Money Rehab with Nicole Lapin - How Do I Make a F%*king Budget?!

Episode Date: October 28, 2023

Originally aired 4.15.21 Nicole covers exactly how much should go toward your essential spending, what the heck you have to put toward retirement, and how much you get to spend on the fun stuff: vacations and bottomless-mimosa brunches.

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money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. Hey guys, are you ready for some money rehab? Wall Street has been completely upended by an unlikely player, GameStop. And should I have a 401k? You don't do it? No, I never. Girl!

You think the whole world revolves around you and your money. Well, it doesn't. Charge for wasting our time. I will take a check. I got a full school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand, Nicole Lappin.

I'm going to get right to it today because hello, time is money. I hate cliches, but that is actually one that is true, kids. I have said it before. I will say it again. The first step to rehabbing your money is admitting you have a problem. And I know what you're thinking. Okay, Nicole, I've admitted it. I have a problem. I'm shouting it from the rooftops. But now what happens? Well, we actually got the perfect question for that. And we got this question submitted anonymously. So let's call this person Mike. Mike asks, anonymously. So let's call this person Mike. Mike asks, what's the best advice for a person starting a life from scratch? So it sounds like Mike might be in the witness protection program,

but whatever. Mike, you're welcome. No judgment here. Come as you are. Your secret is safe with us here at Money Rehab Anonymous. And I love this question, Mike, because it might sound like you've admitted you have a problem. Maybe the old Mike had some bad money problems and you had to go back to square one, but now you're ready to take that next step and be the new and improved rich bitch. Yeah, boys can be rich bitches too. You mean new and improved rich bitch Mike. So now what? Well, now we have to take the next step on the road to recovery. And what do you need on an open road? Sir, you need a map or Google Maps or a plan.

You need to figure out where you're going because otherwise you're never going to get there. So Mike, let's figure out where we're going because we can't go to a party if we don't know the address. So let's figure out the address here. We're going to build you the map in three steps. I'm going to need you to get two pieces of paper out. I know, like old school paper, or you can just do this on your phone in a notes thing. So step one, on the first piece of paper, you want to outline your goals for your life.

I know that sounds very daunting and I used to break out into hives thinking about this question. So in order to not have hives, I broke it down into one, three, five, seven, 10 year goals, right? Because when somebody says, what do you want to be in five years? Or what do you want to be in 10 years? I used to panic because I didn't actually answer the question. So hello, Captain Obvious. The only way not to have hives or panic is to answer the question. Maybe that sounds crazy to you, but you're going to have to trust me on this one because we need to know the life we want first, and then reverse engineer to figure out how to get the money to live the life you want.

Otherwise, like having a million dollars when people say, hey, Nicole, I just want a million dollars. That's my goal in year one, three, five, seven, and 10. No, sir or ma'am. Like, what are you going to do with that million dollars? I don't know. Maybe you need more than a million dollars. Maybe you need less than a million dollars. First, figure out the life you want, and then we'll get the money to live that life. Okay. Next step, fill in all of that stuff. This is fun. I think this is fun. The more you do this, the more you're going to think it's fun and the more you'll get addicted to it. When I make this plan for myself, I think about my career. Where do I want to live? What do I want my family to look like? What sort of fun do I want to be having? Or more simply, what do I want to be

doing? Where do I want to be doing it? And who do I want to be doing it with? It was like this time I took this improv class where you, in the first four lines of improv, have to decide who you are, where you are, where you're going, and who you are in relation to the other person. Seriously. Improv for the life lesson win. So think about those basic things. In five years, do you want to have a kid? Do you want to have five kids? Do you want a puppy? Puppies are expensive. Do you want a house? Do you want a different job? Do you want to start a company? All of this stuff costs money. Dreams are amazing, but dreams have price tags. I know I've thrown down a lot of alliteration for your goal setting. It's the three Fs, family, finance, and fun. And now I really also

like acronyms as well. So SMART when it comes to goal setting. For me, that stands for specific, measurable, actionable, realistic, and timely. Now, the kicker here is the actionable and realistic part. So say you want to get your dream job. You need to go back to school for a year, potentially, for that dream job. Or let's say your dream job is to be a surgeon. You need to go back to more years of school. I think that's amazing. If you love that, I love that for you. Say you do that in year one, okay, of your goals list. And then by year three, you want to buy a house. Is that comfortably achievable? Unclear. Your goals don't have to exactly match, especially if you're with somebody else, but they have to be compatible. Like you can't be a stay-at-home mom and fly

around the country in a private jet. You can't be a stay-at-home mom and be an emergency room doctor. You can't be a teacher and also fly around the world. Okay. I wish teachers made more money, but those things aren't compatible. So look at all of your goals and make sure that they match together. If you have to go back to school year one, you might have student loans. You might not be able to afford a house at year three. So you need to focus on paying off that debt before you tie up your money into something big, right? So do you have your goals sketched out for 1, 3, 5, 7, 10 years from now, Mr. Mike, feel free to pause. This is a biggie.

