food. Right. And I'm sure there's a lot of categories like that in your life where you go, geez, do I really need to spend $300 a month on this stuff? So this is how I broke it down. I had my salary and Robin's salary. And then for my fixed costs, I bucketed all my insurance together, my mortgage and my taxes, my daycare, the kids' 529 contributions, my automated investing,

my monthly train ticket, which went away, my car lease, my pet insurance, I don't know why I did pet food, whatever, I guess that's a fixed cost, and my phone bill. So those were the things that I know is every single month on repeat. I basically looked at all my recurring bills and I put it into the system or into a spreadsheet. Then the variable cost, you've got food, coffee, clothes. No coffee for me. Well, Diet Pepsi. All right. That's true. House utilities, which are more fixed, I guess, but it varies. Car gas, going out, books, and travel, which obviously travels disappear, but that's pretty lumpy. And then subscriptions, Sirius, Verizon, New York Times, Netflix, etc., etc., etc.

People assume the variable costs are where they can see the most change in their life because I'll just stop going out and I'll save all this money. I still think it's the fixed cost that matter the most. Well, it's funny you say that, Ben, because I wrote, let me quote myself, here. The biggest takeaway for me after going through this exercise with my wife is that the fixed costs are what can get you into trouble. If you let these grow to be too large percent of your monthly income, the other things you do won't really move the needle. I said, I don't know the right number for your fixed expenses, but less than 60 percent sounds about right. There's this old personal finance rule called the 50, 30 20 rule. The idea is you spend 50 percent of your

income on necessities, housing, transportation, health care, other bills, 30 percent on wants, dining out, travel entertainment, whatever, and 20% goes to either savings or paying off debt. Now, I'm not usually a huge fan of rules of them like this because living standards are so different from city to city or region to region. You could live in New York and spend a ton on housing, but if you live in the city, you don't own a car, your transportation costs are lower. So there's always given takes on this sort of stuff. So I think trying to put it into those constraints is difficult, but your necessities are going to be a huge part of it. So your housing and your transportation are going to be one of the biggest parts of your thing.

Hang on. Before we get deep into this, I just have one question for you. One of the costs that I didn't include here because it's the first thing that gets automated is the money that gets taken out from my 401K. How do you think about that in terms of your budget? To me, it's out of sight, out of mind. That's why I think automating is so powerful for people because that's the idea. You want to get that money into your savings before you ever even see it. That's why I think savings is like a bill payment. So that 401k is gone. My IRA contributions. are on autopilot. They go out every month. My brokerage account, the same thing I have on autopilot where it automatically gets deducted. All those go into savings before I even

see them hit my checking account. So I don't have the opportunity to spend them. And that's the idea. Then you take whatever's left over after your savings are automated and you go, okay, these are my constraints. This is what I'm going to spend from, this pile of money. How do I want to do it now? So let's talk about fixed costs. So obviously, home or renting is the biggest cost anyone is going to incur. We talked about in the economics of home ownership one, how those costs can be much greater than people think. I think there's ways around it.

So here's the way that my wife and I view this. So we like to have a nice home, but all the other ancillary costs to come around of it, we didn't have to fill it with super expensive furniture. Your TV, for example. Yeah. So I think that there's ways around that. I mean, we have a dining room table from Target that we got when we first got married 12 years ago or whenever it was 13 years ago. So stuff like that, I think you can get around on where you have to figure out what matters most to you and not go crazy on everything.

I mean, the same thing with a car. I like driving a nice, newish car, but it doesn't have to be a luxury brand. I'm fine driving a Honda or a Ford versus a Mercedes or BMW. But other people, they say, you know what, I don't care if I have a great house. drive a nice car. So it's about the tradeoffs, I think, for people, especially if you're having trouble. You have to figure out what levers you want to pull. How do you know how much house you can afford? What are like some good rules of thumb? It's a tough one because I think a fixed house payment is something you can grow into. But for example, for me, when I was first looking at

buying a house, I did not take into the monthly account of paying taxes on it even. I didn't even think about that. You were a new whale. Totally. So that's stuff you got to think about, like what are your tax is going to be in your area and how much does it cost? And I mean, things like insurance aren't that expensive, but again, it gets on to a rule of thumb thing, but I don't think there is a good rule of thumb because a lot of it depends on where you live and what you can pull for other levers in your life and what your other. But again, if your housing is going to eat up 50% of your budget because you live in a high cost area, you have to give up on something else then. I think it's always about trade-offs. Do you have anything in your budget that you are more flexible with or

