Where Did All the Money Go?

OK Scott is off the hook for not doing this exercise …

… but only because he actually already has a pretty strict budgeting system in place: I love the idea of withdrawing a certain set amount from the ATM each week for things like personal spending and entertainment and “when it’s gone it’s gone” … much like Caleb’s envelope system a lá Dave Ramsey described in a comment to my post at 7million7years.

Not to mention Scott saves 40% of his income!

BTW: I bolded a very key statement that Scott made; it will be your ‘reward’ for taking the time to read all the way to the bottom of Scott’s excellent post … excellent because it does what I was hoping this blog would eventually do: start bringing new ideas to the forefront; ideas that come from our readers and our 7MITs

Thanks Scott!

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Well, I started keeping track at the beginning of April of every expense I possibly could. Boy, it certainly takes quite a bit of dedication to keep track of everything and I have to admit, I didn’t do very well keeping up with everything.

But to be completely honest, the way my wife and I have elected to set up our financial life, it keeps things so simple to keep track of that we really don’t have to be that anal about every dollar and cent. In other words, we sat down long ago and established our “lifestyle budget” if you will.  You see, what I’ve noticed among financial circles is that there is a great deal of debate about the dreaded “B” word budget.

On one hand, you have a school of thought that feels like every single penny that someone earns should be spent on paper, the month before that income even comes in, ‘ala Dave Ramsey’. Some people take this to heart 100% and some bash the idea of using a budget completely, stating that it is a foolish waste of time and that the answer to building wealth is to simply “earn more”.  I’ve read this school of thought on many popular blogs, but the thing I find interesting is that the author will turn around and contradict themselves in their very next post and talk about how you must ‘live on less than you make’ to get ahead, that way you can save and invest the difference.

To me, the contradictions are a waste of time because by now, we all know that, “pay yourself first”, “live below your means”, live on less than you make or any other million ways you can say it all mean the same thing. And it’s something that I feel must be done if someone wants to go from zero to hero financially speaking. But that is only one of the necessary ‘tools’. The next tool you need to use is the one that decides what you do with all of these ‘pay yourself first’, ‘live below your means’, ‘live on less than you make’ semantic dollars.

When I think about applying the principles of a budget, I stand right smack dead center between the two schools of thought. I don’t think it’s the end-all be-all to financial success and I don’t think it should be ignored or ostracized.  I believe it is one of the necessary tools that every person needs for financial success, but it is only one tool in the toolbox. It’s a tool that you NEED, but you also need other tools equally as important.

I’ve read a lot of posts and comments recently scolding budgets, saying don’t “live below your means” just simply INCREASE your means. Well that’s fine, but you can increase your means all you like but if you don’t have a plan for the money, it will simply be attracted to those who do have a plan for it like everything else in life.  Just ask Mike Tyson, MC Hammer, Evander Holyfield or any other person who made ultra millions throughout their career and found themselves broke. You’ll find that you can never earn enough money.

You simply need to figure out your number that allows you to live your life’s purpose,  get there as fast as possible (by the date you need it), and guess what? You’ll still have to live by something that at least somewhat resembles a budget to make sure you can continue to live your life’s purpose and not have to work for money in the future!

Like I said, it’s all semantics whatever you want to call it. I don’t mind calling it a budget because with any negative sentiment, it also carries many positive sentiments to me such as “We will not only get wealthy, but we’ll stay wealthy” and can sleep at night and live the life we’ve chosen.  I just simply look at it as a game plan, in the financial sense much like a sports team or big business has a game plan. And I find, once I get it set up, figure out all the mistakes and nuances after a couple of months, things settle in with a budget nicely and you’ll simply know what you can spend and what you can’t spend. You have a game plan. What I find is that after you master it, it kind of goes on autopilot and you don’t have to think about it anymore. You get on to living your life and not thinking about paying the bills or if you can or can’t make it to payday. I use this mental ‘freedom’ if you will to go forth and put my energy elsewhere, such as how to make more money in business and investments and hence the snowball effect works where I begin to make more money, all tools guiding me to my number.

My wife and I simply sat down and figured out our ‘lifestyle’ budget long ago and discovered what it cost for us to live, on average, every month, predictably, with a little emergency money in place to keep things ‘predictable’ and we discovered what we could be comfortable with or without while we were on our Money Making 101 journey and then to stay on it throughout our current Money Making 201 journey.

