Hosted By: Wyatt Yates
Money Myth: I Have Money, I Don't Need a Budget
In this episode, we discuss what a budget is and what it is not. Learn how a ketchup bottle explains your personal finances and find out how millionaires budget.
Create your first budget if you don't have one already. Give yourself some grace it typically takes 3 months to fine-tune and get the hang of budgeting.
Wyatt Yates Host 00:00 Money doesn't have to be complicated. You can achieve financial independence. This podcast gets to the truth behind the money mess you hear from your grandma, your broke uncle, the latest social media influencers and the so-called money experts. Welcome to Money Myths with your host, wyatt Yates. The myth we're covering today is I have money, I don't need a budget. Or you may think I can pay all my bills so I don't need a budget. Or I make good money, I don't need a budget. All of these basically the same thing. On excuses or reasons why you don't need a budget. I can personally relate to this myth. This is one that I used to believe personally, and the end result was I got myself in a lot of trouble. So I understand where the thought process is coming from and thinking of budgets like this and the rationalization that you don't need one and budgets are only for poor, broke people or people that don't have money, or people that can't control their spending or to make sure that you have enough money to pay your bills. Budgets aren't for people like me. I'm okay Financially. I have money in my bank account. I can pay all my bills tomorrow. Why would I need a budget? Or you may be in the camp of. Just the mentioning of the word budget makes your heart race a little bit. It feels restrictive, it sounds complicated. You may have the excuse that a lot of people like to use in I don't have enough time to do a budget. It sounds like a lot of work. What all of these thought processes or reasons or excuses have in common is they don't understand what a budget is or what a budget does. So let's look at what a budget is and what it accomplishes. 02:10 As I mentioned at the beginning, I totally relate to this myth. This used to be me. This was my wife and I, before we figured it out and got on a plan. So I lived by this myth and it is how we ran our personal finances for the first few years of our marriage. And what it led to was accumulation of debt that there was no reason for it. I mean, we could rationalize why we had it, but there really was no reason for it. What happened to us and what happens to so many other people? 02:48 It's what they call Parkinson's law. So Parkinson's law is named after the philosopher in 1955. And it states that demand for something expands to match its supply. In economics we call this induced demand. So to understand Parkinson's law, I like to look at a ketchup bottle. 03:15 You may be thinking what in the world does a ketchup bottle have to do with personal finance and budgeting or Parkinson's law? But I like French fries. Who doesn't like French fries? I mean, we're in America. It's burger and fries. That's a common staple in our diets, right? 03:32 So think, when you open a ketchup bottle for the first time, you take that seal off and you got this big old bottle of ketchup so much ketchup that's going to last you forever, right. And what do you do? You just squeeze out way more than what you need onto your plate. But it doesn't matter. You got a full bottle of ketchup. So at the end of your meal you probably got a bunch of ketchup left over and you just kind of spray it off in the sink or throw it in the trash. It doesn't matter because you have plenty of ketchup. So why worry if you maybe waste it a little bit? You still have a full bottle almost. But now think when that ketchup is almost out, but you are having dinner and you got your burger and fries and you want some ketchup for your French fries. What do you do? You're hammering that bottle, trying to get all that ketchup to the bottom so it will squeeze out, and you squeeze out as much as you can on that plate and you're sitting there with your French fries just scraping every last bit of ketchup off that plate until you get done. That's Parkinson's Law. The demand for your ketchup matched its supply. When you had a lot, it didn't matter. You used extra, way more than what you needed, and a lot of it went to waste. When you had a little, you found a way to make it work and that is how Parkinson's Law works. That's how budgeting works and that is the big miss behind the thought process of this myth. And this is why, typically my clients that are first time budgeters, when we sit down they'll find anywhere from a few hundred dollars to a few thousand dollars a month in savings when they first start budgeting because of Parkinson's Law and they realize how much waste they were having. 05:31 Induced demand in economics follows the same theory and concepts and thoughts as Parkinson's Law. Induced demand was used to explain why, when they were adding traffic lanes or adding bridges, there seemed to be no reduction in traffic congestion. Public officials and economists had the rational thought of you know there's so much demand if we increase you know, the number of lanes on this highway or on this bridge or at a bridge that there's only so much demand. So the increase in supply will result in less congestion. But they found out that the opposite was true. Within a short period of time, the same level of congestion would return, and economists coin this induced demand. It's the same as Parkinson's law that demand expands to match its supply. The same is true with your personal finances. You probably have a time where you had a bunch of money and all of a sudden you're wondering where it went. Or you get to the end of the month and you're wondering where did all my money go? It's because of Parkinson's law. It's the ketchup bottle. 