The Personal Finance Podcast - My Personal Budget Categories (Let’s Expose my Budget!)

Episode Date: February 10, 2021

Episode 40: My Personal Budget Categories (Let’s Expose my Budget!)  My Personal Budget Categories!  How I Set up my Budget Why it is so important  How to reduce financial stress Stuff I Recommend!  M1 Finance Best Place to Invest  Personal Capital Free Wealth Management and Budget App  CIT BANK (Best Savings Account) ** Some links may be affiliate links and we earn a small commission at no extra cost to you. We only recommend products we truly believe in.  Make sure to check out the episode sponsor Turbo Debt: www.turbodebt.com/FINANCE Learn more about your ad choices. Visit megaphone.fm/adchoices

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Find your advisor at IG Private Wealth.com. On this episode of the personal finance podcast, we're going to talk about my personal budget categories. What's up, everybody, and welcome to the personal finance podcast. I'm your host, Andrew, founder of dollar after dollar.com. And today on the personal finance podcast, we're going to be talking about my personal budget categories. And we're doing this episode because I've gotten an incredible amount of emails from

people asking what budget categories I use in my zero-based budget. And if you didn't listen to the last episode that we just had, we were talking about the various ways that you could set up your budget systems. And there's four ways that we talked about within those budget systems. But the main two that I use are the reverse budget and the zero-based budget. Now, the reverse budget is what I told you, is the easiest for most people. And I explained why in the last episode, But the reason why it is the easiest for most people is because all you do, you pay yourself first, and then you spend what is left over after you save money. And this is by far the easiest way to budget.

But if you want to have the most efficient budget, then by far, my favorite way to do so is the zero-based budget. What it does is it involves you giving every dollar that you make a job. You allocate every dollar that you make, every dollar you earn, each piece of income that comes in, you allocate that towards what you want that money to do. And that's why this budget is so powerful because you're actually treating your money like a business. And you're looking for every opportunity to put your money towards where it needs to go

so that you can maintain the most profit, the most extra cash you can possibly have. So you don't overspend in certain categories so that you can prioritize those extra dollars towards what you want to do. And that's the most powerful thing about this budget. So today, we're going to go through my budget category. This may make me look crazy.

I don't know. I have a lot of categories within my budget. But I set it up this way for specific reasons so that each and every month I can optimize the way I'm spending my money. I can optimize my personal finances. And that's what this is all about. Now, how long does this take?

Before we start getting into the categories, how long does this take me each month? Well, it depends on the month. If I'm extremely ambitious and I'm looking at my budget each and every day, at the end of the month, it takes me five, ten minutes. But if I only look at my budget once or twice a month,

just to make sure that I'm on track and make sure all my entries are on track, then it may take me an hour or two at the end of each month. So by far my favorite way to do this is to look at it every day or every other day just for a minute or two, make sure everything is in the right place and I am not overspending on certain categories.

And if that's the case, then I am in good hands for that next month. The biggest thing that I don't want to do is spend a lot of time at each month going into the next month setting up my budget. So making sure that I consistently every single day or every other day go into the budget and make sure everything is looking a okay is a huge key for us in our personal finance. Because the last thing you want to do is put up any additional barriers to budgeting if you've never done it before.

Removing those barriers is the key. Making it as easy as possible is the key. So let's get into my personal. budget categories. So before we get into these categories, just remember, personal finance is extremely personal. You don't have to have this many categories if you don't want to. You may not need this many categories. This is an extremely detailed budget for some people.

And for other people, you may have way more line items than I do because you like to be more detailed. The key is to get an idea of how you want to break down your budget. And you may say, whoa, man, that's way too much for me. And that's fine. That's completely fine. But at the same time, you can take pieces of this away and utilize it for yourself. Because there are certain ways I optimize, specifically savings for certain categories,

that I just want you guys to be able to see. So at the top of my budget, I use YNAB for my zero-based budget. And then I use personal capital for my system to track my net worth. So I use both of these platforms to be able to optimize my budget. Now, if you've never used personal capital before, personal capital is actually. Absolutely free. I'll leave a link to it in the show notes. Definitely check that out. Now, Wynab has a monthly cost. And you may be saying to yourself, why would I pay a monthly cost to budget my own money when there's programs out there like mint and other things like that?

