How to Make a Budget

“Don’t tell me what you value, show me your budget, and I’ll tell you what you value.”
-Joe Biden
My stance on budgets is probably a little different than what the experts say. To be honest with you, I don’t actually know what the experts say but they probably get a hard-on for budgets. A budget is really a tool that is best used in the beginning while you get used to working on your saving habits.
I’m more of a “throw me into the fire and I’ll figure it out” kind of guy, so I believe auto deposits are still the most important thing. Trust me auto deposits from your paychecks into your savings while make you develop a budget real quick because if you fuck up your spending you’ll end up on the streets.
On the other hand, I always talk about treating your life like a business and businesses have budgets soooo I guess you should too.
Once you get your habits down you probably won’t need a budget to tell you when you can go out to eat or what you can buy. Being good with money becomes a lifestyle so you won’t even think about your budgets once you get good and start saving money like a mad man (or woman).
Making budgets was probably hard as fuck 20 years ago but now everything is digital and all of your transactions can be accessed right from your bank app (unless you are a weirdo who still uses cash). Some banks have better spending tracking and budget features than others so I recommend using Mint.
Mint allows you to log into your bank account so all transactions and income can be tracked. It will show you your cash flow and even make suggested budgets for you. We are going to talk about some spending categories in this post and Mint will automatically categorize your spending for you. I know when I opened Mint for the first time I got slapped in the pee pee by the amount I spent on food. It definitely didn’t take a financial adviser to see what my issue was.
The first place to start is to calculate your monthly income. This should be pretty easy for most people who get two paychecks a month (just add em up). If you are someone that has variable monthly income, it will be a little more challenging but it shouldn’t be too hard to figure out your average monthly income. For this example, we are going to use our friend Steve.
Steve’s monthly income is $4000 from working as a potato farmer. Steve is 25 years old and enjoys hangin’ with friends and traveling around Idaho to hike. Let’s see how we can help Steve save money.
After we have our income we need to categorize our expenses with my patented 3 Tier Expense System. I didn’t actually patent it but I did invent it.
Tier 1- Expenses that are necessary and recur ever month. This is where you spend money to keep the lights on and live a comfortable life. We won’t be adjusting anything in the Tier 1 category when we look at ways to save money.
Tier 2 – These are things that you spend money on every day that are necessary but are also variable. Things like gas and food. You need to eat food, but how you do it can have a big impact on your bank account. We can definitely make some guidelines for these to help save some dough. Use your common sense here, if you are spending $200 every time you go to the grocery store then that should be a red flag.
Tier 3 – In Tier 3 we have all the expenses that we could cut out completely or reduce dramatically without having a big impact on our lives. These are things like amazon purchases, entertainment, bar tabs, subscription services, etc.
Tier 1
It’s important to differentiate a necessary bill from a bill that you could eliminate if you wanted to. For example, Internet is something that no one is ever going to cut out but your Hulu and Netflix accounts are things that we will leave in Tier 3 expenses. I’m not saying that we are going to get rid of these things, we just don’t want to count them as necessary right now.
When starting out, think about the big stuff first. If you get a coffee once a week, don’t try to get rid of that first to save 20 bucks a month.
Steve’s Tier 1 expenses:
Rent: $1000
Internet: $50
Phone: $100
Car Payment: $200
Car Insurance $150
Health Insurance: $100
Student Loans: $400
Total: $2,000
This is pretty average for a lot of people. Nothing particularly wrong with this. All stuff that everyone needs to get by. Your Tier 1 expenses should always be the bulk of your expenses and if your Tier 2 and 3 expenses are more than Tier 1, then you have a big problem.
Tier 2
Don’t get it twisted, Tier 2 expenses are often just as important as the tier 1 expenses. The only difference is that the dollar amount changes every month and you can make a conscious effort to save on these expenses. You can try all you want but you aren’t going to be able to convince Verizon to cut you a break on your phone bill.
The biggest expenses in Tier 2 are usually food and gas. I’m not a huge fan of creating a million little micro categories for expenses because it gets hard to keep up with, however, I do think it’s important to separate groceries from restaurants. I also lump in household stuff into groceries because I think it’s stupid to have a separate budget for toilet paper.
Here’s Steve’s Tier 2 expenses:
Gas: $250
Groceries/Household: $400
Restaurants/Take Out: $160
Total: $810
Tier 3
This is the category for discretionary spending and usually what kills people whether they know it or not. You gotta be real with yourself when differentiating between in Tier 2 and Tier 3. Do you need the expense to live or is it a luxury?
Here’s Steve’s Tier 3 expenses
Cable TV: $100
Bar: $150
Netflix and Hulu: $26
Clothes: $50
Shopping: $200
Entertainment: $200
Total: $726
Total monthly expenses: $3,536
Cash Flow = Income – Expenses
$4000-$3,536 = $464
With Steve’s current expenses, he would be saving about 500 bucks a month. The easiest way to start saving money is to see if you can cut Tier 3 expenses in half. Once you get all your expenses laid out, see if you can start with chopping off the stuff you don’t need. For example, if you spend $200 bucks shopping every month life Stevie does, set your budget at $100 in Mint. Mint will then tell you that hit your budget and then it’s on you to have the self-control to stop spending.
If we cut entertainment, shopping, and bar expenses in half, then we can now save an extra $350 a month. Cut out cable and we would be at just about 1000 a month (do people still pay for cable?).
You really won’t be able to tell what needs to be cut out until you lay everything out. Don’t cancel your Netflix subscription to save 15 bucks a month when you can shave expenses on your high spending categories.
Current savings per month: $950
Then we move to Tier 2. Maybe Steve could try saving 50 bucks a month on groceries, and 60 bucks a month on eating out. This could be as simple as skipping lunch with co-workers 1 day a week and only buying the items that are on sale at the grocery store.
What I’m trying to get at is that most of these changes will barely affect your life.
The idea is to just get yourself to start thinking about each purchase every time you take out your card. I’m really not a fan of setting hard budgets because that means you need to be extremely self-disciplined to keep them. That doesn’t work for a lot of people. It’s all about forming new habits.
By cutting down the Tier 3 expenses and shaving a little off the Tier 2 expenses we got Steve saving $1060 a month compared to $464 a month. Don’t make budgeting complicated. It really doesn’t have to be. All it takes is for you to sit down and look everything over so you have an idea of what you need to change.
Why is this important?
Obviously, I was gonna tie investing into this one way or another. Once you start stacking good months on top of one another it has a powerful effect when combined with compound interest.
Let’s say the original Steve who puts away $464 a month starts investing and gets an average annual return of 10% per year. Steve is 25 years old and plans on retiring when he’s 65. Over 40 years, Steve would end up with $2.7 million by investing $464 a month.
Now let’s look at new and improved Steve who is saving $1060 per month. Steve would end up with $6.1 million after 40 years of investing at 10% return. By going to the bar half as much, cutting out some lunches, and shopping less, Steve would have increased his net worth $3.4 million.
All of this shit seems little but I’m telling you it adds up over a lifetime and nothing is going to change unless you make it change. Budgeting is kind of like training wheels, it can get you started and keep you on track, but once you learn how to save you won’t have to continuously make budgets.