06:43 People are not alone in this thought process or this negative look on budgeting. A recent Gallup poll showed that only 33% of Americans use some sort of budget. Maybe that's why the average Americans broke. In a survey done by the budgeting app Mint, they found 65% of Americans said they don't know how much they spent last month. That's the average Americans outlook on budgeting and that person is probably broke. We know 80% of them are living paycheck to paycheck and the majority of them do not have a positive outlook on budgeting or even do it. But let's look at people that are successful with their finances. When we look at millionaires, 93% of millionaires say they budget every month and stick to their budget. Big difference opposite ends of the spectrum there. The broke American doesn't budget. The successful millionaire budgets and sticks to it because they understand what a budget is and what it can do. So let's look at what a budget is and what it can do. 07:53 A budget allows you to stay focused on your target, which are your financial goals. It gives you a voice in how you spend your money. It helps you identify your bad money habits and it gives you the power you need to take control of your finances. It is the first step you have to take in your journey to financial independence. If you want to succeed financially, you need financial goals. You need something to aim at, something to shoot for. If you don't have a target to aim at, you're guaranteed to miss the target. Having a budget is the tool you use to keep track toward your financial goals. It gives you the power to achieve those financial goals. It helps hold you accountable when you're going after your goals or when they may get difficult, and it serves to protect your hard earned money. Can you achieve your financial goals without a budget, as this myth would imply? Of course you can, but there will be waste. You will not achieve your full potential and the budget will allow you to eliminate waste and get you to your goals faster and help you reach bigger goals that you wouldn't be able to achieve if you were wasting money, in falling subject to Parkinson's law or if you were the ketchup bottle. 09:15 A budget doesn't have to be complicated. You know, at the beginning I mentioned you know some people think it's complicated or it takes a lot of time. It's as simple as tracking every dollar that you have coming in, assigning it somewhere and tracking every dollar going out, whether that be spending or investing or saving. That's all you're doing with the budget process. You're saying at the beginning of each month that I'm going to get this much money and this is where it's going. You're putting a place for it, you're assigning it a location. That way, you aren't following subject to Parkinson's law and just get to the end of the month and wonder where your money went. 09:58 So what are our action steps for this week? Well, first of all, if you aren't creating a budget. I want you to create your first budget Now. Give yourself some grace here. I typically see with my clients it usually takes about three months of budgeting to kind of get the hang of it. The first month is just going to be a guess, your best guess usually and you'll get to the end of the month realize you forgot stuff. But give yourself some grace. Month two gets a little better and then by the end of the third month you're typically kind of got the hang of it and you got this budgeting thing down and you're going to be pretty close on what you estimate at the beginning of the month to what your actual is at the end. 10:43 So go create your first budget. It's as simple as writing it down on a sheet of paper every dollar coming in and every dollar going out. Or there's tons of free budgeting apps online or some banks even offer some budgeting on their online banking. But pick some way that you're going to budget whether it be a free app online or through Excel spreadsheet or just writing it down on paper and try your first budget. If you have questions on the details of making a budget or just aren't sure how it works. 11:21 Feel free, go to our website at ruggedfinancialcom and go to the contact us section and send me a message, or you could sign up for a free consultation on our website, where we can kind of walk you through the details of how you'll make your first budget. You can also sign up on our website for our email list, where you're going to get some emails covering budgeting over the course of this month. That will give you a little more insight into it. So sign up for an email list there to make sure you're getting all the additional content that we put out in addition to the podcast. Thanks for listening. Now go out there and stop being the catch up bottle. If you found this episode interesting, subscribe to the podcast so you can make sure you get all the future episodes. Also, leave a rating and review so you can help us grow this podcast so we can lead more people to financial independence. 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