Two comments: Too many people forget to add CAR MAINTENANCE and HOME MAINTENANCE to their budget plans. My best advice for budgeting: eating out is part of ENTERTAINMENT, not FOOD.
Adding in everything makes it too cumbersome. My budget is ~$900 less than what I pay myself each month. I don't include eating out or entertainment since I can control those, to zero if I have to, to cover unexpected expenses.
I agree 100 percent with you. We know the brakes, rotors, tires, oil needs changed. A new battery here and there, every 50,000 miles on an older car can cost $500 to $2000 in repairs ect. New water heater, roof, heat system and appliances. We put back each month to build the fund. Alot of people end up putting these things on a credit card, heloc or personal loan then paying alot more in interest. That does include home upgrades for kitchen, bathroom, couch, tv ect. We do alot of maintenence and repairs ourselves but maybe when we get older we'll hire people then.
The debit card in place of a money envelope system is exactly what I have been contemplating. I didn't know if it was possible to do this. I am thankful that I stumbled across your video--perhaps providentially. Thanks for sharing.
Yes, banks will let you have multiple cards. Just make sure you read the terms. For example... some have zero minimums to maintain, or require a minimum on ACH deposits. I personally have 3 debit cards... one for bills... one for gas/minor car maintenance.. and another for food/everyday needs. Then I use a bank like SOFI where I can break down my sinking savings funds into vaults.
I absolutely enjoy building and tracking our budget. I have a workbook that has tabs out to 2060 and can see how our financial decisions today affect us next month, year, and so on. We are debt free (recently). We do use credit cards for groceries, gas, and our trips. But those trips have been budgeted beforehand so we make sure we’re not over spending and can’t pay off our credit card each month. Also, our spreadsheets show our pensions so we get to see how we can live our lives in retirement. We have an allowance and are free to spend it on whatever. We’ve simplified the number of accounts we hold and only have two cards
My budgeting is very similar. The exception is I use rewards credit cards exclusively. I love the rewards and feel using my debit card exposes me. I know most of the rules are the same but, I've had fraudulent charges on a credit card and it gets frozen. That can be much more inconvenient if the card that gets frozen is the one that gives you access to your cash. I'm debt free and my budget categories are: 3 credit cards, Pool cleaning, electric utility, health insurance, cell phone, Patreon, church offering, Netflix, food and gas. Other than that, I add car, motorcycle, and homeowners insurance to the month that it is paid and real estate tax to November. Even in retirement, I like to spend less than I make.
I'm glad to see that you apply basic thought process, rather than gimmicks or locked into an 'app' without understand what's actually happening behind the screen. Folks really need to think about their spending and plan their spending. It's not hard, I've done it all my life. Thank you for another great video to educate us !
Absolutely, understanding the fundamentals rather than relying solely on apps is key to effective budgeting. Your experience highlights the importance of hands-on financial planning. What methods have you found most helpful in keeping your spending aligned with your goals?
Great way of explaining it. I have kept an Excel spreadsheet for years, detailing my monthly expenses by category by month. I enter all the reoccurring expenses that happen every month, and then all the variable expenses in the rows beneath. It allows me to see a trend if I am spending more on groceries or amazon for example. It also lets me know what I need to live on realistically each month. It made transitioning from working to retirement rather painless because I knew what I needed to continue living as before.
Best budget advice is treat it like a business. Cut out as much crap. Limit your wants to 10% of your income. 50 to 60% on needs. 30 to 40% on savings.
I agree with about 80% of what you say in this video. My main problem is the use of Debit cards. I have found that if I have a fraudulent action on a debit card, it VERY hard to challenge that action because the money is already out of the account. If I use a credit card, then I CAN challenge the fraudulent activity and I don't end up paying for the item. I understand why you use a debit card. If I have the money, I can spend it. If the money is not in the account, I can't spend it (unless there is an overdraft service on the account). People need to learn how to uses their credit cards properly. If you can't buy the item with cash, but use a card instead, don't buy it! Good advice with everything else.
" If you can't buy the item with cash, but use a card instead, don't buy it!" ........ I can't upvote this enough...people need to understand banks are businesses, and businesses exist to make money. If you owe a bank money... they own you... and will take everything they can, to make themselves wealthy, at your expense.
I agree. The only time my debit card sees action is at an ATM. My wife and I are responsible with our credit cards in relation to our income so the envelope method is not a concern.
With your channel I have finally found someone who is as obsessive as I am about budgeting. The work is worth it. I sleep very well knowing where the money goes. Works great for long term planning.