5 Tips to Build a FAT Savings Account in Your 20’s

“Rich people don’t work for money, they have money work for them.”

This is something that is mentioned in just about every book on investing or wealth creation out there and it’s 100% true. But that’s easy to say when you have money to start with. Before jumping headfirst into the stock market or any other business venture, it’s important to first build financial habits that will help you grow your savings account.

I often hear people say “if my boss would just give me a raise then I could start saving” or “I can’t save right now because ________” I used to say shit like that too to help me rationalize why I wasn’t saving that much. It doesn’t matter how much money you make. I know that sounds like bullshit, but it’s true. You’re nuts if you think there aren’t surgeons out there who make $300,000 a year and live close to paycheck to paycheck.  Think about saving in terms of percentages instead of dollar amounts.

For example:

Joe makes $100,000 a year and ends up saving $10,000

Bertha makes $50,000 a year manages to save $7,500.

That means that Joe is saving 10% of his income while big Bertha is saving 15%. Even though Joe saves more money than Bertha, he’s actually worse at accumulating wealth. Good on ya Berthy.

I’ll give a personal example to show you how I fell into the spending trap. Two years out of college, I was doing well in my field and got a raise to 100k a year. I had never made that kind of money in my life. It started off with little shit like eating out way too much… actually, I shouldn’t even say eating out because what I really mean is ordering Uber Eats so my fat ass wouldn’t even have to leave my house. I had it down to a science. I would start my commute in LA traffic, toss on a podcast, and time my order perfectly so that the Uber Eats dude would be pulling up to my apartment right as I got home from work. I would sign up for dumb ass subscriptions I didn’t need and have amazon prime packages at my doorstep weekly, all because I could. I ended up doing a deep dive through my finances and found out I had spent $70,000 in a year. No kids. No mortgage. Virtually no responsibilities outside of work. I spent the majority of my salary (after taxes) and had nothing to show for it. Don’t fall into this trap.

