Bonus Episode: How to Budget at Any Income Level | Even High Earners

It's time for a bonus episode of The Wise Money Show with Corhorn Financial Group.

Welcome to The Wise Money Spotlight, where we do a deep dive into a question from a fan

of the show with one of the financial planners here on the Corhorn Financial Group team.

My name is Mike Bernard Eimer, host, I'm also one of the certified financial planners

at KFG and with me in the KFG studios, one of our all-star CFPs and one of the leaders

at Corhorn Financial Group Ben Chambers. Ben, welcome back in the studio.

Thank you. Thanks for having me. Yeah. Ben's been on the show before and also he serves

a lot of clients. Actually, a lot of clients that have, I would say, above average complexity,

above average incomes as well. And Ben also leads our intern program and leads some members of

the team. Ben's also a soccer fan. That's very boring. Well, it's going to be exciting this

summer. Yeah. And I have some good news. I don't think I told you this yet, but I just won some

World Cup tickets. Come on. Via the FIFA lottery. Wow. So there was about 500 million applicants.

I was lucky enough to score a few tickets. Okay. So Ben, I'll tell you this after we're done

recording, but financial planner shouldn't play the lottery. But all right. So anyway, jump in and

I'll just use it. How take care? Ben, for individuals that are saving both for retirement goal,

but also have a goal of helping their kids or maybe grandkids with college, how do you prioritize

both? Right? How do those not become mutually exclusive where you can't, if you achieve one,

you can't achieve the other. How can you achieve both? Yeah. So to start, our job is to define

reality for clients. So in a perfect world, you can achieve both, right? If we have unlimited

money and limited resources, you might be able to, which is great. But I also, whenever a client

poses this, so we're talking about goal setting, I make it obvious it's not our job to make value

judgments. Yeah. So I can talk through the pros and the cons of prioritizing retirement,

prioritizing college funding, but it is up to the client to determine what they want to do.

I like using the analogy of that you're flying on an airplane, right? So as your planner,

I'm going to tell you, hey, put that oxygen mask over yourself first and then your child.

So you would say prioritizing retirement. If they're, if they, if it looks like you're going to need

to choose or make some sacrifices in one, probably prioritize retirement over college.

Right. But remember, time is on your side. So if you're listening to this and you're younger,

it's very possible you have time to plan for both. But yeah, typically if you have to choose one

or the other, I try to prioritize retirement. Because if you are not prepared for retirement,

that could be a burden throughout your retirement and your children as well. But I get it. The

American dream is to have your kid have a better experience, better life than you had. So it can

be a tough choice if you do have to choose. I'm saying send the kids to school and then live in

their basement and retirement. Yeah, that works. No, I'm just kidding. We do this planning all the time.

Very rare. In fact, I would say it doesn't happen where someone comes in with just one isolated

goal. So there's always resources that are competing for multiple goals. The point is, do you have

clarity on where you stand with each of those goals? Do you have prioritization as well?

Therefore, if you are trying to juggle two, three or four goals at one time, do you know,

hey, this one is already well fed. We can allocate resources more heavily to the second one or

the third one. And if you make adjustments in one, do you know the tradeoffs you're going to make?

We want you to have clarity and confidence as you're approaching those goals, whether it's

retirement and college or maybe also buying a house or any other big financial goal work with your

certified financial planner on that. Ben, let's start weaving towards the question from a fan of

the show today. And I first I mentioned in the introduction, Ben does serve a lot of of individuals

that ask for our firms help that have above average financial complexity. So incomes well north

of a half million dollars, net worth, you know, several million dollars. And Ben, this is maybe

a couple of years ago now. But I remember us talking about how often you're helping folks even

in that category with their budgeting. Yeah. And that's surprising to a lot of people. Why do you

think that is? Why is it? Why is it so important, even at that stage of life? Yeah, I think there's

obviously a wide spectrum of, you know, net worth and retirement income, retirement assets, all

that type of stuff. But generally, when you do get to the level where you are accumulating wealth,

you have a high income, you're much more susceptible to the the word we use lifestyle creep. Yeah.

Where you're spending, you know, keeps going up and up and up. And so even for high net worth or

high income individuals, planning for for the budget and retirement is is still important and

and proving that to ourselves. And I would say the conversation does shift a little bit though

because depending on the level of of net worth or assets or income we're talking about,

what's downstream from budgeting is your balance sheet. And so what typically happens with these

high net worth, high income individuals is their balance sheet continues to get more and more

complex as their wealth is growing. Yeah. And so a lot of the topic or the discussion can revolve

around, well, what does your balance sheet look like? You know, do you have stock positions,

commercial properties, residential properties, charitable accounts, things like that. And are all

of these, these assets functioning how you originally intended. And a lot of that, you know,

again, falls on your goals and what you want to do. But anyways, I would say that's kind of the high

level difference between budgeting, you know, you're not talking quite as much about the nitty gritty

cutting back on subscriptions, making sure you're not spending a ton on eating out. And more towards,

yeah, what are my assets and how are they functioning? I launched the show with a question of,

you know, would you ever graduate from the need of budgeting if your income got to a certain size

or your assets got to a certain size? Obviously, you know, there's, there's always a few

rungs higher on the, on the wealth accumulation ladder. But is there ever a point where someone

can graduate from budgeting? I don't need to worry about how much I spend. I spend as much as I want

without any, without any real concern. Yeah, I haven't seen it. If that's the case.

