Ever wondered why some people achieve financial freedom while others struggle despite having similar incomes? Uncover the secrets behind sustainable budgeting in our latest episode featuring insights from Scott Galloway's "The Algebra of Wealth: A Simple Formula for Financial Security." We promise you'll walk away with practical strategies for turning your financial habits into a roadmap for success. This episode highlights the critical role of upbringing and surroundings in shaping financial behavior and how small yet frequent expenses can derail your budget. Justin Gaines sheds light on common pitfalls and emphasizes the importance of continuous tracking and adjustment for effective money management.
Amidst economic uncertainties, maintaining consistent financial habits is more crucial than ever. Discover strategies for preparing for future opportunities by reducing debts and keeping your savings on track, even if it's just $10 a month. We'll also discuss the role of financial education—or the lack thereof—in traditional schooling and how much of our financial habits are inherited from our parents. Learn why a systematic approach to money management, including budgeting and expense tracking, is essential for long-term financial security. We aim to inspire a healthy obsession with money management to prevent financial instability and build a solid path to financial success.
Ever wondered why some people achieve financial freedom while others struggle despite having similar incomes? Uncover the secrets behind sustainable budgeting in our latest episode featuring insights from Scott Galloway's "The Algebra of Wealth: A Simple Formula for Financial Security." We promise you'll walk away with practical strategies for turning your financial habits into a roadmap for success. This episode highlights the critical role of upbringing and surroundings in shaping financial behavior and how small yet frequent expenses can derail your budget. Justin Gaines sheds light on common pitfalls and emphasizes the importance of continuous tracking and adjustment for effective money management.
Amidst economic uncertainties, maintaining consistent financial habits is more crucial than ever. Discover strategies for preparing for future opportunities by reducing debts and keeping your savings on track, even if it's just $10 a month. We'll also discuss the role of financial education—or the lack thereof—in traditional schooling and how much of our financial habits are inherited from our parents. Learn why a systematic approach to money management, including budgeting and expense tracking, is essential for long-term financial security. We aim to inspire a healthy obsession with money management to prevent financial instability and build a solid path to financial success.
Welcome to the Balanced Blueprints podcast, where we discuss the optimal techniques for finances and health and then break it down and create an individualized and balanced plan. I'm your host, justin Gaines, here with my co-host, john Prober. In this episode, john and I are going to not talk about the numbers. Talk more about the habits and the behaviors that allow for your budget to actually work for you and allow you to find a path to financial freedom. Thank you for listening and we hope you enjoy. So I just started this new book. I just started listening to it a couple weeks ago Hopefully this doesn't screw up our recording, because I'm going to switch over here to Audible to see the title of it and it was one of these things that you know because I listened to and read so many books.
Speaker 1:
I was at that point where everything on my wish list you know wish list, my upcoming, like read list, one listen list, whatever it is on audible uh, all those books, like they just weren't speaking to me and so I was like, ah, you know I got. I had two credits that I needed to use. And then this recommendation came up. I was like, oh, that's, you know I got. I had two credits that I needed to use and then this recommendation came up. I was like, oh, that's interesting, let me, let me give it a listen. I'm so glad I did. I definitely I'm going to incorporate this book when I work with clients because it completely foregoes the charts and the numbers and all that stuff and just gets down to the basic concepts, behaviors, habits and education around the topic. It's very easy to jump into the numbers and say, oh, this is the percentage and the ratios, but this just explains the background behind where most people get their financial education, which is their parents and the people that they're around consistently, and then how that domino effects into people's financial budgets and long-term habits. So the name of the book is the Algebra of Wealth A Simple Formula for Financial Security by Scott Galloway.
Speaker 1:
Like I said, it foregoes the numbers and it's interesting because he'll even say, like you know, if you're well-versed in financials, you can skip this chapter. You don't have to listen to this or you don't have to read this. Interesting because he'll even say, like you know, if you're well-versed in financials, you can skip this chapter. You don't have to listen to this, or you don't have to read this. And I still listen to it just because I think it, you know, listening to the basics.
Speaker 1:
I think I get this from the sports background, where every sport you know, no matter what level of sports you play at, there's practice sessions that you have that are specifically on the basics, because you're going to touch something, you're doing wrong or you'll notice little tweaks that you need to make, or something will just look different for you. And that's definitely applied in this chapter, which got to the topic of budgeting, where I've had clients say we sat down, we do the budget and then they're like oh, oh, this budget isn't working for me and it always like blows my mind because I'm like well, we sat down and we wrote everything out and you told me what your expenses were. You told me what your income was. So what number is wrong is what my mind always goes to. It's like what, what expense did we leave out? Okay, let's grab your banking statements, let's do an audit, let's see what you're spending money on.
