Driving in the Fog

Have you ever driven your car in a dense fog? It's a white-knuckle experience. You're a bit (or a lot) on edge, progress is much slower, you might get lost, and you feel exhausted when you reach your destination. Or worse, you end up in an accident because you couldn't see where you were going. Driving in the fog is the worst!

Most everyone over the age of 16 can relate to my example. There's a financial version of this. It's called living without a budget. Living life without a budget is the equivalent of driving in the fog. You're a bit (or a lot) on edge, progress is much slower, you might get lost, and you feel exhausted when you reach the destination. Or worse, you end up in a financial mess because you couldn't see where you were going.

This analogy makes me think of one particular client. An awesome couple in their early 40s. When we started meeting, they were highly reluctant to budget. After all, they had done "just fine" for the 17 years before meeting with me. But by "just fine," they really meant average at best. They were stressed, tired, often got lost, and progress was slow. They even got into a few financial accidents. That's what happens when we drive in the fog. After much coaxing, I convinced them to give this budgeting thing a shot. Here's what happened:

After 1 month: They thought it was stupid and frustrating.

After 2 months: They weren't fans, but it gave them some clarity.

After 3 months: They felt in control, but still made some mistakes.

After 6 months: It transformed the way they handle money in their marriage.

After 12 months: It accelerated their progress five-fold, and they actually started to enjoy the process.

After about 18 months, I asked them to reflect on their journey. Here's what the husband said: "I don't know how I ever lived without one, and I can't image not having one again."

Budgeting in and of itself doesn't change our lives. Instead, budgeting is the mechanism by which we harness our hard-earned money and use it for what matters most. Paying off debt, giving, buying a house, sending our kids to college, retirement, transitioning careers, that dream vacation, ________ (your important thing here).

Budgeting isn't something we have to do, but something we get to do. It's not something that happens to us, but something that happens for us. It's a tool that allows us to remove the fog and cruise on the open highway. You'll never regret it once you try it!

Intensity vs. Diversity

Does it ever feel like there are too many needs and not enough money? You're not alone! There are lots of priorities vying for our money. We may need to buy a car soon. We'd love to purchase a house one day. We want to buy an engagement ring for the love of our life. That trip to Europe looks pretty fun. We have a medical procedure coming up in a few months. So many things!

How do we juggle all these priorities when there's more need than money? There are two primary lines of thinking: intensity and diversity. Intensity is just that, intense. It's the strategy by which we focus on one particular goal until we achieve it, then shift our focus to the next one. Diversity is the opposite. It's recognizing there are several priorities in life, and then spreading the dollars over each one. We make less progress on any given goal, but we're making progress on several. 

Let's use an illustration. Let's say we have $2,000/month of discretionary income. Also, here are the upcoming needs/wants:

• Car: $10,000 (needed by year-end 2024)

• Engagement Ring: $4,000 (proposing in the spring)

• Travel: $2,000 (needed by year-end)

• House Down Payment: $20,000 (not urgent)

• Medical: $500 (needed in January)

If we take a more diverse approach, we might allocate $400/month to each of these sinking funds. We'll slowly make progress on each. However, we'll fall short of the necessary timing on a few. 

If we take the intensity approach, we'll focus 100% of the funds on the next item on the list. It might look something like this:

• November: $500 to medical (done) and $1,500 to travel

• December: $500 to travel (done) and $1,500 to engagement ring

• January: $2,000 to engagement ring

• February: $500 to engagement ring (done) and $1,500 to car

• March, April, May, and June: $2,000 to car

• July: $500 to car (done) and $1,500 to house

• Aug+: $2,000 to house

We can refer to this as cashflow mapping. This is a common exercise we do to help clients prioritize, plan, and execute their goals. There's also a third option. I call it the hybrid approach. Instead of diversifying or putting 100% focus on the next item, we determine what monthly saving is needed to hit each goal by the deadline. Let's use the $10,000 car as an example. Instead of going all-in on the car in early 2024, we recognize we have 14 months to hit the $10,000 goal. This equates to approximately $715/month. So, instead of crushing the car with absolute intensity, we can meter it out while attacking other goals at the same time. 

This is a helpful tool to add to your arsenal. Definitely try it sometime, especially when the needs start stacking up. It can give us a lot of clarity and much more control. Personalize it to your needs and lean into your values. And as always, meaning over money! Always meaning over money.

