4 Ways to Budget a Military Paycheck: The Anti-Budget, Apps, Spreadsheets, and Envelopes | Military Money Manual Podcast Episode 48

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Jamie and Spencer attack how to budget your military paycheck. Ideas discussed on this episode include:

• Classic pen and paper budget
• Google Sheets and Excel spreadsheets
• Apps like Mint.com, You Need A Budget (YNAB), EveryDollar
• The Reverse Budget, or Anti-Budget (set a high savings rate and spend the rest)

Military Money Manual Podcast Episode #48 Links

• Free 5-day course to maximize your travel benefits and learn all about military credit cards
• The Military Money Manual book
• https://www.amazon.com/Discipline-Equals-Freedom-Field-Manual/dp/1250156947
• https://open.spotify.com/episode/21NsAPSQE8RgtykO5zkyFL?si=1HDAjWvuR0es1uYhZDuC0Q
• J.D Roth on getrichslowly.org
• Paula Pant on affordanything.com

Military Money Manual Podcast Episode #48 Transcript

[00:00:24] Jamie: Hello everyone. I'm Jamie and I'm here with Spencer Reese from the militarymoneymanual.com and author of the book, The Military Money Manual. 

In this episode, we want to share advice and ideas on how to budget. I want to give a quick shout out first before we get started to Adrian, his wife, Jennifer, who I recently met.

He stopped me while I was waiting for my lunch the other day on base. That was pretty cool. And they're both fans of the show. So we love hearing from you guys. Anytime you see us and you reach out or you reach out to us online. We appreciate that and it means a lot to us to hear from people that have actually benefited from the show. So Adrian, Jennifer, thanks for being listeners and the best part of the show. 

So when we talk about budgeting, Spencer and I have different approaches to budgeting and we'll share those with you as well as some other ideas that you may like on this episode. We're going to talk today about three main ideas.

When you budget, you have options. It could be a full up spending plan with maximum detail and maximum effort and maximum time commitment. Or it could be something like the anti budget, which we'll have Spencer explained in a couple minutes. You have lots of options there in how to budget.

Number two, budgeting can actually give you a sense of freedom to spend in alignment with your goals and priority, and doesn't have to feel like handcuffs or constraints or cutting costs severely.

Number three, no matter what method app spreadsheet or method you choose, budgeting is practically guaranteed in Jamie's opinion to make you more financially secure.

[00:01:46] Spencer: Hey Jamie, thanks for that introduction and great three main points there. The second one where you talked about how budgeting can actually give you a sense of freedom, I was reminded of Jocko Willink, Discipline Equals Freedom.

He's a Navy SEAL that hosts the Jocko podcast and he's been on the Tim Ferriss Show and a bunch of other places. He has this book called Discipline Equals Freedom and basically his argument is like when you're disciplined and commit to something and you stick to something, it actually leads to more freedom rather than just being willy nilly and not actually committing to anything.

I love Jocko. So we, yeah, he's a, he's definitely a beast of a man. We mentioned in the last episode about the December 2021 report from the congressional research service called military families and financial readiness. And we talked about how in the paycheck to paycheck cycle 30 percent of your military peers are not secure in their finances.

So while you might be listening to this podcast and you're like, dude, I've got YNAB, I've got a budget. I’ve got an emergency fund. We're all set. Maybe. That's great for you, but maybe some of your friends, maybe some of your coworkers, maybe some of your subordinates, maybe some of your superiors, maybe someone that, in the military, is struggling with finances.

And so it's important to take this. And even if you're not going to be using it today. Maybe someone you know, will mention something offhand about how man, like I, inflation is crushing me. I can't afford the payments on my truck anymore. I can't afford to put gas in my Ford F-150 anymore.

Sorry to all the Ford F-150. The owners out there.

[00:03:23] Jamie: Yeah. We have been ragging on the F-150 a lot recently.

[00:03:26] Spencer: Yeah. Yeah, the Raptor edition, man. It's a beautiful truck. Don't get me wrong, but just, it's a lot of, it's a lot of money. And anyways, we talked about lots of people who might be struggling.

And so if you hear that, maybe point them to this podcast or point them to the paycheck to paycheck cycle that we talked about in the last podcast episode. And, if, one thing that I tried to do when I was a supervisor of Airmen was during my initial feedback, midterm feedback and final feedback every basically every chance I got to formally sit down with my subordinates, we would talk about finances and we would go and at into as much depth as they were comfortable with.

I would have them pull up an LES just to prove to me that they knew where to go find their LES. We would talk about their TSP contributions. We would talk about the emergency fund and just having that conversation, just normalizing talking about money can be so impactful for people might be right out of high school and maybe they come from a family that didn't have that kind of relationship with money where it could be talked about openly and where they could see money as a tool to achieve their goals rather than as something to be feared. 

All that to say, if this episode isn't for you, that's okay, but if you know somebody out there who could use this information, point them in this direction.

One thing that came out of that congressional research study was that less than half of service members keep a budget. So only 46 percent of service members surveyed kept a budget. And so I think, for me that's not such a bad thing, but maybe they're all practicing the anti budget.