Speaker 1:
That you're not that you didn't disclose or that you just it's not even I don't want to say it in the sense of you didn't disclose and it's just the nature of there's clearly some extra expenses that you're not seeing or that you're not used to seeing, because it's $10 at Starbucks every other week or twice a week instead of once a week, and you said you know if it was every other week.
Speaker 1:
You said you don't do it at all, or you said you do it once a week and it's really twice a week, every other week or every week, and so those little incremental adjustments cause issues down the line long-term, and some of that has to do with the timing of the calendar that we follow, because most people are paid every two weeks. But even if you're paid every week, every week, payments have less of this issue. But if you're paid every two weeks, some months you have two payments a month and some months you have three payments in a month, and so the timing of, like your rent or mortgage payments typically will offset and mess up your cash flow if you're not following this really closely.
Speaker 1:
So you need to know what payment cycle is the rent coming in at and which payment cycle are the payments coming in at to line those up, because for a lot of people that rent, payment is going to take up a good portion of one of your paychecks, and so if you're only having two payments in a month.
Speaker 1:
You're living off of one and then you're covering your housing expense off of the other. But what a lot of clients do, and I didn't even realize until I was listening to this book. But we sit down and we do a budget, we make a budget, but that's only half of the equation, Because that's just the theory. Because that's just the theory, that's just the concept. Is that okay, this is the amount of income, this is the amount of expenses. If you don't ever actually go back and track your expenses in each one of those categories, you're most likely going to be off in one of those categories because of those extra expenses. Or maybe you thought I fill up my gas tank once a week at $40 a tank, so I need $160.
Speaker 1:
And it's not really every week. So let's round that down. We'll say $150 a month for gas, and then you take extra road trips. That week or that month you go on a long one-day trip or two-day trip with some friends and you decide that you're going to be the one that drives, and you do that once a month or twice a month and you don't think about it. But now you had an extra fill-up of your gas tank. So now your $160 actually was $200, but because you weren't tracking it, you still stayed at $150, and then for the next month you still stayed at $150, and you never readjusted for that extra $40, $50 of expense.
Speaker 1:
And so the actual habit of OK, this is a budget, but each month we also, or each pay cycle we also need to go in and mark down what did we actually spend, what did we do here, what did we do there? And as I'm reading the book, there are little habits that I'm doing that I wasn't doing before, wasn't as religious about that. Now achieving those goals becomes a lot easier because you're seeing where your deficiencies are, where you're overspending, where you're underspending, and then you can reallocate that budget. But a lot of times people aren't doing the work after they create the budget. If we created the budget, we're all set. Now we don't track the expenses. But tracking the expenses is almost more important than the actual budgeting piece itself.
Speaker 2:
Yeah, I think we've touched on this before with when we were going over. What is it?
Speaker 2:
net zero or yeah, net zero budgeting yeah, and I I mentioned before that that's usually how I did did it. But I kind of like the credit card method where I want to switch to that because I feel like that's more on the topic of this, because, like I said before, one time things would come up that you wouldn't account for in your budget when you make it and they're hard to account for them because they're different. It's not like even like the example you used, if you take consistent road trips but don't think about them because they're just these events coming up. But, like for me it was like a one time thing here and then a one time to get a completely different area. So it's hard to even account for that because there's literally no routine.
Speaker 1:
And I think you should do both together. So you should have a net zero budget and then use the credit card method to borrow from different categories, but make it so that and even for my budget, like I have, I have my debt obligations and like fixed payments, you know your everything that has to come out of your bank account you can't pay with a credit card your life insurance, your mortgage, your, you know your other insurances, any other loans that you have, your credit card payments.
Speaker 1:
But, then I make the credit card which covers all of those other expenses one large item, and then I actually create a sub budget for the credit card which covers all of those other expenses one large item. And I actually create a sub budget for the credit card the credit card I'm allowed to spend we'll say $2,000 a month on and then I break out what that $2,000 a month goes to. So then I can track it in each category. But, like you said, now you can borrow from each category as long as the total stays below the $2,000. Because you can borrow from each category as long as the total stays below the 2000. Because you can borrow from each category and say, ok, I spent less than gas this month, so now I can go buy, you know, splurge on some clothing or on a night out, or take an extra night out for date night or go to a little bit nicer restaurant because we didn't spend in these other categories towards the end of the month. And I think it allows for the ease of recording.