less flexible. Something that's non-negotiable. So I say like saving is non-negotiable where I'm not going to touch that. I'm not going to pull that savings lever. If I'm going to spend money on more on something for one month, I'm going to cut back elsewhere. Is there anything in your budget that you say is non-negotiable? This is going to be paid no matter what besides your typical fixed costs. I guess $529 and my brokerage account. Yeah. Just like stuff that you need. I've changed my mind over time and this is especially since I've had kids, but I am way more likely to pay for time these than I ever would have when I was younger. Lawn care. We started paying for snowplow last year, cleaning our house. This is stuff when I was younger. I would have said, why would I ever pay

anyone for this because I can do it myself? What's the point? It's a waste of money. And now I see it as a good investment because it gives me time to do other stuff. I'm not spending my Saturday cutting grass instead of playing with the kids, that sort of stuff. Can I say something that I think every husband would agree with or most husbands? I really get annoyed. And I was annoyed as a child when my mom used to this to me. We have to clean the house because the cleaners are I'm like. Yeah, you do. You have to get your house ready for it. It's like, wait a minute. They're about to clean the cleanest house in history. Why are we paying them? And I understand they're doing the floors, the toilets, everything like that. For some reason, that line item

sort of bugs me. But for my wife, it's non-negotiable. Yeah. See, that's the thing. And you have to have the trade-off too where here's another thing. Do you have between your wife and you a set amount where if you spend a certain amount, you guys have to talk about it? So if I'm going to spend, whatever, $500 on something, I'm going to mention this my wife first, or you just pull the trigger regardless. I can't even think about like a big item thing that we wouldn't discuss. So it's not a rule that we've stated, but one of the areas where I'm very frugal is clothes. You're telling me that those v-necks are not expensive? I don't really care about my clothing. Like, I don't want to look like a complete slob when I go out. I don't really spend

a lot of money in clothes. I'm fine buying clothes from Amazon or Target, for example. See, I probably spend more money on clothes than my wife does, which is hard for me to But there's other stuff that she spends for personal care, hair and stuff and going out and getting your nails done and stuff. That stuff makes her happy. And it's like, I'm not going to fight you on that if that's the kind of stuff that makes you happy. So I think the married thing and having a partner makes it harder to budget too. If you have people who aren't out in the same wavelength in terms of spending and lifestyle, luckily my wife and I are on the same level playing field in terms of thinking through how to spend and areas we don't care about as much. But that can be a

difficult one too when you have a spouse or a partner who doesn't have the same financial goals as you. You know, that's a good question that I probably take for granted from my wife, that, like, she would never ever buy a bag without telling me, for example, or do anything irresponsible like that. Right. So, yeah, we're on the same page there. We're going to mention some books maybe at the end of this, but one of the ones that I've read in the last year is called You Need a Budget by Jesse Meacham. And he talks about how you have predictable expenses and unpredictable expenses that you can plan for. So unpredictable expense that you can plan for, they're infrequent, but you know they're going to happen. So car repairs. If you have an older car, you know at some point you're going to have

car repairs. Every year on the holidays, you know you're going to be spending money on presents. So every summer, if you're a young person, you know you're going to have a wedding season we're going to spending a lot of money. And his whole point is you know these things are going to happen, but you don't exactly know when potentially. That's like a known risk. Yeah. So you split them up into monthly bills. And so you say every month, I'm going to put $50 aside in my online savings account. That's going to go to presents. So by the time Christmas comes around I have $600 saved and I'm not scrambling to get that money or your car breaks down and you have to spend $900 on an alternator or something, something I've had to replace in the

past. If you put $100 in that car fix-it account every month, you're doing better than that than just scrambling for you. So his whole point is the emergency savings account is kind of pointless because we should try to make it obsolete in the fact that a lot of the stuff that people call emergencies are stuff that you can really plan for. All right. So these are known on that you're talking about. Yes. Things are going to come up. How do you think about the emergency fund?