For example, the mortgage, taxes, insurance, grocery, gas, etc.. etc.. stays pretty much the same every month. Quinton’s lunch money, school clothing upkeep and other things are pretty much the same as well. In other words, we found that we could come up with a  monthly ‘number’ that is required for us to live the lifestyle we have chosen during this journey. There are a lot of things we’ve elected to do without and there are a lot of things that are important to us that we have elected to ‘do with’ at the same time. But these all have predictable costs. So in essence, it’s the same as a budget. We simply leave this amount of money in the checking account that we use to pay the bills and live on (no we don’t have separate finances, checking accounts, lifestyles, etc.. this kind of goes against what marriage is in the first place, doesn’t it? Not to mention it makes it kind of difficult to know where you are financially and where All the money went, before you even saved or invested anything. Then 25 years go by and you wonder; Where Did All the Money Go?).

Everything goes into the same pot and then gets routed automatically to it’s payment or usage destination. It never changes. It doesn’t require constant monitoring, it’s simply automatic with the add of online auto pays and a weekly ATM drive through. On Fridays, I drive through the ATM machine and pull out what we call our ‘dining and entertainment’ allowance. This is what’s used if we want to go see X-MEN: Wolverine. And when it’s gone, it’s gone, so keep the popcorn and candy down a bit, please! I also pull out a small ‘personal cash allowance’ in equal amount for myself and my wife. This stays the same. It has been preditermined and allows me  to have my own personal cash to save up for toys or stop by Subway or if I want or grab a Rock Star, to cook along on my goals at light speed! My wife has her own equal cash allowance to use if she sees a nice purse or somthing a bit more expensive that she can save up for. I call this the “Keep Your Hands out of the Financial Freedom Cookie Jar” expense. It works great.

So with a predictable spending plan, that is pre-determined by the family, stays the same, is about 95% automatic, doesn’t require sitting in a torture chamber with budgeting tools or any other nonsense that most people dream up about budgets, we spend approximately the exact same amount each month and save each and every penny to pay ourselves first with before anything.  Lately this savings has been pretty much to the tune of half of our after tax income going into our “War Chest” as Adrian calls it, to use for business startups and investing.

As far as writing things down daily on paper, there’s really not much to report, unless you want to know exactly how I spent my own personal weekly allowance (that is always the exact same amount) on an occasional cup of coffee, a new pack of guitar strings, a sandwich, etc… In other words, it remains constant. There’s no flux, no ‘loss’ or ‘gain’, no surprises, the amount stays the same with our allowance and entertainment and it’s taken as cash, not used by credit card(unless an online purchase is made, then that amount in cash gets left in the checking account, not taken out at the ATM and the amount on the credit card is paid asap.)

Any other amount of spending just gets done automatically for the utility bills, taxes, car insurance, grocery spending, etc.. so there’s really nothing to report.

We have found this method to be really refreshing. We just don’t have to think about money except for certain key moments when we take a peek at our accounts and make sure everything is getting routed to it’s proper place in a timely fashion. There’s no late pays to worry about, no over budget spending to worry about. It’s very a very peaceful feeling and frees my focus and energy up to go and make more money.

Incidentally, since we’ve been using this method, our income has increased substantially and continues to do so. We’ve been able to amass over 40k in just a couple of months because I’ve done so well in my business and I foresee this as continuing to increase. We may actually move closer to saving 60% of our income using this method. Even when I double or triple my income, we will be living on the exact same monthly number and putting all that extra income into the war chest. This further speeds up business purchase or startups and making real estate and stock purchases.

It seems that dreaded “B” word is somehow making us “Earn More” afterall!

The Game Plan

Sounds like Josh’s future is pretty much set: stocks, stocks, and more stocks … I see the next generation of hedge fund managers right here. Just to fill you in on the profit potential, a friend ‘in the business’ recently related the story of his self-made hedge-fund-manager friend who told his 8 y.o. daughter (who had to travel alone for the first time) ”you will be traveling on a plane that has strangers on it” … she had only ever traveled by private plane before!

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In order to achieve My Number, I must realize high percentage gains to my net worth, approximately 170%, and according to Michael Masterson’s Seven Years To Seven Figures, the only way to get to 50+% (that’s a really big plus sign), is by starting my own successful business.

I started an e-commerce business in late 2007, got it off the ground in 08, and am looking forward to profits in 09, but this is not the business I believe will launch my net worth to substantial levels.  The business responsible for that is buying other business’ when they are cheap and selling them when they’re over valued, this is also called stock investing, and is made possible by centralized market locations where people from all over the world gather to participate, most of them virtually through the Internet, like me. 

