Heeeellloo digital travelers,

Welcome back to adulting! Grab your cup of coffee (or preferred beverage of choice) and let’s dive in.

Today on our journey I want to discuss the useful but addictive green stuff. For those of you new to the adult world, I am talking about adult money.

No longer do we go to Target with our parents pleading for the newest game or make sure we buy the grocery store brand of cereal to save $1. This also means the college bars that serve $3 drinks will be lost forever, just like Atlantis.

That’s because we’re making adult money now!

We have grown-up jobs that pay us mula. Which means I can buy that $2K coffee table with a built-in refrigerator. Or even start shopping at Whole Foods (well maybe). The possibilities are endless.

Or at least we think they are.

Today I want to cover a very special topic about money:

• Budgeting

I know, I know - you’re probably saying, “Come on Mike, really? Budgeting? This is too simple how do you have an entire blog about this?”

To that, I say there is a lot more to it than just setting aside some cash. Today we will review three topics:

1. Why we budget

2. How we budget

3. The waterfall of budgeting

Why we budget.

So what’s the point?

Budgeting is a crucial aspect of personal finance, aka managing your adult money. A budget is a tool that allows you to prioritize your spending, save for future expenses, and avoid overspending. Here are the top five reasons why we need to budget:

1. It helps you stay on top of your finances

Budgeting helps you keep track of your income and expenses. By creating a budget, you can identify areas where you are overspending and find ways to cut back. This helps you stay on top of your finances and avoid falling into debt. Did you really need to spend $576 dollars on bottle service over the weekend?

2. It helps you achieve your financial goals

Budgeting helps you set financial goals and work towards them. It keeps you accountable by making you look at your spending consistently. Whether you want to save for a down payment on a house, pay off debt, or invest in your future, a budget helps you allocate your money toward these goals. Without a budget, it's easy to spend your money on things that don't align with your financial goals.

3. It provides a sense of control and peace of mind

How many of you are scared to look at your bank accounts after a weekend out? I know I’ve been there. When you have a budget, you have a sense of control over your finances. You know where your money is going and can make adjustments if needed. This can provide a sense of peace of mind, knowing that you are making informed decisions about your money. If you have it allocated then you don’t need to stress. Hell of a way to avoid the Sunday scary’s.

4. It helps you prepare for unexpected expenses

I can’t believe you had to go to the ER after failing to cut that avocado! Good thing you had money set aside or else bye-bye finger. Life can be unpredictable, and unexpected expenses can arise at any time. By budgeting for these expenses, you can avoid scrambling to find the money when they arise. This could include an assortment of things like car repairs, medical bills, or home maintenance.

5. It encourages mindful spending

Budgeting encourages mindful spending, which means being intentional about how you spend your money. This can help you avoid impulsive purchases and unnecessary expenses. By being mindful of your spending, you can save money and prioritize the things that are most important to you.

How we budget.

Stepping into the real world and making that first bag of cash really does feel rewarding. I mean, have you ever seen that amount of money in your bank account before? Our first bag fills us with hope, a sense of accomplishment, and a desire to make another bag. We feel UNSTOPPABLE. At least for the first year.

Then comes the realization of responsibilities. Let’s look at a snapshot of income vs. spending over a month of someone with responsibilities. Say hello to Joe’s finances.

Joe is terrible with money. He never tracks anything and just spends willy-nilly (it’s a word).

So how do we help him make a budget?

1. Let’s determine his income: Start by calculating your total monthly income. This includes your salary, any side hustles, and any other sources of income. ✅

2. List his expenses: Make a list of all your monthly expenses, including rent/mortgage, utilities, groceries, transportation, entertainment, bars, strippers, drugs, etc ✅

3. Categorize his expenses: Categorize your expenses into fixed and variable expenses. Fixed expenses are those that remain the same each month, while variable expenses can fluctuate. ✅

   

As you can see, after Joe’s fixed expenses (expenses he needs to pay) he only has about $657 left to spend or save for the month. That’s not too much to last a whole 30 days. Especially because Joe loves to shop.

So, what’s taking away all of his hard-earned money? Well, 50% of his cash is going to rent. Which is a no-no. Silly Joe. A general rule of thumb is to allocate 30% of your income to rent / mortgages. As much as he wants to live in that penthouse in Nowhereville, he probably shouldn’t.

What’s next?

4. Assign a value to each expense: Assign a value or percent to each expense and prioritize your spending. This is relative to the individual and not everyones will look the same. But this means allocating a certain amount of money to each category, based on its importance to you.✅

5. Track your spending: Keep track of your spending throughout the month to ensure that you stay within your budget.✅

6. Adjust as needed: Review your budget regularly and make adjustments as needed. This could mean reducing spending in certain categories or increasing spending in others.✅

Let’s take a look at Joe’s expenses a month after we helped him budget:

Luckily for Joe, he had only one bad actor. With the adjustment to rent, Joe was able to save over $1K at the end of the month versus a much lower amount. He was even able to go shopping and out with his friends. This gave Joe the superpower of clarity and trust in his decisions regarding spending.

The power of budgeting!

Also, I know excel sucks and can be a pain - but it really does help to make things look clear. You do not need an entire cash flow document or balance sheet with formulas. A thrown-together excel sheet like the one above will do just fine.

✌️Next Time on Adulting…

In this letter, I wanted to write about the waterfall of budgeting. But, I realized I don’t want you to read 2,000+ words. So, I am going to share it in the next newsletter. In it, we will talk about the psychological and physical impacts budgeting has on your life.

I hope the steps above have taught you why we budget as well as how to make a useful one.

If you have never made a budget before, fret not, you are not alone. Many people haven’t made them or have made them and never stick to them. We are all just learning.

As always, I’ll talk to you all next week.

Cheers,

Mike