Because I guess this is probably more personal than anything where some people say, listen, I want two years. I don't care what you say. I don't care about the opportunity cost. I understand that I'm leaving a lot of money on the table, but I want to be bulletproof. I never, ever, ever, ever want to worry about losing my income or anything like that. And obviously, by the way, that's an enormous luxury. I don't know very many people that can afford to build up a cash pile of two years

worth of living expenses. That's not realistic. But do you think one month, three months, six month, where do you fall on that? And especially when you're younger, trying to build up to six or 12 months, you're never going to fund any of your other goals. So it's not realistic. I have changed my tune on this a little bit. I don't know that there is. I don't have a monthly, I have kind of a set amount I like to have in there. And if it gets low, I like to fill it back up. So for me, I like to make sure I have other emergency things that I can fall back on. So that would be, if things got really bad, I have a home equity line of credit I could tap or I could potentially tap my brokerage account. So I don't like to keep six to 12 months in there.

That's just not the way that I view things. I feel like if things got really dire, I would have other places to pull it from. But, I mean, when I was younger and first starting out after college, my emergency savings account was razor thin. I would have a car bill. I remember the first year I was working, I made, I don't know, $36,000 out of school. My car broke down and my emergency fund was gone from that. So those are the things we're helping to plan for those and breaking them up can really help you, especially when you don't have a big margin of safety. Where does debt fall in the budget? I guess mortgages, student loans, credit card, I guess. I guess these are fixed costs or maybe variable. The credit card is variable, but the big ones are fixed.

Yeah, certainly credit card. If you have a ton of credit card debt, that should be your first priority. Probably, I mean, the typical rule of thumb is get your company match for a 401k and then anything after that you paid on credit card debt immediately because credit card debt, you're never going to find a return higher than that unless you're putting all your money to Tesla every month. But another way of thinking about debt, if you're viewing debt as a bill and savings as a bill, the way to think about it is if you, let's say you have a bunch of student loan debt and you pay it off. I paid mine off last year, I think, finally. It was 15 years. once you have that debt being paid every month and it's part of your fixed bill, then when it's done, immediately roll it over into savings because you're already used to paying it as a bill. So just take that. And so if you're paying credit card debt and you're paying 500 bucks every month for credit card debt and you finally get out of it and you go, yes, I'm out of it. Instead of immediately upping your spending from that account, roll it immediately into saving because you already had it earmarked for that type of thing anyway. So daycare, for example, when Kate goes to kindergarten, and that's going to be like a windfall for you.

Yes. When my kids are out of daycare, or for your savings. I think we talked about doing an economics of parenting in the future. Maybe we'll do that one. That's a huge, huge expense for us right now because at one point when my twins were born, we had three kids in daycare at the same time. I mean, that bill was bigger than our mortgage every month. We still have twins in there now. Yeah, it's a huge fixed expense. So that is a windfall. When they get out of that, that's going to be something to plan for. And we still have a couple more years of that. But yes, looking forward to that day. So daycare is definitely one of the things in a budget that you might not be economically prepared for if you don't really do the research

to find out what it costs before you have children. What else can bust a budget? I don't want to be a spend shamer, but I'm going to do some spend shaming now because I understand why people have a hard time budgeting because they spend a lot of money on their kids or they live in a high cost area or they don't make enough money. But I think one of the biggest levers you can pull is your transportation. So Bill McBride had this chart the other day. It's crazy. So in 1976, the percentage of total vehicles sold was 20% of them were trucks and SUVs,

80% were cars. This chart is wild. It's now flipped where 80% now are trucks and SUVs, 20% are cars. And I'm a sedan guy. I had to get an SUV because I have kids. for hauling them around, I want to drive a sedan again someday. First of all, they're easier to drive and park places, but they're just cheaper too. And so cars and SUVs are expensive. So I did this a couple of years ago where I looked and I said, I always drive around the road and I see all these

huge SUVs. And I know how much they cost because I price them out when I was looking for mine. It's hard to find an SUV that is relatively inexpensive, correct? These are so expensive. For example, you have the Kia Sorrento, and I always thought of the Kia as sort of a lower-end car. But the monthly payment range is $4.35 to $7.80? That's a lot of money. This is 2018. I looked at the best SUVs as rated by U.S. News World and Report. And I looked at the monthly payment range would be based on the MSRP. And some of these, the monthly payments are $7, $900 a month, $1,000 a month. Hang on. You're looking at financing these or leasing?

