Billy Hatton, CFP®
How to Budget with Intent
For a business with Budget in its name, it shouldn’t be surprising that I have a LOT to say about budgeting. You may also expect that I have a complex budgeting system in place to account for every dollar spent. But the truth is, I don’t have a strict budget. It’s very flexible, to account for all the curveballs life throws at me (and part of why I don’t like baseball).
Noted World War II hero (and racist, unfortunately) Winston Churchill said, “plans are worthless …but planning is everything.”
So, let’s take a quick look at another World War II figure, Dwight “I Like Ike” Eisenhower. Beyond being known for his service as a general, the creation of the interstate highway system, and his anti-LGBTQ policies, he is also known for the following quote:
“I have two kinds of problems, the urgent and the important. The urgent are not important, and the important are never urgent."
His famous quote eventually led to the creation of “The Eisenhower Method,” a matrix organizing different items by importance and urgency. The basic principle of the matrix is that the Important/Not Urgent things are actually your true priority as they are the things with the greatest impact, but in order to get to those impactful tasks, you have to organize all your other tasks to get to them. Case in point, if your kitchen is on fire you should definitely take care of that before calling your financial planner to go over your renter’s or homeowner’s insurance policy. But you should speak with them before committing yourself to buy gas station pastries every day for breakfast (true story, my life from age 21-23). Also, maybe see a doctor. Those things really aren’t good for you.
Now I know what you’re thinking, “Stop going on about minute historical trivia and your bad eating habits! Just tell us what this is all about!”
See, while I had developed an understanding of how to budget intentionally, I never had a diagram to really express what I knew to be true. While a rigid envelope budgeting system could help some people stick to their budget, my experience has always been that it’s more important to first lay out a budget in which you spend your money intentionally.
And the great folks at Brunch And Budget, a New York-based Financial Planning Firm that I greatly admire, (Check out their recent podcast on this subject HERE), have used the Eisenhower Method to explain how you too can budget intentionally!
Looks familiar, huh?
So, lets now go through all of these categories and I’ll give you a few examples (beyond minimizing my gas station pastry consumption).
These are the expenses you just gotta pay. The usual offenders like rent, utilities, transportation, groceries, all the fundamentals for survival in the modern age. If this whole chart was a brick house, these expenses would be the bricks.
In this category, you usually have the least amount of control of expenses so you can base your budget around it.
If the Basics are the costs of living, then the Details are the costs of being alive. It’s the coffee with friends, Netflix, and the occasional order out to make life easier on those busy, busy days. It’s the mortar between the bricks.
You have more control of expenses in this category, but there is usually a correlation between cost and quality. For example, you could go to a cute little cafe, with artisanal coffee for $10 a pop, or you could spend a dollar at the gas station. Knowing me I’d pick up one of those damn pastries too and spend $3.99.
But what’s important is the fact that it keeps YOU glued together. In this area and each of the remaining categories, I strongly encourage you to be mindful of what you’re spending on and why.
Also, this area encompasses short-term expenses. If you’re thinking of a long-term investment then you’re thinking of…
A house is not a home without the people you care about. And in this financial house, the YES is represented by your loved ones which live in it. These ‘expenses’ (if you want to call them that), are the reason you spend money on the Basics and Details. They’re the investments you make FOR YOU and YOUR FUTURE. When people say “pay yourself first,” this is what they’re talking about.
This section of your budget would be a savings account, retirement, vacation fund, or padding a “Fuck Off” fund (Content Warning: this article discusses physical abuse and sexual harassment).
If would also include planning expenses such as meeting with your friendly, bearded and bespectacled Financial Planner. To make sure your money is doing what you want it to do. 😊
Terrifying isn’t it?
When all those inspirational folks tell you to “pay yourself first,” there’s the subtext that means it is possible to not pay yourself first. But what does that mean? You have to pay your rent, and build savings (to the extent that you can), and what’s wrong with the occasional coffee?
The Nothing is the expenses you don’t consider. The slimy little things that manipulate their way into your shopping cart. For example, you don’t need that gas station pastry for breakfast, but the packaging looks nice and it’s right at eye level and they make it so easy and I’m so stressed….
And before you know it, BAM $15 a week. $60 per month. $720 per year. For a shitty, unhealthy pastry.
Or the stress clothing purchases because social media has got you feeling ugly and clothing stores are overwhelming. Or all the ways different companies make you feel bad because you don’t have this Product™ that you NEED.
The Nothing is the Big Bad Wolf (or the Gmork if you want to reference “The Neverending Story”), trying to blow your financial house down. And boy do these wolves take on many forms.
All that being said, what is one person’s Nothing, can be another person’s Details. The difference being does it provide you joy? Or is it just something you do to temporarily relieve pain? For example, if gas station pastries represent something more than just a convenient source of calories (like, say a memory of eating them with your dad on road trips), then go for it! I recommend the Vienna Cream flavor.
What Do I DO?
Actually, starting a budget can be difficult, because it involves being honest with yourself. Which is easier said than done.
In fact, I didn’t start off that way. When I started my own budgeting process, I used a nice little app called Fudget and I tracked each and every one of my expenses. To make this process a little easier, I minimized the use of cash and primarily used my debit card. That way, I wouldn’t have to deal with an expense called “cash” that I may or may not have any clue what I used it for (that said, if you aren’t going to list cash as an expense and will record every dollar in cash spent, go ahead and ignore that bit of advice).
Forcing myself to record every transaction really made me have to think about if I really wanted to spend that money, or was this expense being fueled by The Nothing? Then, after a month, I was able to go back and review everything I spent and ask myself how I felt about it. After 3 months, I could see some trends and remove one-time sudden expenses (i.e. car repairs, medicine, parking tickets) from my spending habits. The act of tracking expenses and reviewing my spending made me more intentional about what I used my money on.
And as you track your expenses, you can put them into their respective boxes! Here’s a blank version of the Urgent/Important grid for your own use.
That’s not to say I’m perfect. I know I’ve bought really bad beard products because some male hair care marketing team had managed to get past emotional defenses. But it has definitely limited the damage.
This may or may not be what works best for you. But overall, I feel that the most important thing is to slow down before spending money. Which, of course, is why salespeople try to pressure you to make fast decisions.
Budgeting doesn’t have to be a big scary thing that only stern-looking accountants and bankers can do. You can do it too! Hell, don’t even call it budgeting! Call it your spending review, or Dollar Diligence, or “that thing Billy told me to do.” Just start right now! This second! Go, go, go!
…Just kidding. I actually want you to think about it for a bit, process everything that you’ve read. And when you’re ready, then you can start getting intentional with your money.