Speaker 1:
But again, you've got to make sure that. Okay, I said 3 000, but am I or 2 000? Am I actually hitting that 2 000 number or am I going over and hitting 3 000 and then causing an issue in that budget or 2100. You know a thousand dollar difference is going to be significant in your budget. But building that habit of actually going in and tracking, that's when you'll start to see where you're overspending or where you're. You know you don't think you eat out that much and then you realize, oh, I don't eat out at sit down restaurants that much, but I do stop on my way home and grab fast food because I don't want to have to cook that night. So it's only 10 bucks, only 15 bucks. Let me just stop grab it and then not have to cook that night. But that offsets your entire budget throughout the week or throughout the month.
Speaker 2:
So are those from what you've read so far or if you've finished it, are those mainly the tips and tricks is just being a lot more diligent.
Speaker 1:
There's a lot in the book. That's one of the big ones that stuck out to me. The other big one was and we've talked about this before as well where the habits associated with maintaining your finances are a muscle and you have to build that muscle. So one of his recommendations which, if you have the room and the budget, I do think it's a good thing is he believes that if you're saving, if you're trying to build a savings which most of us are even if you just take $10 a month, $5 a paycheck and put that into a savings account, yes, it's not going to build quickly, but what it's doing is it's creating the habit that a portion of your paycheck goes to saving every single month. And so, even for me, I'm in a period of my financial journey right now where I think in the next you know two to three years, the economy is going to pull back. A lot of things are going to come up for sale. There's going to be opportunities to acquire assets at a reasonable price and move into those. So I'm trying to deleverage myself, reduce my debts in order to be able to take on more debts in the next two to three years. So I haven't been putting as much money towards savings.
Speaker 1:
But after I read this I was like, no, that's a really good point. Continue to have that income stream open or that savings stream open. Just set it at $10 a month and then, as you adjust your budget, you're just going to move more money into that savings category. As you eliminate some of these expenses, there's an income stream that goes into the stock market investment account and with that, as you have more money, you can put more money into that category. But having that income stream open or that saving stream open allows you to have the muscle build of being used to doing it, and that allows for that pathway Instead of having to go in and like, oh, now I got to figure out a savings account and I have to figure out how to automate this or how to set it up, and there's all the hurdles that you have to go through if you have that stream open.
Speaker 1:
It's just a matter of adjusting it, and you're already used to doing it, so it builds that that habit much faster. He's a big proponent, too, of using apps like acorn that round up every transaction you have and then put that change into savings. Because, again, his argument is that that's not going to save your entire financial outlook, but it is going to build that habit. It's going to allow certain things to just start to be put in the way and then eventually, over time, you will have something that's amassed into a sizable, either investment or savings or whatever the case may be, but it's about building those habits. So a lot of the topics that are discussed are topics that we've discussed, but it might be taking it from a different perspective and it makes it very simple, very cohesive and it's just education focused. There's no numbers, it doesn't drag you into that, and it also just justifies or explains what causes the lack of financial education in the world. Really and he even brings up that high schools, colleges unless you go into a business track in college, the amount of financial education we have in our educational programs is very minimal, and so the vast majority of individuals learn their financial habits from their parents, and he argues that the reason why the rich get richer has some to do with economics, but has more to do with the education that they receive from their parents. If you have wealthy parents, you get a wealthy mindset around money, and when you have less affluent parents, you get a less affluent mindset around money, and so it starts to compound. Those habits continue to build off each other, because if you're come from a less affluent family and you're used to overspending on stuff or you don't have the budget, then when you have a little bit of money, you can go and splurge and use that extra money to have some enjoyment short--term, immediate enjoyment because you weren't able to have it for the past year, two years, three years, ten years, whatever the case may be. And so what this is saying is that that's not what you should do. Okay, take 40% of it and go do something fun. Take 60% of it and put it towards savings, put it towards building towards that retirement years and just breaking down those different elements that are tricky to navigate and tough to hear.
Speaker 1:
But I think one of the biggest things that I always hear with my clients that are less affluent or come from a less affluent upbringing is that the goal is to get to never thinking about money and that is just so wrong and so not true.