But, you know, you can try to simplify things over time to where maybe early on in your life,

lower income levels, you had to be very disciplined and track very closely. And it does change.

Yeah, but to completely ignore your budgeting spending that that never happens.

I was, we see it more where people shift, I would say, for lack of a better term from the,

well, I've got a budget that's very disciplined where I need to say no to certain things.

And I've done the math to see where I need to say no and where I need to say yes.

And tend to shift as income grows and as you start living more of the lifestyle that you feel

is comfortable to you, where you shift to a savings first budget. Where, all right, how much do I

need to save to meet all of my goals? Well, I want to max out my 401k. I want to max this out. I want

to max this out. And then you sort of live on what's left. And then above that, there can be another,

there's another category of folks where they say, okay, well, both of all those tax shelters,

I feel like I really only need to spend 10 grand a month or 15 grand a month. So I'll just live

on that and I'll save everything else. So it's sort of three different versions of sort of the same

thing. The question is, how much discipline is required? Yeah. And we'll touch a little bit later.

I think on the three bank account system. Yeah. But it's not like the, what we would call the delayed

spending bucket disappears for high net worth individuals. It's just the numbers might be different.

But you still might need to plan for, hey, I need a lot of liquidity five, 10 years from now to

for this investment or for this ownership opportunity or something. Yeah. You still have to plan

for that. Yeah. Yeah. All right. Well, let's get into it here. So great question from

fan of the show Glenn. He sent this question several months ago. Now it's been in the queue. Sorry

about that. But curious, Ben, how you would answer this? So here's what he said. I was listening

to your podcast and on it. And I believe you were talking about creating a budget and the need

for that. And you mentioned something about budgeting software. What is the software? Please tell

me it's not Excel. Thank you, Glenn. It is Excel. Actually, now I'm just kidding. It's a little bit

more sophisticated, but I love Excel. And I think it still deserves a place when you're building that

budget to begin with. But that's, I'm starting to get into my answer. Ben, how would you answer that

question? What's the best way to budget? Yeah, it's not it's not Excel. Fortunately, it's not

the envelope system. Fortunately, although some clients do still do that. Yeah. So we use a planning

software internally. We call it Wealth Vision 360. It's not proprietary. So there's other places

you can get that. But it's online. You can connect your accounts to it to try to simplify it.

And I would just stress this all the way through your budget. Try to make it as simple as possible

while still getting the benefits from it. Because budgeting, if you haven't done it before,

it's kind of like going to the gym where you start going. And the next day, you are super sore.

And you're like, man, do I really want to do this? But over time, especially with some of these

online tools, once you kind of get in the rhythm and you fix some of the things, a lot of it can

be automated to where you're just jumping in, you know, once a week, something like that,

and checking your budget. And so it doesn't have to be this huge burden, which I know a lot of

people talk about, but we would spin it and say, no, if you do this right, it's not a burden.

And it provides some level of financial freedom to you. And so we talk about the three bank account

system, which is kind of your immediate spending, think checking accounts, stuff like that,

delayed spending. What are the known future expenses you might have? College planning, car payment,

or new car, new roof, something like that. And then an emergency fund. But when you're, if we're

talking starting out for budgeting, I like to kind of go through these order of operations.

And so I start with, well, what income am I budgeting on for teachers? This might be super easy

because your income is very fixed. You have a salary, you know, what you're getting paid. And

you can choose a number. If you are commissioned or something like that, it can be trickier. I would

encourage you to try to find an average and be a little conservative on what number you're choosing,

but figure out how much income and I'm in my budgeting for determine your watermark for your

immediate spending or your checking account. So if you did nothing else, the easiest way to tell

if you are spending more than you're making is if you said at the start or the end of every month,

my goal is to have my checking it $1,000, $5,000, whatever it is. And if you end the month,

your income went in, expenses went out. And you end the month above $1,000. Well, you naturally

saved, right? And so I would choose that. Then I would choose or I would list out if I'm,

you know, doing it online, I'd pick the categories, but I'd list out all my fixed expenses because

those are usually easy for folks to think of my mortgage payment, my subscriptions, my car payment,

whatever. And then I would list my variable items, gas, groceries, utilities. And then I'd list

a catch all. And the example I give is, you know, if I stop by CVS and I get vitamins or toothpaste,

I don't have vitamins or toothpaste category. And so maybe some engineers want to get that

specific, but I don't. And again, back to the make it easy scenario. So I would add a catch all

for everything else and make sure that that budget lines up with that income. All right. So just

to recap here for those of you just, you know, trying to follow along, you do absolutely need to

start with, well, how much income in my planning off of? And this is typically your take home income

that is your base sort of reliable monthly income. Then where's it going? So you so categorize

in your spending. And yes, it's a absolutely great practice to start with your fixed expenses.

