Stop wasting countless hours budgeting - find out how much additional you may be able to save in 15 minutes or less.

• The goal of a budgeting exercise (01:23)
• 36% ratio: see where you stand (02:08)
• Do something with your extra savings (06:43)

Quote for the episode: "The goal is not to account for every penny. It is to make sure you're saving a good amount towards yourself and keeping within your means."

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Welcome to the Enjoy More 30s: Family Finance

podcast, the only podcast dedicated to making life more

enjoyable for young families by hitting on the financial topics

that tend to weigh on us, stress us out and distract our focus

from simply enjoying life.

Welcome to the fourth episode in this "Your

Money Multiplier" series, which is entitled "36%: The Golden

Cash Flow Ratio". Today we're going to cover what you need to

know when it comes to what a budgeting exercise should

actually accomplish. And what you can do to perform your own

in 15 minutes or less. Growing up, I was always a bit of a slim

kid. And so when I got into high school with sports, and you

know, just being honest, girls and everything else, I wanted to

be bigger, more muscular like a lot of boys do. You would hear

talk of eating this special diet or taking the supplement or

whatever else. It was always a lot of work, took a lot of time,

and at the end of the day was not sustainable long term. This

is kind of how it is for anyone that has ever tried, you know, a

diet or anything kind of in this realm. Most are too time

consuming and complicated to maintain long term. At the end

of the day, pretty much everyone can agree on a quick, simple,

universal version. If you put lots of good stuff into your

body, put as little bad stuff into your body as possible, and

work out to some degree, you'll probably be in pretty good

shape.

What you need to know is that scary words like budgeting and

cash flow work much the same way. The most logical way to

approach it is to break down everything you have coming in,

what you have going out, being meticulous down to the very

penny. And the end result is that there's way too much work

to maintain- every month is different. And then Christmas

and a sick dog bill just kind of blow the whole thing up anyway.

I'm here to tell you, though, that you don't need to do it

this way. And maybe surprising to hear, but the goal is to not

actually account for every penny when it comes to a budgeting

exercise. It's to make sure you're living within your means

and saving at least something towards yourself every month.

What you can do to accomplish this is to utilize a 36% ratio.

This is the same ratio that is incorporated into how a bank

evaluates you for a mortgage. Our trademark tool, that we call

Backdoor Budgeting, uses this same approach that we use in

meetings with clients. So how it works is kind of like this. If

you were to apply for a loan at a bank, they would focus on just

36% of your gross, so pre tax, monthly income. The other 64%

they would pretty much just ignore. They say that this is

the portion of your income that goes to expenses everyone has.

So think groceries, gas, cell phone, TV, stuff like that. For

the 36%, they would focus on just the items that are specific

to you- meaning some people have them and some people don't. Some

people have a car loan, some people don't. Some people have a

mortgage, some people rent, some people save into a work plan and

some people don't. So basically, it includes your housing

payment, mortgage with taxes and insurance or rent, loans and

debts, think auto, student, or any credit cards that you carry

forward month to month with partial payments, so if you

don't pay your credit cards off every month, and then what you

already save every month.

So let me give you kind of a simplified example. If I make

say $10,000 a month gross, so again, before taxes. Then 36%

comes out to 3,600- 36% of 10,000 is 3,600. Pretty easy so

far. This is the amount we're focusing on for 'specific to me'

expenses. If I have a mortgage of $1,600 a month, and a car

loan of $500 a month, I subtract those and now I'm down to $1,500

a month- $3,600 minus $1,600 for the mortgage is $2,000. $2,000

minus the $500 for the car loan is $1,500. Not too bad still

right? If I save around $1,000 a month into my 401(k) already at

work, now I take that $1,500, subtract that another $1,000 and

I'm down to $500. So with no other loans, or unpaid credit

cards that carry month to month, this is what I should have as a

surplus. There it is. Done. You have a starting point. That took

way less than 15 minutes actually.

This can be used for a flexible investment account as described

in the earlier "Like Super Gymnast Flexible" episode. It

can be used for college savings, for a home improvement, or

another home purchase account, for more retirement savings-

anything. You now have a starting point. If you find this

is too high or too low, you can just change it the next month,

no problem. The hardest part, though, is now done for you. You

have a starting point of what most people, most families in

your situation, using that standard ratio, should be able

to save additional. If the number comes out negative when

you do this exercise, then I would not be surprised to hear

that you have growing credit card balances and trouble paying

everything month to month. This is your likely deficit that

probably needs attention in that case. Now, you know, on this

other hand, roughly how much you need to free up by lowering your

savings, maybe refinancing. These parts may need an advisor

to maybe give you the best course of approach for, but

either way in way less than 15 minutes, you have a great idea

of where you stand. It was quick, painless, and puts you in

a position that you can take positive action. That's the most

important part of all of this.

So when we're talking about budgeting, you know, as kind of

a recap for today, the first thing is to rethink the goal of

scary words like budgeting. The goal is not to account for every

penny, it is to make sure you're saving a good amount towards

yourself and keeping within your means. That's it. Second, use

this 36% ratio to quickly get an idea of where you stand. Gross,

so pre tax income, minus those expenses that are specific to

you, and any savings currently being done, and you're done with

calculating a starting point. Third, take action. Make a

conscious choice to now do something with that extra

savings. Even if it's just, "I'm going to move it into this

separate bank account every month to see if I can actually

do this", even that is fine. Make some positive step forward

as a first step. And if you're on the negative side, make sure

to look at taking action to balance out your cash flow. If

you have rising credit cards every month, decreasing bank

account every month, that needs attention now. It is not going

to fix itself, it will only get worse. It's never smart to save

at the expense of mounting credit card debt. It's kind of

like you know swimming backwards, so to speak. Put

money into my 401(k) but I'm putting an equal amount onto my

credit card because I can't live, that equation isn't going

to balance out for you long term.

So as always, if you are wanting help, please remember to check

out the 'Ask Joe' section on the show's website- enjoy more 30s

.com, that's enjoy more three zero s .com and thanks very much

for tuning in today. Please remember if you enjoyed this

episode, please make sure to subscribe and review us on Apple

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the rankings and give more people like you an opportunity

to find it, and hopefully help them in the ways that it's

helping you. The next episode is titled "Stocks Lead, Don't

Follow" where we will cover what typically makes the stock market

react and the mistakes most investors make after the fact by

trying to follow along. Thanks very much as always for

connecting today and looking forward to doing so again soon.

The conversations on this show are

Joe's opinions and provided for general information purposes

only. They do not constitute accounting, legal tax or other

professional advice for your specific situation. You should

always seek appropriate advice from a financial advisor,

accountant, lawyer or other professional before acting upon

any content or information found here first. Joe is affiliated

with New Horizons Wealth Management LLC, a branch office

of TFS securities Inc and TFS advisory services and sec

registered investment advisor member FINRA/SIPC.