Well, if Wynab saves you a couple hundred bucks a month, it's worth the $5 or $7, I forget how much it is per month to spend budgeting. It's a backwards argument to have a problem with the monthly cost if it's going to save you a significant sum of money at the end of each month. So the way why why NAV works is you can do it two ways. You can do it linking up your accounts or you can do without linking your accounts. I've done it both ways. I like it both ways. See which one you like the most and then go that route. And then personal capital is completely linked up to all your accounts so you can look at all your bank accounts in one location. The reason why it's so powerful is you don't have to log into each bank account every single time to see your transactions or see what's going on

with your spending. In personal capital, you can see everything in one free app. So let's get into my budget categories that we have. They're categorized in segments. So the first segment that I have here is for savings and investment. It goes at the very top because why? We always pay ourselves first. We always make sure that we're saving money first and then spending what is left over. So at the top I have investment because that's the most important thing that I want my

money to do outside of giving. Because in my personal life, giving is the most important thing that I want to do with my money. So we have investment and giving at the top as two separate. categories. An investment is just my money that's going to get automatically transferred over to my brokerage accounts so that it can go into the stock market. And then I have another investment category that goes towards investing in real estate. Now, I separate the two because the investment that goes into my brokerage accounts gets automatically transferred over. The real estate money gets transferred over into a money market account to gain some interest as I save up some cash

to buy my next property. That's how I separate the investment funds. Now within the same grouping, Right underneath there, right under the investment funds, is the emergency fund. Because this is an additional savings that needs to come off the top because it's required to have to be able to save you from situations that everybody goes through as they arise, whether it's an unforeseen medical bill, whether your car breaks down, whether your air conditioner goes out in the middle of the summer. It doesn't matter. Your emergency fund needs to be there so that you don't have to worry about situations as they arise. And then any other big savings goals that you have would go up top as well. So maybe it's a down payment on a house.

Maybe you're saving up to buy rental properties. Any of those big savings goals that's going to increase your net worth would go at the top there. So lately, I've been noticing how fast things are changing at home. The kids are growing like crazy. Clothes don't fit anymore and routines are changing. And it just hits you. Life is expanding. And when your life grows, your responsibility grows with it.

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is called immediate obligations. There's a lot of the necessities that are in life. So the first one is your cell phone bill. Now, if you pay your cell phone bill monthly, which most people do, then this category is absolutely a need right up top. Some people actually pay a full amount every single year, but if you pay it monthly and the majority 99.9% people do, then this would go under immediate obligations. Then mortgage or rent. Mine says mortgage, yours may and say rent if you're renting. That would be the next category.

And then right underneath that is the electric bill and the water bill. Why don't I just combine all the utilities into one? because I like to allocate the exact funds for that bill and see how much I'm spending each month. Because what Wynab and personal capital do is they show you how much you're spending for each category. So I like the statistics part of separating them out and it doesn't take much work to separate them out.

I just like to have that data available to me so that I can review it at the end of each month or at the end of each quarter or at the end of each year. Underneath that, we have groceries. groceries can kill your budget if your grocery bill is too high. So that is one place that I always tell new budgeters to look because your grocery bill is going to be higher than you think it is as you start to budget. So that is one place that you can make a significant difference in your savings rate

is looking at your grocery bill. Next, we have internet and cable. So if you're wanting to reduce your bills as well, one way to do this is to look at your internet and cable bill because if your cable bill is significant, let's say it's 150 bucks a month, well, you can significantly reduce that by cutting the cord and either getting YouTube TV or Sling TV or Hulu or any of those apps where you can watch TV essentially online.

So then what you're paying for is you're just paying for your internet fees and 40, 50, 60 bucks for whatever internet cable provider you utilize. And those three options that I just stated are some of the best ones out there. I've used all three of them, and they're all fantastic. Underneath that is gas. If you have to commute to work, or if you have a car, then you have to have your gas there. And then finally, since I have kids, I also have child care underneath there. For when my wife and I go to work, there's child care money already available every single month there,

so you don't have to worry about it. Now, in the next category segment, what I have broken out is the true expenses. Now, what are true expenses? This is the most important part that I want you guys to see because what most people do is they get surprised by bills as they come up. So let's say, for example, at the top of the list here is car insurance. Now, if you pay your car insurance every six months, what a lot of people do is they wait for that car insurance bill to come up and then they pay the whole thing at the end of that six months. But what that does for a lot of people, if you don't plan properly and your income isn't high enough, then it completely blows up their budget and their strategy. And this is where people get into problems when budgeting is they don't prepare for true expenses.

Because truly, that car insurance bill is actually a monthly expense. So what you want to do in your budget is you want to break out those big, large chunk expenses into smaller manageable chunks. So the smaller manageable chunks would be looking at a car insurance bill that's do every six months. Let's say it's $600. And you break it down by $6 and pay $100 every single month to your budget line item. That way, once the six months comes up and your car insurance bill is due, the money is just there. And when the money is just there, you don't have any stress anymore. You don't have any anxiety anymore because the money is there.