Speaker 1:
I even used to be in that mindset of like, let me just amass the amount of money, and most amount of money I can, and then that way I won't have to ever think about money. And the more and more I learn about finances, the more and more I realize that if you want to get into a secure position with finances, you need to have a healthy obsession with money. You need to have a system to track it. You need an outline of, you know, a roadmap, which is your budget, a system to track it and make sure that you're on course, which is what we talked about today of tracking those expenses, keeping on top of those things. And then you need the accountability piece that if you're falling behind, it's not okay, I'll just do better next month, it's no, I'm going to readjust next month, replenish what I overspent by, reduce my budget next month by those numbers and then get back on course as quickly as possible. You'll never get to a point where you don't think about money. The only outcome from not thinking about money is being broke.
Speaker 1:
Spending it all yeah, just spend it. All, it's just. If you don't give your money a job, it will magically disappear on its own give your money a job, it will magically disappear on its own.
Speaker 2:
Find a job for someone else, um, it's. The other thing I like too is it's just one of those things of like. Even if you look at small health habits you think you're too big for them or you think you're above them, and it's not about that. Like you said, it's just so good to keep that muscle going, like even for you. The difference, of sure, when you pick up your savings again, if you completely stopped it, it might not be that hard for you versus someone else. But, like you said, $10, 10 cents, it just keeps that muscle alive versus it completely withering away. So it's hard to remember that so it's hard to remember that.
Speaker 1:
Keeping that flow of consciousness of I need to do this.
Speaker 1:
This is something I need to be doing. Okay, let's continue to put it there. And if you put it into a high yield savings, like we suggest and like what I do, you keep in front of inflation, because if you just have it in a checking account and it's making 0.25% and inflation's at 2.5%, 3 percent, you've lost 2.75 percent of that money, whereas and this is part of what the book does to it, like it gives you the education on these topics that if you hit, if you're in the high yield savings, like both of us are, you have a five percent rate of return, but your real rate of return after inflation is really 2% if inflation's at 3%. So you're really only making 2% on your money above and beyond inflation, which is why you call it the real rate of return, because your purchasing power, if you keep pace with inflation, is the same. You can buy the same amount of stuff. If you don't keep pace with inflation, your money isn't able to buy the same amount of stuff.
Speaker 2:
Right yeah. So, it gets into that piece.
Speaker 1:
And then part of the reason why you want that saving stream open is there's two ways that you can go about trying to amass wealth higher rates of return or larger amount of money making that rate of return. Larger amount of money making that rate of return, because if you take $1,000 and you make 50% on that, you've made $500. But if you take $100,000 and you make 5% on that, you've made $500. 5% is much more obtainable than 50% consistently year over year, and we're doing it in a high yield savings right now because of the interest markets that we're in. But the difference in how much money you're getting out of it is the amount of capital that you have in there, and so slowly putting away more money and building that capital up is why you're able to then generate a larger sum of money off of it, but taking it on less risk yeah, yeah, it sounds like a a good reminder of the basics, but a great book for beginners as well yeah, I think personally I've.
Speaker 1:
there's a financial advisor that I work very closely with and I've told him the same thing. I was like you should buy 15 to 20 of these books, have them in your office and the people who are very interested in learning about it and actually getting themselves to a stronger financial position should read this book. Yeah, especially if they you know if you're building a budget with this client or if you're listening to this podcast and building a budget. I would, 10 out of 10, recommend reading this book, grabbing a copy of it and just digging into it. But it's going to be the best $15 to $20 you've ever spent to start your financial education journey, because it breaks down the basics. It gives you a fundamental understanding of how markets work, how budgeting works, how money works, and then from there you're going to be able to position into more in-depth financial planning.
Speaker 1:
But I have always said, and will continue to say, that your financial plan should be very basic. You should be able to explain your financial plan to an 8-year-old and they should be able to understand it. If you're getting into a complex financial plan, it should be because you already have a solid foundation that you're building off of, and you should still be able to explain your complex plan to an eight-year-old in a way that they understand it, and it's because you have the mastery of that financial plan and so you're able to distill that into something that an eight-year-old can understand. You cannot explain your financial plan to an eight-year-old. It is too complex and you're probably being taken advantage of.
Speaker 2:
Fair. Thanks for listening to our podcast.
Speaker 1:
We hope this helps you on your balance freedom journey.
Speaker 2:
Please share your thoughts in the comments section below.