Budget 101: Why we need a budget, and why you do too.

Who needs a budget?  

It seems like a rhetorical question doesn’t it?  For a long time, I didn’t think we did.  I was convinced that because we made a lot of money, it didn’t matter.  

We bought the most expensive house we could afford.

We bought nice cars…because they were nice, not affordable.

The result:  $823,000 in liabilities.  Yes, over Eight Hundred Thousand dollars.  I’m sure you’ve heard the saying:  If you make more, you spend more.  Yep, especially if you don’t have a budget.

This post is the introduction to a planned series following our family while we work to establish (and hopefully stick to) a budget.

Cut to the chase?  Here are our July Budget Numbers.

Care to read about some lessons learned?  Read on…

Daytrading is not something you do “in your spare time”.  Invest in Index funds, and don’t panic when things go South.  Historically, the stock market has returned over 11% annualized since 1973.  I used to think I was a day trader…I discovered ShareBuilder in the late 90’s, buying a few hundred shares of Yahoo, Amazon, and other stocks.  Anyone care to do the math on that would be worth today (I don’t, it would be depressing).  Ultimately, I wasted the earnings trying to time the market.  I still use Sharebuilder to invest in stocks (because it’s cheap) but learned my lesson – I’m no Wolf of Wall Street.

Settling with credit card companies should be a last resort.  While overseas in 2007 I worked as a Government contractor making great money.  I thought it would be a good idea to call my credit card companies and request payoff amounts (read: settlements).  I’m still paying for that decision today.  Little did I know the impact that would have on my credit for years to come.

Don’t rob yourself to pay Paul, or Bob, or Tim.  I borrowed $50,000 from my retirement accounts to invest in a new business, and stopped contributions to offset the loan payments.  More on that in my next post, where you’ll get the first glimpse of our actual income and expenses.

Build an emergency fund with 3x your fixed monthly expenses.  We only have about $6,000 in “emergency savings”.  In a real emergency I have plenty of credit to use if necessary (flawed thinking), but that’s part of the reason we’re here, after all.

Fancy credit cards are NOT COOL.  I have an AMEX Business Platinum card.  I got it 10 years ago for the “cachet”, haha.  The joke’s on me – with a $550 annual fee, I really don’t need it that bad.  On the other hand, if you take advantage of the rewards and travel benefits they can offset the annual fee for small businesses (like a blog).  You can see the list of benefits and apply here if interested.

Eat out or eat in, not both.  We eat out 5-7 times a week (if not more) yet also grocery shop 5-7 times a week.  It’s not cart filling grocery shopping, but still.  Someone, please help me understand how this is possible (poor planning?).

Don’t overextend yourself in the name of comfort.  In 2009, We bought what was essentially the biggest house we could afford.  What we didn’t consider at the time was bigger house = more taxes, utilities, and maintenance.  Don’t get me wrong, it’s a nice house, but this does mean less money for everything else.

If you have one, communicate with your Significant Other (SO).  I pay all the bills.  I doubt my wife even knows what they are.  This is a really bad idea.  It wasn’t planned that way, it just happened.  The problem with this became clear when my Dad passed in April.  In the same situation, my poor Mom was stuck trying to reverse engineer every single bank account, credit card, utility bill, and password.  Don’t put your SO in the same spot.

Okaaaay…so clearly some poor planning and decision-making.  Let’s cheer up, shall we?

The good thing is, we make a lot of money.  I make a salary of six figures and my wife still works.  Together we Net over $200,000 a year…seems like a lot right?  Well, it doesn’t feel that way if you skip budgeting for years.  Thankfully, we should be in great shape once we get things back on track.

 

So, what do you think?  Leave a comment below, and be sure to subscribe to my email list to get updated when I post budget numbers next week.

4 thoughts on “Budget 101: Why we need a budget, and why you do too.”

  1. I think you should do a case study in the MMM (Mr. Money Mustache) forum. You would get a lot of great advice on how to man your finances into favor.
    You might also benefit from the bogglehead forum for the real estate too.

    1. Thank you for this information! I just started reading the MMM forum, and it’s encouraging to see the level of participation there. Looks like a great resource, and I’m going to port my budget there today to get some feedback on where to start.

      1. I have been following. You have gotten a lot of great advice. So glad it is working out. 🙂 And I like Mint better only because its automated whereas ynab you need to put transactions in manually. But everyone has their fave.

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