The steps listed below will help you to start changing your mindset when it comes to saving your money.

1.  Auto deposits

This should be a no brainer but it shocks me how many people don’t do this. Any bank will allow you to set up automatic transfers from you checking to your savings. Set an automatic transfer for every two weeks (or whatever frequency you get paid) so that a predetermined amount goes right from your checking into your savings.


Promise yourself that your savings account will not be touched unless you have an emergency or you plan to buy assets with that money. Also, yeah I know you are already contributing to a 401k. This is in addition to that.

If you have $10,000 in your checking account, you will convince yourself that you have no problem affording that $300 watch you want. “I got ten racks to blow I’m gooooooooddd” While if you only had $3000, you would really think about that purchase because spending too much could impact your bills and your rent.

This is the classic pay yourself first mentality. Be fucking selfish about it. See your life as a business. You’re the owner. If you owned a business and it ran into cash problems: Are you going to cut your own salary first? Or are you going to look for ways to cut the costs of goods?

If the company you work for had cash flow issues… would you want them to cut your salary to help keep the business afloat? Or would you want them to lay off Steve from accounting?

Deuces Steve ✌️

2.   Ease your way into it

If you’ve never paid yourself first, don’t get all hyped after this blog and try to save half your paychecks. It’s going to stress you out and you are probably going to fail miserably. You’ll do it for the first couple months and then its gonna stress you the hell out and you will give up. Start with 5%. Maybe 10% if your feeling bold.

Paycheck is 1500 biweekly? Save 75


Okay, now try 100 a check.

I get it. Life’s expensive. But life being expensive is not an excuse not to save. Just because saving $75 a check doesn’t seem worth it, doesn’t mean you shouldn’t do it. Start slow and work your way up. In my opinion, if you can get to a 1/3 of your monthly paycheck, you’ve made it.  I realize that this isn’t possible for everyone, but do what you can.

3. Focus of recurring purchases

When you start getting up there in percentages you may start to notice some cash flow issues. Remember, as I mentioned before, this doesn’t mean stop paying yourself.

This is when you gotta take a deep dive into that credit card statement and find out what you are spending your hard earned cash on. When I say recurring purchases, I don’t just mean your netflix, hulu, spotify, amazon prime, tinder plus, and whatever else subscriptions. I mean that burrito you get everyday or that trip to the 7/11 across the street from work that has the spicy beef jerky and those little rainbow fruit belt candies that surprisingly go really well with the berry prickly pear and mango pineapple frappuccino from the starbs that’s conveniently located next the 7/11. It’s this kind of stuff that can do dirty things to a bank account when left unsupervised.

Most bank apps these days can give you a breakdown of your spending and you can even set budgets for each category. If your bank doesn’t offer this, just download the app Mint (Hey mint exec reading this: first ad is free) We are creatures of habit. At first it’s going to be hard to stop buying certain things everyday, but pretty soon you won’t be able to imagine spending $15  a day on coffee and snacks.

4. Pretend you didn’t get a raise

This one is big. Once you master the first three, don’t let getting a raise at work change any of the things you have been doing. This is the easiest way to get stuck in the rat race. You will get used to making 50k a year and living paycheck to paycheck. You crush your powerpoint presentation at work and they bump you up to 60k and the process starts all over again.

If you were living off 50k a year and you get a raise, then all that money just goes back into savings. I never understood how someone can make 50k a year and live perfectly fine, not saving money, but still living fine and then get a raise to 75k a year and still not be saving. The best part is, they always make excuses why their circumstances are different and cost of living went up. No bro, you got a raise and thought you could afford that beamer and now you are back where you started. Which brings me to my next tip…

5. Bad debt goes first

I mean I guess first off, don’t get into bad debt. When I say bad debt, I don’t mean your school loans. That’s a necessary evil that got you where you are now. When I say bad debt, I mean anything above 5% interest that you probably could have lived without. The worst of all is credit card debt.  The average credit card interest for 2019 was 21% hahaha. If you promised me I could make 21% a year on any investment I make for the rest of my life, I would be wildly rich when I’m 50.

But okay don’t be so hard on yourself. You got yourself into absolutely crippling credit card debt. You went to a financial adviser and they threw up all over their desk when they looked at your bank statements. This is now your main focus.

Start dumping all this money your saving into your bad debt first. There’s no point in trying to build a saving account if you have the magical powers of compound interest working against you in the wrong direction. Chip away at it and promise yourself that you’ll never get back into this position again.

Good luck. I just want you to know that I believe in you.