Intro To Creative Budgeting

What is creative budgeting? Here at Financial Foundry we have made it possible to actually have a surplus on your budget? What? How? What sorcery is this? Well that’s a little too much trickery for us to admit is real. Realistically it is about creativity, side hustling and saving that can reduce your expenses or create a positive income. However, we think it is more efficient to make only one side hustle an expense category that way we can put all others into paying off debt, savings or investment accounts.

Budgeting Setup

When we talk about budgeting we have to get basic budgeting out of the way and to do that we must understand what all goes into a budget. I detail it in my new book coming out soon but I want to show you how it should look generally.

ItemNational Budget 2021My Budget
Housing $1,657.00  $1,200.00 
Transportation $798.00  $400.00 
Food $644.08  $300.00 
Personal Insurance  $564.25  $100.00 
Healthcare $410.67  $200.00 
Entertainment $266.92  $150.00 
Cash Contributions $156.08  $100.00 
Apparel and Services $156.92  $20.00 
Education $124.25  $10.00 
Misc $91.67  $5.00 
Personal Care $63.50  $5.00 
Alcohol $46.50  $-   
tobacco $27.67  $-   
reading $9.17  $10.00 
total $5,016.67  $2,500.00 
Comparing your budget to the national Average

I think it is good insight to see where you stand against the national average as shown on the chart. It gives you an idea of where you are at as opposed to the average joe and it gives you a competition.

The goal is to reduce all of your spending to nothing or very little while also enjoying your life comfortably. To do this we must get rid of things we do not use or can get for free. Convenience is great but it shouldn’t cost you a premium. I encourage you through thoughtful approaches to sit down with your husband, wife, girlfriend, boyfriend or whoever you consider your significant other and talk about what expenses you can do away with, which ones you’d like to keep. Think about your savings goals and how being able to retire early or enjoy your lives together without the ‘what ifs’ of a job that would otherwise cripple your monetary funds. What makes life worth living at the end of the day with him/her/it. Once you find out your goal and you have a savings structure I recommend you crush it and talk about what is unnecessary and what is in fact necessary to survive and enjoy your life together.

If you’re single no need to hate, it actually can dramatically decrease the effort and time required to achieve retirement. One of the downsides, however, is you do not get to work as a team(moral support) and the tax breaks/tax exclusion investments gets reduced. However, a lot of that can be offset with becoming a business owner but that is a whole other beast to tackle(different day). Anyways, onward we go!

Expense Reduction

Now, the best way to reduce expenses from best to worst is: passive income, side hustle, savings/coupons. What!?!?!?! Coupons and savings last?! Well yes, besides what modern day media wants to tell you about extreme couponing, it doesn’t work like that. You may be able to get free products from drug stores weekly and get huge discounts on name brand products, it is hard to get things you want 100% free. Stores do not want to give things away for free, especially grocery stores where products are tangible, so this shouldn’t come as a surprise.

If you want to coupon there is a million different posts about how to coupon the best and for most places that involves organizing printed coupons, buying newspapers, joining a coupon group, constantly looking for the cheapest products and evaluating savings. Now it doesn’t take a super genius to figure out that if you spent 1 hour on Mturk, did a 1 hour survey or even applied a 1 hour side hustle you could make more money than you would save for the most part couponing for an hour. Even with the digital age coupons seem less worth it than they used to. While some stores might let you stack coupons or get money back, digital coupons are heavily tracked and make it very hard to get something for free unless the company is pushing for you to get that item for free. If the hunt for coupons appeals to you, over time you can pay nothing for your groceries but it still takes effort. I like to stick to traditional budgeting as a means to save my donuts.

Side Gigs to pay for expenses

I know it seems weird to think but with enough time you can make approximately 20$-30$ daily doing a side hustle which adds up to 600$-900$. For some of us that is enough to pay for the bills. Not enough to quit everything and leave but still good pay. Let us calculate 25$/day for a year. That is 9,125 and it is only 25$ extra a day. That is the equivalent of 2 shifts at McDonalds a week. Yeah, you might think it is degrading getting up early working at McDonalds but it might be what propels you to become a millionaire. Crazy it seems but let us take a look at a specific situation:

Ken

Your name is Ken, you are single and you live at your parents house. You own your car out right, its a 90’s sedan with low mileage but it drives well and is really good on gas (25mpg). The insurance on the car is also low (90$/month). You eat all your meals at home and you don’t pay rent because you live with your parents. During the week you work at a factory for 60 hours(from 5am-5pm) where you make 15$/hour. Your realistic take home weekly is 650$ after taxes and your medical plan. You also work at McDonalds at 12$/hour on the weekend for 8 hours on Saturday and Sunday which brings in 160$/week. You make 42k yearly take home but 62,920$ yearly without tax. Given that taxes are taken out lets look at his expenses:

ItemNational Budget 2021My Budget
Housing $1,657.00  $-   
Transportation $798.00  $170.00 
Food $644.08  $20.00 
Personal Insurance  $564.25  $-   
Healthcare $410.67  $-   
Entertainment $266.92  $100.00 
Cash Contributions $156.08  $-   
Apparel and Services $156.92  $20.00 
Education $124.25  $-   
Misc $91.67  $5.00 
Personal Care $63.50  $5.00 
Alcohol $46.50  $-   
tobacco $27.67  $-   
reading $9.17  $10.00 
total $5,016.67  $330.00 
Ken is killing it

So, if he invested and was extremely adamant about doing this without any other side hustle besides McDonalds, how long would it take for Ken to retire from working on this budget living with his parents(I know not ideal but let us just look at this. Remember that Ken makes approximately 3,240$/month and spends 330$/month so he invests 2,910$/monthly. Barring the average return rate of 10% yearly from the stock market and he invests all of it and assuming he invests all of his income this is the result:

Compounding Calculator Yearly
Date% of IncomeAmount Added YearlyReturnNew ValueInitial Investment
1/1/20210.00% $-    $-    $-    $- 
1/1/2022100.00% $34,920.00  $3,492.00  $38,412.00 
1/1/2023100.00% $34,920.00  $7,333.20  $80,665.20 
1/1/2024100.00% $34,920.00  $11,558.52  $127,143.72 
1/1/2025100.00% $34,920.00  $16,206.37  $178,270.09 
1/1/2026100.00% $34,920.00  $21,319.01  $234,509.10 
1/1/2027100.00% $34,920.00  $26,942.91  $296,372.01 
1/1/2028100.00% $34,920.00  $33,129.20  $364,421.21 
1/1/2029100.00% $34,920.00  $39,934.12  $439,275.33 
1/1/2030100.00% $34,920.00  $47,419.53  $521,614.87 
1/1/2031100.00% $34,920.00  $55,653.49  $612,188.35 
1/1/2032100.00% $34,920.00  $64,710.84  $711,819.19 
1/1/2033100.00% $34,920.00  $74,673.92  $821,413.11 
1/1/2034100.00% $34,920.00  $85,633.31  $941,966.42 
1/1/2035100.00% $34,920.00  $97,688.64  $1,074,575.06 
Dang Ken

The New Value is his net worth. So, 7-8 years and Ken can live comfortably and in 14 years completely retire. Yeah, it would be a grin but this doesn’t include any other bonuses, side hustles, gifts, contributions, dividends or other potential income earnings. Money is pretty gangster. The point is that the value added by Ken and his side hustle or part time job pretty much put him in the positive for expenses and didn’t take away from his future investments. While that is probably the worst way to side hustle because you are limited by your employers time and pay it still brings home the bacon. If you are interested in any other side hustle opportunities I have plenty on my website that you can check out after this article. If you are paying attention thus far you are about to tap into something really great!

The Holy Grail of Budgeting

What if instead of Ken having to worry about working all weekend he could instead sit at home and collect money? Similar to Monopoly, every time you pass go you collect money and it is deposited into your account, same goes for passive income. Passive income can come from ads, realty, dividends etc. The point is that it is a magical thing in life. Imagine Ken has 2 houses and each collects him 300$ a month in rent, that is 600$+ a month and if the value of the house rises so does his net worth and assets. Similarly, stocks with dividend collect money and may increase in value overtime however to make that much money it may require less effort but also require more money or shares to make a decent buck. A business CAN be a passive income. The reason I say CAN in capital letters is because if you have to manage the business it really isn’t passive. However, online ventures are becoming more and more popular to make this income become possible i.e. Youtube, Blogs, Drop selling etc. The point should be clear that passive income is clearly a winner in the road to reducing expenses and saving for your future.

Wrap Up

To wrap it up it is important to recognize other ways to save on your expenses and possibly reduce them. If you want to save money by doing coupons or constantly scanning the market for deals that is totally fine but there is more lucrative options out there. Also, side gigs and passive income can rocket you past other Americans in expenses. Stay tuned tomorrow for some juicy content and feel free to email me at jessypadgett@thefinancialfoundry.com. Toodaloo!

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