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Creating Wealth Episode 1: Budgeting

Updated: Apr 25


Creating Wealth is an in-depth conversation between Bill Taber, an experienced financial advisor, and his millennial daughter about personal finance, investing, and financial planning.


Episode One: Budgeting - When you're new to budgeting, it's hard to know how to get started. Bill and Anastasia provide insight in how to approach budgeting if you're new to the practice, or offer a refresher for more experienced budgeters.



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Anastasia: Welcome to Creating Wealth, I’m Anastasia.


Bill: Hi, I’m Bill.


Anastasia: We are starting a podcast on personal finance. We also happen to be father and daughter. My dad has been in the financial advisory business for decades, working at other companies, until founding his own investment advisory business in 1998. I feel like the things I have learned from my dad have set me up in many ways for financial success. I have also heard lots of people, especially millennials, wonder why personal finance isn’t a thing that is taught in schools. We learn, and maybe unlearn, how to solve for x, but we don’t know how to budget, we don’t know how to do our taxes, how to save, and live a financially abundant life. We hope this podcast will help fill in some of those gaps for you. We welcome our listeners to ask any questions they want to know the answers to, and maybe we’ll base a podcast episode from it. Please enjoy!


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Disclaimer: The views expressed today are our own, solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular investment strategy. The views are subject to change and are not intended as a forecast or guarantee of future results.


Anastasia: Ready to start?


Bill: Yep, ready to go.


Anastasia: Alright, so today we’re going to talk about budgeting. I would like to start off imagining, let’s say that you’re fresh out of school with your first full time job, when it comes to budgeting, what do you think should be the first focus?


Bill: The very first thing that would be important would be to establish the habit of writing expenses down or putting it in some sort of software like Mint.com or Quicken.


Anastasia: Okay, and so what do you think is important about writing it down, recording your expenses?


Bill: It’s incredibly important for self-awareness. It’s very easy to go out and spend money on something and then even forget a few hours later that you spent the money or how much you spent. So if you have some sort of device that you can record it at the point of sale or if you can get a paper receipt and take it back and enter it into your system at some point in the future, that way you make sure everything is recorded.


Anastasia: Okay, well, that’s funny because I feel like millennials probably, you know, most of the time if someone hands us a cash receipt we’ll just throw it in the garbage. (laughs)


Bill: Well, you have a smart phone obviously, is there some way of making a notation like in a program, like a note to yourself?


Anastasia: Yeah, I mean I track everything through Mint just because it uploads all of my expenses through all of my accounts--whichever accounts that I choose to sync up with it--and then it automatically categorizes it for me but sometimes those categories are just guesses so I have to go in and make sure that this purchase that I made is an entertainment expense is actually categorized as entertainment. But yeah, I use electronic means of tracking my expenses. Although I would say that you can do it using pen and paper, right? You can use it doing excel, if you like excel.


Bill: Yeah, whatever best suits your habits. But it has to be something that you constantly do, because without recording or writing down in some manner your expenses you have no way of knowing exactly where all of your money goes. That’s a critical part of the budget process and the ability to control your expenses. The key to budgeting is simply that you spend less than what you earn. If you had to boil it down to one thing, it would be that, which is if you earn a dollar don’t spend more than 85 cents. And how do you make sure you don’t spend more than 85 cents? You have to had tracked it.


Anastasia: Yeah, I do have to say that I have friends--the ones who don’t track their expenses are the ones who: “out of sight out of mind.” (Laughs) They don’t want to know how much they spend on certain things because they know it’s not great, so they avoid the practice. So what is something you think people don’t realize about budgeting?


Bill: That it’s not as hard as it seems. It’s habit, and it’s a habit that’s developed over time. No one’s perfect at it when they first get started, but once they continue to do it over a period of time, they can see how they’re spending money and they become aware of how they’re spending money. And then that kind of filters through to actually the little voice in the back of your head when you’re at a Walmart or the grocery store or something and you’re thinking of buying something, and you realize that doing that might cause you to spend more than what you would like to spend. It winds up being a sense of control.


Anastasia: Yeah I agree with that. I think it’s a continual process and when you start out at it you won’t be very good at it--it’s like anything. It’s kind of like starting an exercise regime. Like I noticed it’s January 2020 and there’s suddenly a lot more people at my gym than there was the past couple of months. It’s very much just a practice that you have to stay on top of. You know, I look at mine every day, that might be too much for some people, but I like to know exactly where my money is going. Setting up a monthly budget I think is very helpful. With budgeting, there’s this rule to pay yourself first, so do you want to talk about what that means?


