Saturday, May 16, 2015

I'll Make You Frugal Without A Budget

Go on Twitter and put the word "budget" in the search box and scores of accounts will be displayed.  It is a word on a username that defines what the person with the account will be tweeting about, namely, budgeting tips and things Finance.

I've written a few articles about budgeting on this blog to tap into the popularity of this mainstream obsession.  Let me be clear.  Reading about personal budgets is the obsession, not the actual chore of creating one.  For every person out there with a family or personal budget, there's probably at least two who do no budgeting at all.  But here is the revelation, you don't need a budget to be frugal, i.e., to live withing your means and use whatever money left over at the end of the month to either save or invest.

Some people consider budgeting a waste of time.  I'm one of them.  I happen to have a budget.  And here's how I maintain it: I don't.  I do a budget once a year, and then either get too lazy to make adjustments and updates, or just plain forget about it.  Yet, my frugality is a part of my way of life.  I am further encouraged to Not keep a budget by what I do every month.  It is something I learned from the great Robert Kiyosaki, author of Rich Dad, Poor Dad.  What is it?

He called it, Pay Yourself First.  This is what I do every single month without anything getting in my way.  I take 10% out of my checking account (paid via direct deposit) and transfer the amounts to the Brokerage account I share with my wife, Jessica, and to our individual Roth IRAs.  I currently net $6,400 a month from my job as a vice principal.  This amount will change next year when I go back to teaching, but it won't change my strategy.  $640 is split into three accounts: $400 to my Brokerage, $120 to my Roth IRA, and $120 to Jessica's Roth IRA.  This $120, by the way, does not represent my lone monetary contribution toward retirement.  It's extra!  I contribute $200 to a 403b AND of course I also have my educator's pension being automatically withdrawn from my pay.

The entire $640 is put to work.  I invest in both the taxable, Brokerage, and tax-free Roth IRAs.  If you do not have a 401k or other retirement account, I would suggest you "pay yourself first" more than 10% of your net salary.  For all of you who have grown tired of the extra chore of keeping a budget, here's what paying yourself first will do for you:


Just think, if you "pay yourself first," and in best cases, put cash into a non-liquid account, like an IRA, there's no coming back.  You can't pull the money out if you're running short toward the end of the month.  Well, you can't without a penalty, so you most likely won't do it.  You'll do everything in your power, like watch every expense, all month long to not be in a bind.   

Even putting the money in a liquid account, like a Savings (don't do this, please!) or a Money Market (a little better), will deter you somewhat from cheating, and transferring the money back to checking.  You'll need to stay disciplined.  The bulk of my "pay yourself first" money goes into my Brokerage account.  But I then turn around and buy stock shares with it.  This puts me two steps from liquidation: sell shares and wait for the cash to become available, and then do a transfer request from Brokerage to checking.  So you's a pain in the ass to liquidate, meaning, I better make sure Jessica isn't going crazy at the supermarket!   

If you don't "pay yourself first," then you have your work cut out for you.  Not only will you need to be frugal, monitoring your expenses, but you'll also have an added job, budgetista.  The worst part is that there is never any guarantee that you will make your budget and stay in the black.  This means that for some of you, you keep nothing!  It's understandable: Having all of your check available to you and expecting money left at the end of the month is like giving a kid $10 at a candy store, letting him sleep there for a month, and expecting him to have $1 or more leftover.  Not gonna happen, people.  Paying yourself first forces you into frugality!

Take home: Skip the budget, budgeting.  Take 10% or more of your net pay as soon as you have it, and put it in a Money Market, Brokerage, or IRA account.  Then leave it there!  Do this at least two months and watch how quickly your wallet/purse behavior begins to change.

Until next time!  Thanks for reading. 

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