Some advice to a friend

“I’ve hit the end of my rope with budgeting. Both my wife and I have watched our budget with a close eye for years. But despite considerable increases in salary, month after month, we still spend more than we allocate.”

^ That’s a quote from an email I received from a new friend of mine named Josh. He was feeling frustrated, dispirited, and disenchanted with budgeting. Josh and his wife have been “meticulous when it comes to budgeting” and yet they were still hitting what felt like a brick wall as they tried to reach all their goals. I’ve heard the same kinds of things from a lot of people, so I thought I’d share my response with all of you.

Now, I only shared a brief excerpt above, but here’s a quick rundown of what Josh and his wife were struggling with:

  • Felt stuck using too many tools (spreadsheets and iBank)
  • Consistently overspending on a groceries, “miscellaneous”, and utilities
  • Their spending seemed to be increasing to match their income (despite best efforts)
  • They were struggling to set aside as much savings as they’d like
  • They couldn’t find a way to pay off their student loans any faster

In addition to those struggles, I picked up on a few things that Josh and his wife seemed to really be on top of:

  • They monitored their spending (but it sounded like it was retrospective)
  • They were putting money into their 401k
  • They were paying extra on their mortgage
  • They were sticking to their plan to pay down their student loans over the next year

Now that you’ve got the lay of the land, here’s what I shared with Josh:

Hey Josh,

First, stop and take a look at those two lists (the ones I just shared above ^). The first list doesn’t having anything too terrible on it, and the second one is full of admirable things you’re doing. Now, give yourself and your wife a big pat on the back—you guys are doing great stuff!

Now, after looking at these two lists I’ve got 2 major thoughts that I think could help you out: 1) you’re not being realistic with yourselves, and 2) you’re trying to do too much at once.

1. You’re not being realistic with yourselves

This one is the real key to what I’m seeing here. I’ve personally found it so easy to get hung up trying to create the perfect set of numbers that I think we should be able to hit every month. I look at the amount we’re spending on groceries, and I think: there’s gotta be a way to make this lower! I think this has to do with the idea many of us hold that “budgeting” means reducing spending to an absolute minimum—which isn’t really what budgeting is about. Budgeting is about spending your money in a way that lines up with what you value. It’s about making a plan that’s realistic, and then executing that plan.

Let’s say you wish you were spending $500/month on groceries, but you keep on consistently spending $600/month. At some point you’ve got to stop and ask yourself, do we really believe in eating less food, or less convenient food, or lower quality food? Because that’s what the $100 discrepancy is really about, it’s about what you and your wife believe about the food you buy at the grocery store.

My hunch is that you need to make a simple change—increase the amount you allocate for groceries so that it matches how the two of you really feel about your groceries. And by “really feel”, I mean the feeling that’s driving the behavior of consistently spending more than whatever you said you were going to.

When it comes to utilities, that’s a number that’s really hard to directly control—you don’t know how much you’ve spent until you get the bill. So again, you probably just need to adjust that allocated amount to match reality—be as realistic as you can based on your billing history.

Last thing on this point is “miscellaneous”. Anytime Katie and I have had a miscellaneous bucket, we’ve overspent it. We’ve learned that by having a “miscellaneous” bucket, we’re basically either not making detailed enough plans, or we’re avoiding making decisions about trade-offs. “Miscellaneous” means “we’re not making all the decisions that need to be made.” And in my experience, having a bucket like this only serves to reinforce our tendency to spend money without intention.

2. You’re trying to do too much at once

Paying off loans, paying down a mortgage early, investing in a 401k, and investing in additional retirement—each of these are a challenging undertaking done individually. But you’re doing all of them at once! Holy cow—color me impressed that you’ve managed to do so much at once for so long.

I believe that in order to have long-term success with this kind of stuff you need to focus, get one area taken care of, then take on the next. When we were paying off our debt, we stopped trying to save for anything else. Once we were debt free, and we were saving up our emergency fund, we missed out on contributing to a 401k (including the 6% match). Why? Because we’ve found that having sniper-like focus and clear priorities is way more effective than having a shotgun approach to our money.

If I were you, I’d put the 401k on hold for a bit, I’d stop paying anything extra on the mortgage, and I’d pause any efforts to save for retirement or anything else. Then with all that money I was putting towards those things, I’d pay down my student loans as insanely fast as I could. Once I had all my debt cleaned up, I’d make sure I had an emergency fund of cash saved up (4 or 5 months of expenses). With an emergency fund in place, I’d get into the rhythm of saving 15% of my income for retirement each month. Once I could steadily save 15% each month, I’d throw all the rest of my extra money toward paying down that mortgage.

One step at a time. When I’ve been focused on just one thing at a time, I’ve found the progress to feel much more tangible and significant. Instead of spreading out your progress across five goals, you get to experience concentrated doses of progress—and oh man, it’s really satisfying.


P.S. My friend Misha and I are getting really close with Scrimped (the budgeting tool we’re making), and you’re at the top of my list of people to get in on the first round. You’ll find that Scrimped helps with this stuff too, I’m excited to get it in your hands.

How about you?

If you’ve felt like Josh and I have, try applying some of this stuff to your own situation. Ask yourself these questions…I’ve shared my take on each of them above.

  • Are you trying to do too much at once?
  • Are you being realistic with yourself and your spouse when you’re making plans with your money?
  • Are you fooling yourself with a "miscellaneous” category?
  • Are you attacking your financial targets in the right order?

If you’ve got any specific questions about your situation, I’d love to hear from you. I promise to do my best to share my take on what I’d do in a given situation. Who knows, it might just help to talk with an objective 3rd-party.

Tune in next week when I’ll share what Josh ended up doing and how he paid off his student loans a whole year earlier than he thought he could!