To Coffee or Not to Coffee

We had a fantastic event last night in Los Angeles. I couldn't have been more grateful to be in that room. One of the points I wanted to drive home was the importance of each person spending their values. Not the values of their neighbors, family, co-workers, or the underlying culture. This seems obvious, but most people subconsciously spend other people's values.

To illustrate this, I used a story I've previously shared on this blog. A young woman comes to me, frustrated with her situation. She's a young adult with a good career, but she’s discontent. Ever since college, her dream was to travel. However, two years into her career, she still hadn't traveled.

She had a fairly expensive car (with hefty payments to go with it), so I asked her about it. She said she didn't really care about the car. Her parents told her she needed something "reliable," which led her down this path. She was also living in a fairly high-end apartment. Again, she said she really didn't care much about it. It's where many of her close friends live, so it seemed the right place for her.

While she believed she was spending her values, I showed her how her two most significant expenses in life directly resulted from her living her parents' and friends' values. Shortly thereafter, she sold the car and moved into a cheaper apartment, opening the door for lots and lots of travel (you know, her values).

When we got to the Q&A portion of the night, I asked the audience what expenses in their budget DON'T add value to their life. There were many good answers, but two women almost simultaneously shouted "coffee." One of the women explained how she often goes to Starbucks, and it's always a ripoff to her. It doesn't add nearly as much value as it costs her.

It reminded me of a post I wrote a few weeks ago about a woman who finds tremendous value in her 7-days-per-week $7 lattes. These women have the complete opposite opinion about the very same purchase. One says it's the biggest waste of money, while the other calls it the biggest bargain and value-add in her life.

This is the beauty of how we're all wired differently. It's also a perfect representation of why it's important to lean into our unique values. If we do, it drives meaning. If we don't, it causes discontentment. It's the same $7 purchase, but one adds and one subtracts.

Here's my question today. What's one thing you spend money on that doesn't add value to your life? For me, it's fast food when I'm scrambling from place to place. I love the occasional fast food meal, but I get absolutely no enjoyment from it when it's done out of stress and hurry. I need to cut those from my spending.

That's my answer. What about you? I hope you have a meaningful day, living in accordance with your values!

Cushion is Key

I'm notorious for pitching counter-cultural and seemingly contradictive ideas to my clients. Ideas such as:

• Stopping the use of credit cards makes our finances less risky and more streamlined.

• Creating more savings accounts makes our financial life simpler. 

• Spending more on our wants (with less guilt) creates better control and restraint on our finances. 

Another seemingly contradictive idea came up this week while I was on the phone with a client. We were discussing a separate issue when he said, "Travis, you were right." Whenever someone says, "Travis, you were right," I'm all ears. It always beats "Travis, I told you so."

The idea in question was my insistence that if we do budgeting the right way, we'll never again care what day a paycheck is coming or what day a bill is being paid. For millions of Americans, one of the biggest tension points in their finances is the fear x bill will be paid before y paycheck arrives. Most believe the answer is to make more money. I can testify this is entirely false. It doesn't matter how much money we make if we don't do it well. I've worked with clients making $25,000/month who have this problem, and I've worked with NFL players making 10x this who have this problem. 

If the solution isn't more income, what is? There are two pieces. First, we need a cushion in our checking account. When the month begins, we must have a certain amount in our checking account. Each family is different, but a cushion is key. Some families elect for a $2,000 cushion (where my family traditionally stands), while others aim for $5,000, $8,000, or even $10,000. I've even worked with one client who kept a $250,000 cushion (it's a long story with a fun ending). 

This money isn’t to spend….it’s to hold. This cushion removes most of the fear about the sequence of transactions. If there's an appropriate cushion, it doesn't matter if two large bills come out before that next paycheck. Going from $3,000 to $1,000 is a nothing burger compared to going from $500 to -$1,500. 

However, that's just half of the remedy. Here's the other half. We need to be intentional with our income. For example, if your family has $8,000 of income arriving this month, you need a plan to spend/save/give $8,000. Not more, and not less. Here's how the math works.

Beginning Balance: $3,000

Income: +$8,000

Spend/Save/Give: -$8,000

Ending Balance: $3,000

If done well, you'll end the month with roughly the same amount you started with. Along the way, you'll have funded your needs, wants, giving, saving, and investing with ALL your income. Then, when the next month comes around, you'll get to do it again. If we play this out for 20 years, you'll wake up on the first of the month with the same $3,000 cushion. 

Whoalla! If you follow these two steps, you'll never again think about timing. It's so simple, yet so powerful. Please let me know if you have any questions. I'd love to help!