I looked at a 60-month loan at a 4.5% interest, assuming a 10% down payment for some of these cars. These SUVs can be huge budget. Again, you see these all over the road. And now the new thing, I don't want to make fun of anyone if they do this, but you see these parents with the Yukons, with the black rims and the tinted windows to drive their kids around. And I'm thinking, are you maxing at your kids' 529 plan before you did that? Again, I'm not trying to spend shame, but I think this is one area where if you look at

your retirement account and you go, geez, I have nothing saved here. What's the problem? If you have an $80,000 SUV in your garage, there's your answer. You could potentially cut that monthly payment in half by driving not as souped up as a car. So I think that cars and SUVs now, because I think people think of themselves, well, the gas mileage is much better than they used to be and gas isn't so expensive. That's not a big deal. But these SUVs and trucks are still really expensive. It's hard to find a cost effective one to buy.

The budget busters are going to be overextending yourself on the fixed cost. It's really that simple. You can't cut Netflix or HBO and be solvent by doing that. there's another non-negotiable for me cable is never coming out of my bill there you go by the way by the way i've got a bone to pick with you i tried to go the ben carlson route i tried to threaten to cut the cord i was on hold for freaking four hours with verizon fios and in my neighborhood it's a duopoly you could have verizon or optimum and what is worse than the next i think optimum is worse so i was literally on the phone all afternoon and a lot of that was on hold but i was trying to figure out my

internet wasn't working. So at the end, I'm like, you know, I'm just very unhappy with your service. I don't want to pay as much as I'm paying. He's like, sir, you have the best package. If you were to sign up new, you'd be paying $30 a month more. I'm like, well, that's not good enough. I want to talk to your supervisor, please. So he's like, she's going to say the same thing, but I'm happy to get her on the phone. So she got on the phone with me and said, sir, I'm sorry, we can't help you if you're just an unhappy customer. I was like, well, then I want to cancel. And she goes, okay. So I said, so what do I need to do? She's like, it's a $125, to break the contract. And not only did she not lower the price. She called your bluff. He must have a terrible poker face. She called my bluff. So anyway, I thought of you. It did not work.

Honestly, I've never been turned down by them. When I say, I want to talk to client retention, please. I've never been turned down before. Oh, client retention. Yes. I asked for the manager or the supervisor. Always asked for client retention. Okay.

So, again, kind of a boring topic. I think you need people who understand this stuff. want to put it in a way that's not so boring. So my favorite two books on this, if you want to think about not only budgeting, I think is the boring way to think about it, but spending. I think that's the difference is people want to know how to spend correctly. So I will teach you to be rich by Ramit Sati is probably one of the better personal finance books I've ever read, especially geared towards young people. And you need a budget by Jesse Meacham. He actually created this software program called You Need a Budget. And you can go. And I think it's like

$7 a year or something ridiculously low. Or $7 a month, I can. can't remember, but it's really cheap. You can use their software to help create a better budget. And his whole thing is, again, this is for probably people who are in more dire straits, but he talks about using last month's paychecks to fund this month's expenses. So get to a point where you're not floating yourself using credit card debt. So you take what you made last month and you use that money specifically to pay for the following month. Anyway, so those are my favorite two books to understand this stuff. And again, I do think it is important for people to get this stuff. It doesn't matter if you're the next Warren Buffeter.

Can we come up with the new one for that? Like, who is the new Warren Buffett? Meaning what? Well, Warren Buffett has always used as the greatest investor of all time, but who's the gross stock version of that these days? The NASDAQQQ. Anyway. Is it Kathy Wood from Arc?

Unless you're the next Kathy Wood that can put a $4,000 price egg on Tesla, you have to learn how to spend and save before you can invest. So that's the idea is that you just have to get that step first before you can ever think about what you're going to do to your portfolio. I think that a lot of this is obviously, listen, if you make more money, there's more wiggle room, more flexibility. of course. But there's stuff that people can do like Ben did coming out of college where he wasn't making very much money. One book that I think is really great for younger people, just trying to

learn about personal finances, the wealthy barber. It's very simple, very readable. I thought that was a good one. Yeah, I've actually never read that one, but he's good. Dave Chilton, is that his name? Yep. Okay. We'll do this again, at least two more of these. One about the economics of parenting and then maybe one about retirement and saving 101. Thank you to Advicent for sponsoring the show. can check out their site. They're going to do a video on this. Everything will be on our show notes. Animal Spiritspod at gmail.com and we will see you on Wednesday.