Hi James, I love the non-monthly expenses section on your spreadsheet. 😮Unfortunately those are most of the expenses, vacations, house maintenance repairs and car repairs that we have not been saving for regularly. You got me here and I am hooked to listen and learn more from you. Thanks for what you are doing here!! Plus you are a great teacher and speak plainly and clearly 😊!! Will watch more! Just had to let you know that that section made me think 😢, I need to make a budget!! Asap!!!!!! Arlene 😅
It's a game-changer for many. What steps are you considering to incorporate these expenses into your budget, and are there specific areas you’re focusing on first?
Nice system. I wouldn’t give up my flight, hotel, and shopping points from using credit cards and have the discipline to pay them off every month. But, it does make it more complicated.
Every penny we spend is tracked in real time manually by my wife and I. Our monthly budget meeting is finding out how much money we added to savings each month. Retiring on her 50th bday. Set a goal or you’ll never retire.
Great ideas here. I have always struggled with budget but did two things and now I spend my money as planned, and I spend it consistent with my values. First I use copilot money. It enables you to be on top of your budget by updating your as the transactions role in (not once a month credit card bills). It was a game changer for me. Second I structured my budget differently. I have top level,category for essentials ( which lets me, as a retired person know how far I can conceivably back off spending if needed. I have other top level budget items,s according to my values. For instance, “help others”, “learn and grow”, be healthy”, make life comfy”, “have fun”. Having a burger to remind me where to spend my money to live life as I have planned has been a big help. And yes, I know that is a total bizarre way to do a budget, but it works. Oh, and I do of course have a one off category.
My budgeting “trick” is just when I get my paycheck and maxing out all of my retiring accounts i then dump a set amount into my taxable brokerage account. Then we spend whatever is leftover- don’t sweat the small stuff.
I feel very validated by the information you’ve given in this video. I started making and sticking to a realistic budget maybe 15 years ago. The results have been much less stress, because I always know where I stand financially, but as a bonus, my net worth has actually grown by about 300% over that time period. That’s mostly because I budgeted more to savings, investing, etc. I wouldn’t have done that without a budget, I think because I wouldn’t have felt I actually had the resources to do so. They were there all the time, but before the budgeting I didn’t know that!
we pay on our CC the same week we spend money with it. We get points and no monthly bill. We track spending much easier this way as it's all on CC. Not that difficult really to track imo.
I got started by tracking every expense. It was eye opening. I used a little 3x5 notebook with a page per week, but some may find a higher tech way works better for them (spreadsheet on the phone? note app on the phone? specialized app?).
I do it with credit cards, but I just shift the money from the savings account to my general checking when I put the expense on the card. I probably use fewer different savings categories than James, as I mainly use a “festival” account for gifts, travel and special events combined.
We have 7 bank debit accounts to segregate our expenses from our monthly income. We put our budgeted income into those accounts. It is then easier to understand on a daily basis were you are at in the budget cycle. The trick is to never spend more than what is in those budgeted accounts. Instead, you just delay the purchase until there is new money into the accounts.
A couple tips: pay yourself first. The first priority in my budget is savings, it’s automated and I live on the rest. The next priority is the house payment. I budget $2,000 for my house payment. The house payment is actually $1,650. The extra I’ve budgeted for it goes as extra on the principal, about $350 a month. Homeowners insurance and property taxes are included in the house payment. Then I budget $1,000 for utilities and $ 500 monthly for car and $500 for food. However, there is extra added into those categories. For example, my utilities don’t actually add up to $1,00, they’re less. The extra margin is for safety. It stays in that account and after a few months I either move it to my High Yield Emergency fund savings account or into investments..into my regular brokerage account so it’s still available if I need it.
I used to budget religiously, but hadn’t done that in several years. Just recently I started tracking expenses again just for curiosity since I’m retired. It’ll be interesting to see how things end up. I have planned for up to $10k/year for big time one-off expenses, such as home repairs and major medical expenses. My hope is to be very far below that many years, but if not I know it’s something I planned for.
