What’s your budget? And mine?

Budgeting.  It’s a word many of us cringe at because it takes time, thoughtfulness, and a purposefulness that many of us don’t want to dedicate the time necessary to effectively create one.  Most 20 or 30 somethings are out having fun and experiencing adulting for the first time, yes this is an actual term being used to describe millennials having to experience the real world.  Don’t believe me?  Follow the link. In reality it’s not just millennials that are unable to accomplish this critical task, but many of the older generation as well.  Who hasn’t heard of the upcoming retirement crisis?  We as American’s enjoy so much of the modern world and wonders it offers that we forgo planning for the future so much that we are unable to effectively understand what it will mean for us 20, 30, or even 40 years down the road which is why budgeting is an imperative skill to understand.  So how does one effectively come up with a budget and stick to it?

I would first argue that you have to know what you value more first time and more or time and things.  They both yield very different results and therefor require very different planning.  If you value time and things I would argue that, first you have to understand you likely have little to no real expected retirement date and you should take a look and self reflect.  If you are OK with potentially working until you are 90 knock yourself out and invest in material things and experiences.  It is YOUR money so you are the one at the end of the day that you have to hold accountable, but if your budget is to spend on all the little things that you can have knock yourself out.  Whether the news story is real or not, Millennials are supposedly spending more on coffee than they are  on financial freedom, but if you value the experience maybe that is worth it to you.

Now I turn to the other side of the crowd, the people who value time and money. As people say time is money and nothing could be more true, the more time that progresses the more likely you are able to take advantage of the powers of compounding interest and the amazing benefits it provides in a well diversified portfolio.  One of the most important things to remember is that whatever you trade money for things, stuff, or experiences you are literally trading away a piece of your future.  So the budget that focuses solely on squeezing every nickel out of their day to day lives to save for the future is also OK for some people.  It does take a very special person who is able to do this and be happy with life.  Jason Feiber over at Mr. Free At 33 is one of those people and I couldn’t be happier for him.  His original blog was an inspiration to my journey and I’m happy and amazed at his success on minimalism and retiring before I even got started and truly dedicated to my own financial independence journey.

The final budget camp is honestly a blend of the first two and one that the majority of us fall in as it is the hybrid of the two above approaches.  I truly believe that for most of us to be happy and to sleep well at night (SWAN) you need to experience some of what life has to offer while also saving for the future.  This comes down to when and where you want to retire for you to truly understand what you are going to do with your budgeting.  If you want to experience more of life and travel when you are younger, you have to understand that you are dedicating more time to working and having to catch up to meaningfully retire.  Conversely if you have an extremely high savings rate when you are younger, you may have physical or medical issues that will prevent you from experiencing part of life when you are older.

This means that you have to decide for yourself which part of the spectrum you wish to fall, but this also involves a true sit down with yourself to understand what you and your partner’s, if you have one, long term goals are and AGREEING on them.  I can’t stress that part more because spenders will always have a want to spend money, while savers always want to put more away.  This is why you hear that people always fight about money, it’s because you do not have a fundamental agreement on your budget and therefor it is apt to cause conflict because one of you does not understand the dedication to the budget that is necessary.  This too goes for the relationship between you and your future self if you are single, think about what the you 20 years into the future is going to say if you have a high or low savings rate.  You are going to wish that the you of 20 years ago did something different, the question is can you guess what you will want in 20 years now, or at least come close to it.

Going back to the title of the post, I’d love to hear reflections on what your personalized style is, it’s something that I don’t think the financial world really preaches and I wish they would as not enough people really think about finances holistically.  I know I wish I had done things differently in my 20’s, as even though I saved, I would be in an even better financial position and without a couple of designer shirts that I really don’t need and that sit in my closet currently.  So my budget now skews towards the time and money component, but I take at least a trip a year Hawaii in 2016 for ten days, two weeks in Costa Rica in 2015, The Dominican in 2014 for a week, and other places going back farther.  Additionally I enjoy Spartan Races, which could be argued as a premium brand and one that yes I’m willing to pay to run through mud, jump over fire, crawl under barbed wire, and even further, travel to do so.  It’s part of my passions and I try to couple the two together, but can’t always do so.

The point of this is that you don’t want to give up all the joys in life when you can experience a part of it as well.  Just make sure to do it in moderation and plan ahead.  That Hawaii trip cost me less the $2000, Costa Rica $1500, and the Dominican $1700 with a wedding to boot.  If you think I skimped on activities I’ll use Cost Rica as an example as I was there with a friend for two weeks.  Split the cost on the hotel worked out to $14 a day, we ate out almost every meal, white water rafted, scuba dove, biked to Panama, ziplined, road horses, and hiked a volcano to name a few things.  The point of this is planning and budgeting go hand in hand and if you do things appropriately you can enjoy the little things through life as well.

Would you change anything about your approach now or would you have in the past?

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