Get Rich Slow by BS-ing the Right Way
Understanding Budgeting and Saving as the foundation to financial success
Disclaimer: I am not a financial advisor, accountant or tax expert, nor do I claim to be. The information in this post is not a substitute for financial advice from a professional who is aware of the facts and circumstances of your individual situation. This is purely my own experience trying to learn personal finance and build a better future.
Perhaps the least exciting words in personal finance are (1) budgeting and (2) saving.
I can hear the audible sigh that those words incite. But it doesn’t have to be this way. Budgeting and saving are the cornerstones to any successful financial endeavor and, understood in the proper context, can actually be cause for excitement (no bullshit).
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Making these concepts more engaging is a paradigm shift in how you and I think about money. It’s a change in mindset, and the key to this mindset is understanding what our long-term goals are with money. We all want nice things, cool clothes, a shiny new car, and a big, impressive house, but our future freedom and happiness depend on our ability to push out those desires and engage in low time preference thinking.
In essence, having a low time preference means favoring our future selves over immediate gratification. This concept allows us to let our money grow and flourish instead of burning a hole in our pocket. It means sacrificing that new pair of shoes for the ability to do whatever we want down the road. The very real possibility of true financial freedom.
High time preference thinking is more concerned with the needs of the present moment, whereas low time preference thinking delays present gratification and places more emphasis on future needs.
— A particularly easy to understand explanation of time preference
Unfortunately, social security and pensions are no longer dependable sources of retirement income for younger folks. As a 20 something early in my career, the only real way to plan for the future is to plan on going without it. That means adequately saving for retirement on my own. It’s a lot less fun today than spending my whole paycheck at the bar and online shopping, but my future self will be thrilled that I was able to maintain a low time preference mindset and delay vapid gratification. Otherwise, I may find myself well into my 60s or 70s without the resources to fully retire, enjoy time traveling with my partner, or spend time with family and grandkids.
If those things aren’t important to you, then you do you. But my guess is most people are not only looking forward to that time of life but are actively counting on it. I don’t mean to fearmonger, but a better future doesn’t just show up one day. It’s built for yourself over years of preparation and good decisions. The good news is there are tried and true methods to achieving that future success, and I’m here to help get us both started on the right path. If you’re here, you might have worked your ass off for a well-paying job and are ready to reap the rewards, and you can! You just have to be aware of your circumstances and cultivate a mindset that gets excited about budgeting and saving. One of the boons of landing a great job is the ability to partake in low time preference thinking.
Still with me? Great, let’s get down to business on how this works in practice. Of course, it’s going to be a little different for everyone, but I’ll share my (current) personal strategy so you can borrow or adapt it. First thing first, we need to assess our current financial situation.
This step is a little harder than it sounds when you’re first starting out, especially if your pay and/or expenses don’t stabilize right away. For example, I graduated from school in May and started my full-time gig in June, but it took me until at least September to really have a solid grip on my monthly income and expenses. And even then I still needed to make the necessary adjustments, but more on that later.
If you’re salaried, income really isn’t that difficult to figure. You make your benefit selections and then your paycheck (mine is bi-weekly) is the same every time. But there are multiple variables this early in the game that we have yet to tweak, so income can change. We still need to set 401k and HSA contributions for example. My recommendation is to start with at least 10% toward retirement, and the easiest way to do that is the 401k. You’ll likely want to change your retirement strategy to better suit you sooner rather than later, but you’re a diligent saver with a low time preference, so thinking about the future is going to be no problem for you.
The point is, it takes some time to find where you’re at financially, and that’s okay.
However, what we do need to do is gather some data so we are able to be flexible and adaptable financially. I tried a couple of different apps to do this for me, but there are tons of ways. Physical money in envelopes is what it takes for some people, but as a techie, I really like the amount of data I can get by connecting my accounts securely to Rocket Money or Mint.
Mint is my personal choice for a number of reasons. Yes, it’s Intuit owned, but it’s been around since 2007 and has a track record. They claim to make money solely from ads that offer to better support you financially, so your data is theoretically not being sold. It also works better with my accounts. My Amex account struggles on Rocket Money, so I can’t stay up-to-date even if I pay for premium. With Mint, I don’t really need the premium and still stay up-to-date. Finally, I just prefer the budgeting structure (I can set budgets for food and sub-budgets for restaurants and groceries for example) and interface.
Different approaches work for different people, but you should be able to reflect on the months and see how much you made, how much you spent, and where you spent your money. The easier this is the easier it will be to maintain healthy transparency with your money habits.
After a few months of tracking your habits and interacting regularly with your budgeting strategy (such as recategorizing certain expenses on Mint to accurately reflect your budget), you’ll be able to tell how you’re doing. Now we start to ask ourselves the difficult questions, but I urge you not to be too hard on yourself. We are very early in the process, and the point is to make the sustainable change now that will pay hefty dividends well into the future. A few months of poor spending isn’t great, but now at least you know! What would have happened if you didn’t start tracking spending in the first place?! You’d just keep on spending that way, with no clear insight or plan for the future.