I believe earning an MBA from a prestigious college will better qualify me to take a position in the financial sector, but this is not imperative. You could be a grade-school drop out and get hired by a firm or start your own and actually attract investor’s if you can show and prove consistent profitable trades. This is what I’m focusing on, as well as studying to sit for the GMAT (Graduate Management Admission Test), this is what I like to call “covering all the bases”.  Of what I’ve read thus far, a year’s worth of trading is usually sufficient to prove you can be an asset, I work on this everyday in some form.

After completing the exercise Adrian wrote about recently, I ended up with basically what I’m doing now, minus the e-commerce business. It’s amazing how I have a lot more fun researching biotech stocks and trading than learning marketing techniques and editing HTML code.  In that light, it also comes to no surprise which one is currently profitable and which is not.

Fickle and in a Pickle

Scott and I seem to share a love of ‘collecting’ hobbies … mine included (over the years): go kart (then car) racing; fly fishing; war gaming; CB radio; motorcycling; poker; and the list goes on … and on …

I suspect that the challenge for Scott – as it was for me – will be finding the right thing (or things) to focus on. I can see a clear winner in this lot, but would be interested to see what you think?

It seems that in every exercise, one of the 7MIT’s has ‘stood up’ and created a table or a list to help the rest of us; this time, it seems that we have Diane’s Table …

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Boy, for some reason, this has been a really tough exercise for me. I’m not sure why, but I think because it has exposed some interesting things about myself that I wasn’t quite aware of.

What this exercise has shown me the most is the fact that I am very fickle.

I guess by that, I mean that I have a variety of different hobbies and interest, but that I change them out quite a bit. One minute, I’m all over researching fitness, weight training, bodybuilding, fat loss, etc. (I actually have a master’s degree in this stuff and have done quite a bit of research on all of it and consider myself a bit of a fitness fanatic), then the next, I’m more focused on playing guitar, studying guitar, wanting to join a local band for fun on the weekends, etc…

Then the next minute, I’m all about researching how to restore our older historic home, then the next, I’m into archery and spending a lot of time shooting my tradition recurve bow to perfection….the list goes on and on. I have so many interests and bounce around from one to the next, that it’s hard to put a finger on using one for a growth engine to build wealth with. At least that’s my illusion for the moment and I guess as I continue to find myself and ‘grow up’, I might nail something down that I can capitalize on.

Anyway, take a look at my list in the table below (Thanks for this handy little platform that you created Di!)

From the list below, you can see that I have nothing that runs across all 4 categories, however, I do have at least 3 current interests that  cover 3 categories.

One is playing guitar. I suppose I could coach/teach/mentor people in guitar playing, but who became wealthy just doing that alone? Joe Satriani taught Kirk Hammett of Metallica a few lessons, but he was already a world class musician on the concert circuit and selling albums long before that. This would be a tough one, because I consider myself  ‘not bad’  at guitar, but nothing to write/coach/teach, or even brag about.

Now, fitness/training/health and even nutrition is definitely on 3 of them, and if I combine coaching/mentoring/teaching/consulting with it, I can be a fitness/training/health/nutrition…um….coach/mentor/teacher/consultant. Whew! Anyway, I’m thinking I might be able to concoct some sort of way to use this to sell myself or something worth paying for, but that’s going to take some serious ‘noggin burnin’ to figure something out to market there. That’s certainly a competitive market, but seems to be a highly profitable one when you have the right ‘juice’. (pun intended)

The 3rd interest that spreads across 3 categories is an interest that I liked a lot as a child and have recently taken back up: this is shooting rifles and bows.

I’ve been thoroughly enjoying this hobby as a way to unwind and relax (to shoot well, it almost requires a zen, or meditation-like focus and relaxation that I’ve come to really enjoy). Along with this hobby of course, is checking out or trying new and different equipment, competitive marksmanship, learning technology and mastering craft and technique, all of which I could spend a lifetime figuring out. And then there’s even rifle and bow making/crafting!

Hmm, seems like a hobby that I could easily get pretty deep into.

Well, that pretty much narrows it down. Travel, reading/learning, and going to concerts all pop up on at least 2 categories, but other than that, these are pretty much my interests and how they stack up.

Any suggestions on how I can get richer, quicker with this new information would certainly be appreciated!