No I don't think even the anti budget, which we'll get to the details of later. Even that is an intentional and thoughtful way of managing your money. And if somebody asked me, do I keep a budget? I would say no but, and then, and everything that comes before a but doesn't matter.

And it's everything that's afterwards. And I guess you can, I do because I track my spending, I track my investing and I make sure that my savings rate exceeds how much I spend. So do I keep a budget? Yeah, sure. I guess you could say that I do, but yeah, 46 percent of service members actually keep a budget and the rest of you out there, 50 percent more than 50 percent are not keeping a budget.

If you can be intentional early in your military career, and sometimes for most people that starts with having, knowing where your money's going and then allocating your income to a specific purpose. If you started investing when you were 20 you can turn every dollar that you invest when you're 20 into dozens of dollars when you're 65, Jamie, you've got here $1 invested when you're 20 turns into 88 when you're 65.

Is that based on the compounding returns of the US stock market. 

[00:06:44] Jamie: Yes, that is. Actually borrowed that from another financial podcast and a couple of guys that I follow called the money guy show but they have a whole document and it, what's interesting about that is if it's 25, it cuts down to 44 per dollar spent.

So the earlier you can start being intentional and putting your money to work, the better it's going to be. And I think that's an excellent example of. Of how important it can be to start early. And what is it you say, Spencer, about the best time to invest was yesterday. And the second best is today.

Is that it? Am I quoting you?

[00:07:18] Spencer: That's exactly right. And it's the same thing with what, if you want the shade from a tree, the best time to plant the tree was 20 years ago, but the next best time is today. If you're listening to this and you, you haven't taken action, you haven't started allocating some money to your TSP, you haven't opened up a Roth IRA, pause the episode and go do that.

Take some action because all of this is just, it's just me and Jamie talking where we're trying to do our best to motivate you and to provide a little bit of perspective, a little bit of military personal finance perspective, but unless you take action, then you're just listening.

It's just fantasy role playing personal finance.

[00:08:00] Jamie: I think. Another good way to think of impact of early decisions is let's say that you have a choice between buying two cars and am I going to take out a loan and pay $560 a month, or am I going to do put some down and buy a cheaper car or whatever to where I only have to do $400 a month.

So let's say you're looking at $400 a month payment or $560 a month payment. So $160 a month difference, I would encourage you to consider. Taking out a loan for neither of those amounts, but let's say you have to for whatever reason. So $160 a month, if you're early in your career that could be a half a million dollar decision.

If you invest that $160 a month difference over the long run of the next several decades until you reach retirement age. Think of it as when you're budgeting, it's helping you put every single dollar you have available to work towards your financial goals and towards your future self.

[00:08:57] Spencer: And like we said in a previous episode, if you need to get specific budget help for your situation, you've got the family and fleet support center for the Navy and Marines.

You've got the airmen and family readiness center for the air force, the army sorry, I forgot to look up the army version of it. I think it's a soldier and family readiness center, but there's financial counselors there. Some of them have CFPs, certified financial Planners. That is not an easy designation to get.

It's 2,000 hours, two years. You have to get a master's degree and you have access to these people for free. Where if, whereas if you went off base, if you're in the civilian world or you're a veteran, it's going to cost you, for a fee only financial planner, probably $300-$500 just to sit down for a one or two hour session to have them review your finances and provide some specific advice to your situation.

So take advantage of those resources while you're in the service. And if you're guard or reserve you probably have access to similar services as well from the active duty. So make sure that you're taking advantage of those financial counselors. And remember, like we talked about in the last episode, if you're in that paycheck to paycheck cycle and you get behind and you get into a situation where you can't pay your bills and you can't meet your basic needs, there are assistant loans available from the Air Force Aid Society, from the Army Aid Society, the Navy and the Marines and the Coast Guard all have their own assistant loans as well.

And usually those are 0% interest. They don't go in your credit report. And you can pay them back over a very flexible schedule. And that's just a great tool there to buy you some time and allow you some breathing space. You can get back onto the straight and narrow path to financial success.

Okay, Jamie with all that said, what's the first type of budgeting that we're going to discuss today?

[00:10:53] Jamie: Okay, so first, let's look at a detailed budget, which is maybe what you might think of as a traditional budget when the word comes up. Some people don't like the word budget because it makes it sound so negative and constraining.

So sometimes you'll hear people say spending plan. I may even say that sometimes it is synonymous. So your detailed budget could be in another various forms as well. So it could be on paper where it's as simple as listing out all your monthly income, listing out all your monthly expenses, or any irregular expenses that are occasional or every other month kind of things.

And if you're not sure, like we said last week, take your best guess and then after a couple weeks it'll settle out and you'll see the trends. You could also start by Writing down, keeping a small notebook or an iPhone app or something like an iPhone note and just document everything that you spend or look at your credit card statement, your debit card statement, your checkbook, if you're still using that and just take inventory of where things are going.

But a written budget is simply just going to, on paper, say this is how much we're spending. We plan to spend this much on gas, this much on food, this much on groceries versus eating out, this much on, grooming, haircuts, whatever, this much on kids school stuff, like back to school time right now just hit our budget and that's always fun.