I'm not going anywhere. Take a beat, put us on pause and think about your goals because we need to come up with that before we can figure out how to actually get the money to live that life. Welcome back. So Mike, you're ready for step two. It's time to get that next sheet of paper out or that next notes tab. Now we're going to make your drum roll, please. Budget. I know it sounds like a bad word. You probably hate this word. I hated this word before. That's why I like to call it a spending plan because it doesn't feel as scary. It's kind of like an eating plan when it comes to a regular diet. A diet sounds like doom and gloom and you're not going to have anything fun to eat ever. An eating plan allows you to have small indulgences. So it's something you can actually stick to. It's something that's

sustainable. It allows you a little piece of dark chocolate. So you're not in the middle of the night, notching on a big old hunk of chocolate cake because you're so deprived. So let's talk about our spending plan. We want to demystify what a spending plan looks like because you're probably like, um, I don't even know where to begin. Well, back to alliteration. The three E's, just like the three F's, is how I break down a spending plan. I love alliteration. You can come up with other terminology. I just remember it better this way. It was like when we were in school, I came up with weird acronyms and alliteration, and I never grew up, apparently. So the three A's are essentials, endgame, and extras. So 70% of your overall spending plan should go to the essentials.

So that's the essential stuff you need to live on every single day, your rent or your mortgage, your utilities, your food, your transportation, your utilities, your food, your transportation, your bills, your insurance, your debt, all the basics. Then 15% should go to the end game. So that's your future self. Do you want to take a great trip? Do you want to have a sweet retirement? Do you want to buy a house? Do you want to, or you should be investing. This is where that goes. Are you paying child support or alimony? That's for the end game. 15% then should go to the extras. So that's all the fun stuff.

The eating out, the ordering in, the latte, the mani-pedi, the yoga class. Whatever does it for you. I'm not going to tell you how to have fun. Getting that pricier shoe because it's pretty and you want it. Yes, get after it, but just as long as it's no more than 15% of your overall spending plan. Hold on to your wallets, boys and girls. Money rehab will be right back. Now for some more money rehab. So shit is about to get real now. We're going to see if we are actually following the three E's with how we're spending. All right. So on that next sheet of paper, write down how much you make a month. And when I say make, I mean how much money is actually going into your bank account after

taxes. So remember, gross is like the full shebang and net is what you're bringing in after taxes, health insurance, all that jazz. So remember, gross is like the big thing that doesn't actually get into your bank account. So we're talking about your net monthly income. So under that, make three columns for the essentials, the end game and the extras, and then add in all the things you're spending money on. To see where you're spending your money, the easiest thing to do is to just go through your statements. So go through all of your credit card statements, go through your bank account. I highly, highly recommend doing this because so many people just guesstimate. Also, that word is like such a big pet peeve of mine. Do not guesstimate. Do not

just think of how much you might be spending because you're probably missing something. Go through your statement. Are you missing that Amazon Prime membership? Are you missing the dry cleaning that you're spending money on? Are you missing some subscription, that 30-day trial? Remember that you never remembered to cancel? Maybe that. I recently had a GoGo InFlight subscription on my credit card that I totally forgot I was paying for. And during the pandemic, I wasn't living on a plane anymore, so I canceled that. But I wouldn't have remembered if I just guesstimated. Go through your statement, add in each expenditure into the three spending categories, and then add up each of the columns.

So now you're going to have three numbers, the total amount you spend on essentials, the total amount you spend on the end game, and the total amount you spend on extras. We are almost there. Home stretch, baby. Next, we want to find out how close you are to our golden spending plan. 70% on the essentials, 15% on the end game, and 15% on the extras, which means we're going to do a little bit of math because we all love a little bit of math. I mean, dude, I started as a poetry major. If I could do this, I promise you, so can you. Take the total for one of these three categories and divide that total by the total amount of money you make in a month. Then multiply that number by 100 and ta-da,

you know the percentage of your income going to that category. I love a little math. I didn't always love a little math, but here's the thing. I'm not like a nerdy math person. I came to like numbers because numbers mean money, and I like money. I've been rich. I've been poor. Being rich is way more fun, I gotta say. So if you're having a brain fart and you forgot about percentages,