Bill: Well, it means that if you’re employed by someone that they give you a paycheck and there’ll be deductions from that paycheck for federal taxes and state taxes and various other things. You need to basically take what is left, which is the after tax payment, or the “take home pay,” and develop a budget based off of that income coming to you and making a decision that you’re only going to spend a certain percentage of it. And I would recommend for—


Anastasia: --So what do you think is a good--


Bill: --A good percentage? When I started my career I said to people, “In your early twenties you should be saving at least 10 percent of what you make.” I think given the uncertainty of maintaining payment levels of social security going forward, which is way off for millennials, but it is a big consideration because a part of your paycheck is going now to pay for social security benefits, that it’s important to save more than 10 percent, I would say 15 percent. And so if you have a paycheck that gives you $2,000—let’s make it easier—a $1,000 net payment to you, you’re going to decide ahead of time that $150 of that $1000 is going to go towards some type of savings and 85% or $850 will go to the rest of your expenditures. That $150 of savings, initially getting started, should probably be an emergency fund, so that you have cash. Basically, you don’t have to borrow, in case your car breaks down or you need new tires, or you have an appliance that needs to be replaced. Then, it can also go towards retirement planning. If your company, particularly, if you work for a company that has a 401(k) plan, which is usually a match, it’s absolutely critical that you put in enough money into that plan to receive the match from your employer. It’s been equated to finding money on the pavement, or free money. If you don’t make the contribution to the 401(k) then you don’t get that match. So that can be a part of that 15%. Over time, as you have contributed, or are contributing to a retirement plan in your early 20s and you have a certain amount of emergency funds that have been established, then you can consider putting some of that towards investments. But I think one of the major things that’s on the minds of millennials today is, “How am I ever going to become a homeowner?” And so, the investment piece of that may be put off a while, because with that 15% you’re looking to have an emergency fund, you’re looking to put money in to get your match on the 401(k), and you’re looking to make a down payment on a house. It’s not easy, but it can be done. And it can be done by virtue of you understanding where your money goes and being self-aware.


Anastasia: Right, so it all begins with budgeting.


Bill: Absolutely.


Anastasia: Once you’ve figured that out. (Laughs) Right, once you’ve figured that out and you’re practicing that, and doing that regularly, you can meet any savings goals that you have.


Bill: Yes, yes, and part of the budgeting process is deciding ahead of time, perhaps for the year of six months or whatever, what are the most important things that you want to do. I mean budgeting doesn’t have to be draconian. You can schedule fun things to do with your money, you just have to make sure that you’ve set the money aside for doing it.


Anastasia: Right, you don’t—you want to spend first and then think about it later.


Bill: You want to think first and then spend later. (Laughs)


Anastasia: (Laughs) Yes, that is what we’re advocating. (Laughs) Alright, and I guess lastly, in terms of budgeting, I also wanted to mention when you’re actually coming up with the budget—this is for someone who’s never formed a budget before—you’ll want to start with needs, like housing, transportation, utilities, food, clothing…unless, clothing is a want, sometimes it’s a want. (Laughs) Then you move onto wants from there, if you include entertainment, travel—


Bill: Yeah I’d say probably a good precursor to being able to successfully budget over a long period of time would be to spend a period of, perhaps, three months and simply develop a the habit of recording or writing down everything that you spend. Because once you’ve done that, then you can look at that objectively, analytically, and categorize those expenditures. So based off what you have been spending for a number of months you can then see, “Well, I’m typically spending about this amount of money for food, or this amount of money for rent, or this amount of money for clothing,” and that can form the basis for a new budget.


Anastasia: So that’s a really good idea because I’ve actually sat down with a few friends and helped them figure out, “How do I even start budgeting?” And a lot of times what we’ll do is we’ll upload all of their financial accounts to those websites, the secure websites, (laughs). We will look through and just start seeing what they’re spending their money on and what they’re averaging and through that process you find out what is their priority and where are their areas of improvement. I remember one of my friends, we went through his budget and he realized, “Wow, I did not realize I spend so much money on eating out.” And realized exactly how much that impacts his savings rate. Because if you go to the grocery store, you can get several meals there for, like, the same price as going out to a restaurant once.


Bill: Yeah, and then in the process of doing that, having looked at the cost of going out to eat twice as opposed to some other priority that you’ve set that’s important to you, then you can say, “Well, yeah, it’s more important for me to have one restaurant meal or no restaurant meals just so that I can simply meet that higher priority.”


Anastasia: Right, and that’s where it circles back to budgeting is a continual process of you figuring out what it is that works best for you.


Bill: Completely.


Anastasia: Awesome, well, do you have anything else you want mention about budgeting?


Bill: Hmm, can’t think of anything.


Anastasia: Have any cats come by since you started recording? (laughs)


Bill: I closed them out of the room. (laughs) I was in the process of recording my voice once and suddenly there was a “meow” and I thought, “Hmm, not too cool.”


Anastasia: (laughs) So you don’t want Nala just, like, meowing her head off in the middle of us recording this?


Bill: She’s banned from her domain right now. (laughs)


Anastasia: (laughs) Yes, you are in her territory, that is her room. I think this works very well as a beginning podcast.


Bill: Very good.


Anastasia: Thanks Dad.


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Anastasia: If you liked our podcast, please recommend it to your friends, leave us a review, or drop us a note. Thank you very much for listening and joining us on the path to financial abundance.

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