Here’s where things diverge, and you have to be forgiving but also fight the tendency to make excuses for yourself. You need to be overly cautious about your spending. Why? Because the opportunity cost of being dishonest with yourself at this stage is staggering and will lead to regret. Compounding interest is a beautiful, gorgeous thing, but it takes time. The earlier you can commit to this mindset the better off you will be. And here’s where I start getting excited.
Sure that new Patagonia hoodie would look sweet on me, but if I save that 150 bucks and let compound interest work, that hoodie is worth over $6000 by the time I need it in retirement. Isn’t that just awesome?! Sure there are some caveats related to smart investments and the market still has to perform, but over the long term, it’s the smartest bet you can make. Even half that value is fantastic compared to what the hoodie is worth, and now you have the data to make smart decisions on where you spend your money and consider ‘What do I really need?’ That doesn’t mean not spending any money, but it’s a balancing act. I just like to err towards my future *shrug*, shouldn’t you?
Here’s how I like to think about cutting my budget: I’m not cutting what I get to spend. I’m increasing what I get to save. If I can save a little bit more today, that will compund into an exponentially higher amount in the future. It’s not $150 vs sneakers, its the potential value of that $150 dollars in 30 years vs sneakers. Huge difference.
Okay, personal anecdote time to drive this home. I’ll use some round numbers to make it easy to understand, but I usually do that in my own finances anyways. It’s plenty clear as you’ll see.
When I first started work I got a couple of big drops in my bank account, 1 for my relocation fees and 1 for a sign-on bonus. Those added to about ~25k, so I was riding high. The thing is, if you round to the nearest thousand, I had $0 before that. I spent all of what I earned the previous summer on my last year of school, and my groceries were paid via Venmo requests from good ole Mom and Dad. Now I realize I’m very fortunate here and I didn’t have massive debt to worry about, but I’m still far from rich or wealthy. 5 figures felt like a ton of money to me, but when the goal is to retire a millionaire, it’s really just getting started.
Part of that money did have to go towards relocation expenses. It cost me well over $1000 for the UHaul to move everything a few states over, and our new apartment didn’t come with any furniture or even a washer/dryer, so we spent a good chunk of change on those items. This was one of the main reasons it was hard to understand my budget right away. I made a lot in one fell swoop, but I was also spending a lot. I still felt like I had a lot in the bank. After all it was more than double I’d ever had before, but I hadn’t really saved a dime and that feeling of comfort caused me to overspend. I bought 3 new pairs of shoes, a $500 gift for my girlfriend, a new set of golf clubs, and was vastly overestimating my spending capacity. Add to that shopping for an engagement ring and I was on my way back to being broke with no emergency reserves.
But as I promised, things did start to stabilize. I could see my monthly income was in the $5000s and my part of rent was only about 1/5 of that (I’ve since taken on more and moved to a proportion of income model with my now fiance, she said yes! Woot woot!). My spending wasn’t yet down to where it should be, but I found the inflection point. I started to realize I should be prioritizing other things like an emergency fund, retirement savings, and savings for our wedding. Net worth is supposed to go up after all. When I finally hit this mental switch on what really mattered, saving became easy.
Now I think I’m a bit of an exception here, because I overcorrected for my spending. I started to salivate at the prospect of being able to save $1500 or even $2000+ a month, and how that could set us up for a beautiful wedding, a nice starter home in a few years, and ultimately financial freedom. It was so much more enticing to me than another new pair of shoes. I actually enjoy my job, but nobody wants to work late in life because they have to. I’m at a point now where I’m actually trying to increase my spending a bit now that I have a healthy emergency fund and am able to save consistently toward wedding payments - I don’t want to be a cheapskate y’know.
There’s always something else to save for and that we want, but now that I have cultivated positive budgeting and saving habits and made the switch to a more low time preference mode of thinking, I’m actually much happier, much less stressed about money, and more excited about the prospect of making sound financial decisions that future me will be proud of.
I’ll leave you with some nuggets of personal advice that worked for me during this time, but of course, they are all more than worthy of their own post:
Debt is a dirty word
Now I didn’t follow this 100%. I paid for the engagement ring using a 1-year no-interest credit card. However, I had more than it cost in the bank and can pay it off in full at any time. I have a personal vendetta against high-interest debt, you should never have to pay it if you are responsible financially. I won’t on this card, but the no-interest arrangement allowed me to build that emergency fund.
Track your progress
Aside from setting a budget, these apps and tools can help you in more ways than 1. With all that data you can identify where to cut back and how to progress financially. Raise your credit score by carrying lower utilization. Negotiate your internet bill. Adopt simple buying habits like buying in bulk or shopping at the right stores. Check-in with yourself at least monthly to see how you can improve.
Reframe your goals based on what really matters
Setbacks become opportunities to improve.
Celebrate milestones and financial victories.
Seek out new information sources that will help you continue to climb the financial mountain.
All in all, the goal here is to stop letting your spending habits dictate your life, and budgeting and saving are absolutely the foundation. Budgeting allows you to track your habits, prepare for upcoming expenses, and start to build savings. Savings are what give you the means to weather the storm and stay out of debt when emergencies arise, and they allow you to take advantage of opportunities when they come your way. Cut the bullshit and stopping letting money run your life. You can control it all through your own decisions, starting by budgeting and saving. That’s what gets me excited about the future, it’s mine and I’m in total control of my own level of financial freedom.
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