I think it's great to budget and have everything organized but, mindset needs to happen also. Most people spend a ton of money monthly on wants and not needs, then wonder why they're broke. Most people I know are also in so much debt. There is a big difference between grocery needs and wants. Food is a huge place people waste money. We have one small bill before we will be debt free aside from our mortgage. I wish we had learned earlier to be thrifty and save better. I'm a stay at home and my husband will be retired by 53. If we had been better about wastefullness he could have retired already. He has three years left and we are so looking forward to traveling in our pull trailer. We wasted a lot of money on entertainment and eating out. It would have been better to save and then just go hiking, walking, picnicking. One thing we kind of live by now is pay the grocer now or the doctor later. Most of the food from eating out has caused health issues as we aged and didn't feel it or see it until 20 years later and we have watched our diets pretty well most of our marriage. Invest in doing things that keep you healthy
We used the envelope approach for many years. Now that we are retired, we have used the 'everydollar' system. I personally prefer the envelope approach but since my spouse is now Chief Financial Officer of the two of us, it doesn't matter too much.
No reason not to use credit cards in place of debit cards, keep the benefits and use one HY account and not worry about min balances. Set autopay for each card to budgeted amount and any remaining balance on stmt is your over-budget amount - credit balance at end of yr is bonus to skip pmt and add to savings/investment or bonus date with wife :). Keep cards assigned with highest reward for each category - ie, I get 4% back on gas with one card, 3% dining/travel, 1% catch all.
Have you noticed more and more businesses are now adding a service charge if you pay with credit cards? For example, my family went out to eat the other night and the waitress brought the bill. On the bill, there was a cash price and a beefed up amount if paying with a credit card. In addition to saving on the fees, might the business have some tax related shenanigans going on? Just a thought.
cc processing fees are around 3% + or -, well recorded, tracked, accounted for and taxed......cash..........what cash?....you don't work for the government do you?
If it's about 3%, that is completely reasonable and I don't blame any business owner for that. If it's anything more, it's just them being greedy but not wanting to raise the stated prices and hoping you don't notice.
Great video. I've done this method for about fifteen years for our family and it's worked so well for precommiting funds for kid's activities, vacations, house repairs/insurance/taxes, and even making sure we max out our Roths. I use a bank that allows me to have up to thirty sub accounts for free so we can get really granular if we like. I share this methodology with people as it has simplified our lives. Thanks for sharing this on your channel.
You can make credit card payments whenever you want. Why not pay it off at the end of the month, every month? Or better yet, pay the balance right before it's due and keep your credit score up. Using the 25 day grace period is fine, but if you want to keep your monthly budget monthly, just pay it during the month.
You can choose the day your credit card payment is due. And, since I'm retired, I can choose my "payday". So, my payday is one week before the credit cards are due.
Don’t you worry about debit cards not offering theft protection from skimming devices? Credit cards won’t hold you liable for theft, but with your checking account you lose the money.
Question: James, are you saying you have multiple physical debit cards uniquely tied to each of the multiple accounts at your Credit Union (say four or more depending on your categories)?
People can say what they want about the Ramsey philosophy. But the Everydollar app is by FAR the best, intuitive, simple app for budgeting that exisits. And I've tried them all.
I don't understand the need for the 2 budgets. If you're using the software why have the spreadsheet? And how do you track your spending? I mean you have to keep up with how much is in each account. You said you just check the app but what app? You said the paid version will link your accounts and track your spending but not the free version you use.
Anyone saying "pay yourself first" is gimmicky, unrealistic and not paying attention. Your basics in life are a place to sleep and food to eat. Everything else comes after that. Paying yourself first sounds nice to say but putting money in savings when you have rent due is foolish. First pay your rent. If your rent is too high, then adjust where you live to lower your rent... either way, until you own your house and aren't paying rent or utilities, pay your landlord and utility company first then the rest. James shares wisdom. He is a safe in finance. Stop always needing to put in your two cents before fully listening and understanding what he has to say.
Ouch. Methods like this are why people quit budgeting. I used EveryDollar for a while and stopped because it complicates things and cultivates the notion that "budget" is a swear word IMO. YNAB leads me to identify my financial priorities based on my values. YNAB handles the tracking and the math. No debit cards or multiple accounts are needed. Furthermore, I am fundamentally opposed to spending projected income because spending money that's not in my possession looks a lot like a loan. I think it's hypocritical for Ramsey's software to promote this practice. YNAB doesn't let me spend what I don't have without my full knowledge. I'm a tightwad but the annual fee for YNAB is worth every penny.
Also long term YNAB user. Super fan as it is automated and just pulls in transactions and remembers transactions so it can auto-categorize. Key is clarity as James points out. So tracking and knowing where money is going becomes key. History helps understand, and re-evaluate your lifestyle and overall approach. We do a once a year review between thanksgiving and Xmas to setup for next year. Factor past year spends by category, but also strategic about vacations, insurance, and other ad hoc and annual amounts. Love the high yield account idea to pay for the one off and annual expenses. Great idea and video!