And this is how you make automating and running your money extremely easy. This is why budgeting is powerful because it creates freedom, it reduces stress, it reduces anxiety, and allows you to just have the money there so you can pay it. there's power in having the money there. And this is what a lot of people don't realize. And if you've never experienced this, if you're always stressed out about money, this is a major lesson to learn.

Because guess what else is a true expense? We're going to go through all of these here. Medical costs. Now maybe you only go to the doctor once a year. You're young, you're healthy. Or maybe you're a little older and you have to go more frequently. No matter what,

you're going to have to pay medical bills at some point in your life, unless you're the bionic man or woman. Then maybe you won't. But your body deteriorates over time. So building up this medical fund, whether it's in an HSA, as we've talked about before, the power of having an HSA, or just building up a cash fund within one of your budgets, is an extremely prudent thing to do. It's an extremely responsible thing to do because you're going to need that money at some point and some time. Now, I think the HSA is one of the best ways to do this, to save up money for this. And if you haven't heard the HSA episode, go back and listen to it. But just making sure you're saving up money just for your co-be. pays as you have to go into yearly checkups or your dental visit co-pays or anything like that. Just having additional funds in there ensures peace of mind for you and your family.

The next category is auto maintenance. Now auto maintenance for me is anything like an oil chain or getting a car wash or supplies for a car wash. Anything that falls under just maintaining my vehicle windshield wipers, wiper fluid, that type of stuff. All falls under this auto maintenance category. Now this stuff really adds up, especially when you get, it seems like you get hit with all of it at once. And when that happens, if you're saving monthly into your auto maintenance category, the money is just there. You don't have to worry about it. The money's already there for you to be able to pay it. Now within that line item, it does not include big repairs. So I have another line item called auto repairs. And auto repairs is for anything big that's going to happen to my vehicle. This can be anything from the transmission breaking down to

the engine having issues to any sort of issue that could come up. I'm allocating money towards that happening because guess what? Unless you're leasing a car, which I would not advise you to do, but unless you're leasing a car or doing something of that nature, you're going to have a big car repair bill at some point in your life. And if the money's already there, you can take care of that without having stress. This happened to me a couple years back and luckily I already had this in place. I had a vehicle that had a oil pan that completely just eroded. $3,000 later, I have to already had the money there. I didn't stress about it. I didn't worry about it. And this was when I wasn't making much money at all. It was years back. But I learned these lessons early on.

And even while not making much money, I still had no issue and no stress because the money was in that budget category after years of saving up for it, wondering why I keep saving money into this budget category. And then finally, it paid off. The same thing for home. So I have home maintenance and I have home repair. Home maintenance is for anything like anything to maintain the home, whether it's cleaning supplies, whether it's lawn care supplies, whether it's adding new furniture or anything inside the house. That type of stuff goes into home maintenance. Home repair is for big CAPX items, things like I need a new roof or I need a new air conditioner or I need new water heater. Those type of items goes into the home repair budget. And I separate them for that specific reason

because home maintenance gets used all the time. It gets used every single month. Home repair rarely gets used and that bad boy needs to stack up. That bad boy needs to stack up. That bad boy needs to needs a lot of cash in there because when those issues arise and they may not happen for years and years and years, but when they do arise, it's going to be extremely expensive. It's going to happen if you own a home. So why not save for it? You need this category. It seems like everything breaks at once when you own a house and a lot of people get into major financial trouble by not having a category saved up for this. Next is personal care. So personal care is stuff like soaps and hairsprays and things that you need every single day. Well,

lot of people don't budget out for that or they'll take it out of their grocery bill or things like that i like to separate it out it's just peace of mind for me so i know exactly where we get that kind of stuff ibuprofen anything like that falls under that category then clothing now the clothing category used to go in another category that i'll show you in a minute but now that i have kids we have to allocate some funds toward clothing now here's a big one a true expense that nobody ever talks about we just talked about this a few episodes back gifts now gifts are something specifically with Christmas time that people do not realize is a true monthly expense. So let's say, for example, that you get to the end of every single year at Christmas time,

and you always go into somewhat of debt at Christmas time. Well, what if every January instead, you started saving towards that Christmas budget? So, for example, let's say last year you spent $1,200 on Christmas gifts. Well, $1,200 divided by $12 is $100 a month. So what if in January, you started saving $100 a month towards your Christmas budget. By the end of the year, the money is just there. See the power of that? The power of having the money just there? No more stress at Christmas time. You can have your Christmas party. You can give all the gifts you want. If you want to give more gifts, just increase that budget a little bit. It's a very simple way to break down and reduce stress in your life. The next one is subscriptions. So this is Netflix, Hulu,