I'll give you a quick example. For easy math, say you add up your essentials and you get 900 bucks and you make a thousand bucks. So divide 900 by a thousand, which is nine. And then you multiply that by a hundred and then scooch the decimal place over. It's the same thing. So that gets you 90%, meaning you are spending 90% of everything you make on the essentials. So now that you have what you're actually spending on the essentials, endgame, and extras, your three E's, how does that compare to what you should be spending? I mean, remember, these are all individual percentages. So if you live in a place that has public transportation,

you're probably spending less on transportation. So you have a little wiggle room for other areas. But you want to be directionally around those numbers. If you did the math and you're not getting anywhere near 70% for the essentials or you're not spending anything on the end game near 15% or if you're spending way more on extras, then just go back and see why that is. See where the culprit is. There may be a perfectly good reason for this. Maybe your transportation costs are zero now because you're in New York and you're taking the subway to work. So you're adding a little bit more of that to your retirement friend, not to those fancy shoes. Or you're putting it somewhere else. You're spending a little bit more money on

ordering in. Cool. That's why we work so hard to enjoy these small indulgences. I am not going to tell you not to order in. I'm not going to tell you not to buy a latte. This is the stuff that keeps us going. It keeps you sane likely or sane adjacent right now. But this is really important because deviating from the three E's only works if there's a give and take here. So there has to be this rebalancing. Every year, if you're spending a little bit more money on ordering in, but you're not spending less somewhere else, then you're going to find that you're spending more than you're making. And that is a big, big no-no because that means we're in a huge personal budget deficit. So take some time with this. See where you want to trim some

financial fat. See where you might want to put some weight in your wallet, and try to make it balance out. Because this ties into our final step. And your spending plan is directly linked and intertwined with your goals. It all comes back to this very first step of our goals. And that's maybe where the eraser, if you have one, comes in. So riddle me this. Does your budget or your spending plan put you on track to actually achieve the goals that you first wrote out? Now, the first time I wrote down my goals, I thought they were. For year one, it was start a production company, contribute $15,000 annually to a retirement fund, and get drinks with girlfriends at least once a week. So I made my spending plan, and it didn't add up. There was no way I could swing a retirement contribution and put up scratch to get my production company going.

And then it turned out that starting a company was actually a lot of work on top of my full-time job, thank you very much, which frankly made it tough for me to find time, let alone the energy to have drinks or dinner with girlfriends. So I get it. Facing the music is tough. It's eye-opening. It's kind of a slap in the face sometimes. You may realize that you're going to have to make more compromises that you didn't see coming.

That's what adulting is about. You may have to add in some more time to achieve your goals. You may have to rejigger that timeline, but I promise you this, making realistic goals sets you up to achieve them. You'll be so proud and happy when you did. It's like you never regret a workout.

You never regret making and sticking to a spending plan. I pinky swear. Well, on the other hand, super ambitious goals that aren't realistic set you up for disappointment. On Wall Street and in life, it's better to beat low expectations. So set yourself up to exceed your expectations, not be disappointed by them. And when you miss a milestone, you feel defeated. You start making bad money decisions. You scrap the whole 10-year plan.

Trust me, I've seen it. It's happened before. When you diverge from your diet, the same thing happens. You're like, I already messed this up. Trust me, I've seen it. It's happened before. When you diverge from your diet, the same thing happens. You're like, I already messed this up. Might as well eat the entire cake. Don't do that for your money. It's not the same. So when I had to face the music, here's what I did. I went back to my goals. I went back to my spending plan and I made some more edits. I scraped together $1,000 a month for retirement, which is way less than my goal, but it was all I could handle. Then I scaled back drinks to every other week.

Not exactly the goal I had written down, but I could still see my girlfriends and maintain important relationships in my life and also some of my sanity. making these friend dates just drinks instead of dinner, I was able to keep that golden balance between endgame and extras realistic and actionable. Sexy. I know. For today's tip, you can take straight to the bank. Make your budget using three E's. I love me some alliteration. It just makes it easier. 70% goes to the essentials, 15% to the end game, and 15% on the extras. That's a rough estimate, but you can jigger based on your own circumstances. You've got this. And congrats, Mike, on taking your first steps toward money rehab. I am super duper proud of you. And I am proud of all of you for listening who are rehabbing along with us. I would love to hear your budget questions. Email me at moneyrehab at nicollelappin.com

or DM me at at money rehab show on Instagram if you want to be on the show. We will see you tomorrow. And in the meantime, don't do anything with your money that I wouldn't do. But if you do, it's OK. Still come back and we'll help you fix it. We are all still proud of you regardless. Money Rehab is a production of iHeartMedia. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Catherine Law. Money Rehab is edited and engineered by Brandon Dickert with help from Josh Fisher. Executive producers are Mangesh Hatikader and Will Law. Money Rehab is edited and engineered by Brandon Dickert with help from

Josh Fisher. Executive producers are Mangesh Hatikader and Will Pearson. Huge thanks to the OG Money Rehab supervising producer, Michelle Lanz, for her pre-production and development work. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.