YNAB and EveryDollar are both zero-based/envelope budget systems, and work in similar ways. EveryDollar does not require the use of multiple accounts or debit cards. This is just something James and his wife decided to do because it works for them. I choose to use YNAB because of the way it handles credit cards, which is far superior to EveryDollar (IMHO).
I have never had budgets (unless of course I want to buy a major purchase ie. vehicle, then I'll be like I have a budget of $50k) and never will. I spend money on things that I need, when I need them. If there is something that I want - I buy it. It's not that hard. I guess for people that have no impulse control etc - spending more than what comes in would be a problem. But, for us (GEN-X) that tend to have been raised on a scarcity mindset overspending usually isn't a problem.
You sound just like my husband and me. We're also Gen-X -- I never thought of this as a generation-specific thing, but maybe it is. We've never gotten into trouble (and have never written or stuck to a budget) because we just automatically save as much as possible (into 401ks, kids' college funds, future car earmarked account, etc.) then spend as little as possible (never have wanted to "keep up with the Joneses"), and then we've got plenty on-hand for when the unexpected expenses like wedding gifts or car repairs come up.
I love how he assumes everyone makes $100K + a year. What about those who make significantly less? Also, one thing he failed to mention about changing to credit unions is that not only don't not charge fees, but they generally pay more interest that most banks, not much but...
My Budget, is NO Budget..... instead I save & invest 2/3rds of what I make, then spend the rest. YOU can do this too... but first you have to get debt free.. pay off your house and only buy cars with cash, and only use credit cards for free cash back.
Pay off your house? Before you retire or early in your career? Me personally, I would not aggressively pay off a low interest rate loan that underwrites a “performing” asset. Home loans can be considered “good debt”. Take the extra money and invest it in the market. SP500 index will get you 10%, typically. Anyway… We’re having a different conversation if you are near retirement or retired on a fixed income. I pay a little extra principal on my mortgage each month but not a huge amount. The devil is in the details.
Yes, get out of debt and put your whole pay check away. Take out a small about each week as spending/grocery money. We pay all bills as soon as arrive.
Convert MONEY to TIME! The concepts of money and budgeting are not easy to grasp, especially when done in annual or even monthly intervals. I struggled with it until I converted my income to time I spent earning it. I simply subtract my fixed expenses from my annual net income, then divide that by 2000 (hours spent at work per year), which gives me the amount I can spend. For discretionary purchases, I convert the purchase price to the amount of time I had to spend to have the money to make the purchase. this system has helped me make decisions on purchases as small as a package of hamburger and as large as a house.
It sounds like you have to constantly monitor all your different accounts to make sure you’re not going to go over with this method though, am I missing something there? Sounds like something that would stress me out 😅
Using cash and debit cards, instead of credit cards, is a HORRIBLE idea. Much less consumer protections on debit cards vs. credit cards for fraud, and my credit card gives me 3% cash back on about 75% of the things I use it for, which is a substantial savings and more money for my budget.
Incorrect. Debit cards use visa or Mastercard. Banks will refund fraud. And for most people the cash back is a bait to use their credit card in exchange for interest on debt
Well, you’re fixed expenses is more than I have ever spent in a month. It must be pretty hard for you to figure out what to spend that discretionary amount on.
You would have to pay me to use a Ramsey app, no matter how pretty it looks. Do you really think it is easier to budget with a pocketful of debit cards? Budgeting is Just Not That Hard (and envelopes are not that expensive for the challenged).
Every couple has a mental number of an amount that they can spend without asking their partner. For most, it’s about $300. But it’s definitely good to actually discuss what amount both are comfortable with, BEFORE IT BECOMES AN ISSUE!
What about property taxes, car insurance, house insurance, medical insurance , IRAs etc. etc.? I'm paycheck to my paycheck on 200k. My mortgage is 4500 in San Francisco for my 1 bedroom condo.
I do not and will not carry or use debit cards for one simple reason - FRAUD. Some crook is able to steal debit card info then they are taking my money. Crook steals credit card info then it's the banks money. Also, people don't realize that there are laws in place to protect consumers who use credit cards but most of those laws do not apply to debit cards. The value of various points and cash back rewards is icing on the cake to the tune of thousands of dollars per year.
Completely agree with this approach James, my Wife and I use YNAB to do this, makes the annual or random one off costs very visible each month so you don't overspend.