The fixed expenses are going to happen every month. And they're going to be the exact same amount.

So mortgage your rent and car loan and Netflix. And you know, those things are going to happen

every month and be the exact same amount. And then you'll go to variable expenses. And this

can confuse people, but this category, this also happens every month. You just have some

influence over how much the amount is. It's not the exact same. So going out to eat every month,

you're going to do that. But you have it within your control. Well, are we going to Taco Bell?

Or are we going to Hacienda? Or are we going to something else? So groceries and those sorts of

things in a amount that's going to come up every month, but, but very. And then yeah, the catch-all

can confuse people. But I just assume that there's going to be some expenses that don't fit

neatly into a category. And they might be, you know, one expense in January, but a different

expense in February, a different expense in March. And so having a catch-all, which basically

forces a little bit of fluff or overage is a good practice to have. That's all that first bank

account. That's running out of your immediate spending, your checking account, income coming in,

expenses coming out. A lot of people say that's budgeting and that's it. It's not. Right. Because

that's only covering all of your monthly expenses. Right. Yeah. And so we talk about the delayed

spending account, as I mentioned earlier. And there's a couple of ways you can do that. But again,

that's for all future known expenses. So things I need to be saving for, but they might not be an

expense every month. And there's a couple of ways you can do that. Maybe you have a completely

separate savings account. I would encourage people to do that because it's all going in your checking.

It gets pretty muddy pretty quickly. So have a separate savings account. Maybe a high yield savings

account, something like that. And maybe you have part of your paycheck. If you determine what

needs to be saved, maybe you have it auto deposit some of your paycheck into that account. Or

one of your fixed expenses is savings. And so you just have that linked with your checking. And

it's saving automatically into that account every month. Yeah. So having a having a visibility on

what are the expenses that don't show up every single month, but that will inevitably show up and

making sure that you're saving and setting money aside for those. So when they do come up and then

third bank account system doesn't always apply to a budget, but that's your emergency fund. So if

you have visibility on all your monthly expenses, all your non-monthly expenses, that emergency fund

helps you with everything you can't see those are the surprises. When you've done that well,

that means you can save up into that fourth bank account, fifth, sixth, and all that. That's your

long-term goals. All you can save aggressively for those long-term goals because you have a strong

financial foundation in that three bank account system. All right. I'm going to circle back here,

Ben. Let's answer the question. So you said we use here at KFG, you know,

Wealth Vision 360 as a budgeting app within it and absolutely love that. I personally like

setting up the original budget in Excel. And so because you have the ability to manipulate those

cells to say, this is how much income is coming in here. The fixed expenses here are the variable.

And then once you build it in Excel and get the numbers aligned where you want them,

that's when you put it into Wealth Vision 360 or your budgeting tool to then track, well,

that I overspend, that I underspend, are there any gaps there? Yeah. And having something static

is important as well because you have, you can look back at what was that original budget I set up.

You can look back at your delayed spending goals because it's very likely you prioritize there. You

said, nope, vacations, the highest priority or repairing the roof is the highest priority. And you

likely had to choose there. And then you likely set some sort of emergency fund goal. Maybe you didn't

start it three months or six months. Maybe said we want to get this much in there or however much.

But you had some sort of goal. And so if you're reviewing your net worth, your balance sheet every year,

your goals, that's an excellent spot to look back and say, hey, did we, did we fund those accounts

the way we wanted to? Yeah. Yeah. Other types of tools, you need a budget YNAB that people go crazy

over that one. They really like it. By the way, that is an Excel sheet that they just put into an app.

Every dollar, Dave Ramsey's solution, that's a good one. Some people really like, well, a quick

in slash QuickBooks sort of thing. And so I would say those are the primary ones if it's not using

our system, uh, wealth vision 360. But here's the thing. Budgets are a little bit like diets.

There's, there isn't one that works for everyone, but they're different. Just ways of helping you

have a net calorie deficit where you are aware of how much how many calories am I eating and how

many calories am I in my burning? That's essentially what a diet does. Budgets are the same way. You

know, they're, it's whether if, if quick in or QuickBooks is, if that's the flavor that you like,

if that's the version of the budget and that works for you and you're inspired and it fits.

Awesome. Absolutely love it. If YNAB you need a budget is, is better. That's your flavor. Great.

Or our system. Fantastic. It just needs to be built not just on a monthly basis, but it needs to

be that three bank account system because that's how it is connected to all six areas of your financial

life. So work with your certified financial planner on that. If you don't have a CFP on your team,

you can contact one on our team. Find us online. Go horn.com. That's go horn with K. Why is

money show.com. You can find us there as well. Or give us a call five seven four two four seven

five eight nine eight. All right. There you have a caught and take your next Y step and you're

finding into life. Craving more wise money content. Find us on YouTube podcast and online at

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