Whatever type of subscription you have, I break it out separately from my cable and my internet just because I like to see how much I'm spending on it. Because a lot of times people buy a bunch of subscriptions, and I have too many right now. I already know I have too many. And they just let them ride out for months and months and months at a time. Well, you can eliminate those subscriptions pretty quickly just by seeing them in a specific category. So that's why I separate them out from everything else. And then I have a category, and this is actually extremely important, called stuff. forgot to budget for because we've never had a perfect month ever in our entire lives of 10 plus

years that we've been budgeting. And so there's always stuff I forget to budget for or things just pop up that I wasn't planning on happening. And that category has saved my butt every single month ever since I started using it a couple years back. Then the next category in the chunk of budget categories you want to have is your debt category. So if you have student loans or if you have auto loans or anything like that, make sure you have those in a spot where you can start allocating funds towards that. And then my next chunk of categories is called my quality of life goals. So the first one is vacation. Now at the time I'm recording this, we're in a pandemic. A lot of people aren't planning on going on a vacation. But at some point in time, you're going to

go on a vacation. So just starting to allocate funds towards this category so you can start traveling the world if that's something you're passionate about or something you want to do is extremely important. Just getting the ball rolling, even if it's 50, 75, 100 bucks every single month is pushing towards that goal. It's putting your dollars towards the thing that you wanted to do. And what a lot of people don't realize is these small chunks add up. And at the end of the year, if you're putting $50 to $100 a month in there, you're going to have $600 to $1,200 and you're on your way one step closer to having that vacation. $100 a month, you can have a European vacation every two years if you wanted to. And that's why it's extremely important to save monthly towards the vacation.

these quality of life goals. The next one is fitness. Now, this could either be your gym membership or what I just did was I literally saved up enough money to buy an entire legit home gym. I have a third car garage that I converted into a home gym. I have a squat rack in there. I have a full rack of dumbbells. I have a functional trainer, which is the cable machine. All because I started allocating that towards my quality of life goals because that's extremely important to me. Fitness is extremely important. And you can allocate it towards your quality of life goals. What's important to you? And then the third one is education. So that's for things like that. like books or courses or anything along those lines. That's what goes into the education category.

And these are a lot of things that people just don't have in their budget line items and they think they can't do. But if you even save a small amount every single month towards these, you're going to be able to hit those goals much faster than you think you can. And as you see them grow, it motivates you to push harder in those categories to get to the point that you want to get to. Lastly, this is the last group I have is the Just for Fun group. So within this group, the first one is dining out. Now, this is a big one for a lot of people. A lot of people, before they have a budget, they think they're not going to be able to eat out anymore. Well, why not allocate funds so that you can eat out more?

So that's what we did. And as time has progressed, at the beginning, my dining out budget, I think was $50 when we were making no money. But as time has progressed, and our incomes have risen, then you can increase this budget once you have enough money there. The second one is alcohol. Now, I break out dining out and alcohol for two separate reasons. One is if we want to go some drinks for the house or something like that, then I it comes out of that category. And then the last category, the last two categories, are by far the best two categories to have

if you're married. And that's my spending money and my wife's spending money. And we call them the blow funds. So what this is is a certain amount of money that we allocate each and every month to each of us. And we put a certain amount in for each of us. My wife gets double what I get, but whatever. That's how you keep a happy wife, happy life.

And in this category, I put a certain amount every single month, and we can blow that money on whatever we want. No questions asked. What a lot of times happens is that couples will have money fights, and the money fights are because they don't have these categories allocated out. So their money fights are, why did you spend X amount on this when it could have been going towards this? Well, if you don't have a budget to break out and allow you to spend money freely however you want, you're going to go crazy. This is an absolute necessity for anybody who has a budget is you need a blow fund. You need money to blow.

You need money to treat yourself. And if you don't have that, you're going to fail. I'm just telling you that right now because you're going to have nothing to take your foot off the gas and you will feel constricted and you'll feel like you can get nowhere and not do the things that you want. This is what takes the restriction out of the budget

is you have a fund that allows you to blow money if you want to. So that is my budget categories. So those are how my budget is broken out. And this is how I budget the majority of time. And it's an extremely, extremely important way for me to optimize my finances so I can allocate as much money as possible towards investments to create financial freedom. Because that's what it's here to do is create financial freedom. Thank you guys so much for listening.

And if this is your first time listening, consider subscribing so you never miss an episode. And share this episode with a friend. And don't forget to leave a rating and review on iTunes as well. because our goal is to bring as much value to you as possible. And we're trying to spread this message that money can buy freedom. That's what money is there to do is to buy more freedom. So thank you again so much for listening, and I hope you have a great day. Frozen lasagna, medium power, 15 minutes.

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