Things like that. What you do with that information can vary. You could go like the Dave Ramsey method and get cash out of the bank and stuff it into envelopes, or you could track it manually on paper, like a checkbook register set up. So there's a lot of options you can do. And we talked last week about prioritizing your four walls.

So make sure the most important items are at the top of your budget and then work down the page to more of the discretionary spending. Detailed budget version one is just simply writing it out on paper and getting a good lay of what you expect to spend each month before you start spending any of your money.

[00:12:51] Spencer: I think the cash envelope thing is, it sounds really old school, especially coming from a guy who has 30 credit cards and is a pretty, pretty advanced traveler. I think that's how I got started. We did the cash envelope thing and just to get into the details of that.

So basically you say Hey, we're going to spend $300 this month on groceries, $200 on going out to eat. And you go to the ATM and if you got USAA, Navy Federal, you're going to get your ATM fees reimbursed. So make sure you're with a bank. Schwab is also a bank that Ally, I think, also reimburses ATM fees.

But if you're with a bank that doesn't reimburse ATM fees, that's a good sign that you need to leave that bank ASAP. Go to a bank that actually respects you enough to refund your ATM fees. But yeah, just go to the ATM, pull the cash out and put in the envelopes and it just, it rewires your brain to recognize what $300 looks like and how far it goes when you go to the grocery store and you grab a couple things that weren't on your list and you throw them on there.

And that to me, at least when I was first getting started, my wife and I were first getting started and I was in that paycheck to paycheck cycle and I needed to break it doing the cash envelope system was critical to rewiring my brain to look to understand what I was spending money on and how we were going to make the money go further and it motivates you because what we did was if we had money left over in any of the envelopes That was money for us to go spend on whatever we wanted to or to say, if we got to the end of the month and we had an extra $150 bucks, cool, throw that into the vacation fund.

And now we're $150 closer to taking our next vacation. So, I think the cash envelope thing is underrated. I think it's a great place to start. And then for us, the next step was a debit card. And, we had a debit card the whole time because we were able to go to the ATM and get cash out, but moving from the cash envelopes to the debit card and keeping track of our transactions in a Google Sheet, which is how we did it at the time. 

That was how we really broke the paycheck to paycheck cycle. And the most important part of breaking the paycheck to paycheck cycle is that first paycheck, right? That first two weeks or that first month.

You need to go from basically being two weeks behind to getting a week ahead or two weeks ahead. And I know YNAB, we'll talk about YNAB, You Need A Budget, but that's what YNAB is all about. Is getting ahead of your paycheck so that when the money comes in, it goes where it's allocated to and you're putting it to work in a way that you want it to.

We're going to talk about, let's see Google sheets, an app like mint or YNAB and a couple other budgeting tools here, Jamie, but I think the cash envelope things, I'm just going to, not to use an over over cliched military phrase. I'm going to footstomp it because if you're in a place where you are you're struggling and you're like look like I've tried budging before I've tried the apps I've tried all this other stuff and like my debit card just seems to slip out of my wallet and like slide through the register or Tap on the screen and every time they ask me how much I want to tip I hit the 30 percent button and I just can't help myself.

Go to a cash envelope system And trust me, you two weeks and you'll rewire your brain and then you'll be able to move on to some of the more advanced strategies.

[00:16:43] Jamie: Yeah, I'm glad you mentioned it, Spencer. I wasn't, I hadn't thought about talking about the cash envelopes in such detail, but it is a really powerful tool, like you said, so I'm glad that you went on that little rant there, we started out like that as well. And we had two, two ways that I'll recommend doing it. We had a period where we did a miniature accordion file thing that was small. It's big enough for dollar bills, small enough to fit in my wife's purse kind of thing. And we, each section was a different category of the budget, eating out groceries, clothing, whatever.

And then we had a little sheet of paper in there to be our checkbook register, document of minus $33. Some of the complaints you hear is what if my wife has the cash envelopes and I'm out? You can divide it, keep some of it. Maybe your fun money's in there. You can move money around when you get home that night, or just carry your debit card with you in the worst case.

If you had an unplanned expense, then you can sort it out later, but don't let some of the Potential downsides or something that's a minor inconvenience keep you from doing this. Because it is a very powerful tool, like you said.

[00:17:55] Spencer: I think the inconvenience is part of how it helps you to stay on a budget and to get back out of a paycheck to paycheck cycle.

And so I think the inconvenience is a feature. It's not a bug. It's actually a feature of the system. And again what are you trying to do here? You're trying to rewire your brain. You're trying. To change your habits in your relationship with money. It gets back to Dave Ramsey, which I hate. I hate to say because a lot of his investment advice is crap.

And a lot of the other stuff he says is for people who are bad with money. But all of us start out. Most of us start out bad with money. I started out bad with money. It's true. Like it's way more than just the math. And if you're letting something like, Oh what if I'm, like the excuse that you just gave about, Oh, if I'm out and I need to buy something, but my wife has the cash, carry your debit card.

It's to use the debit card and then just and then just move, take the cash when you get home and put it somewhere else, for next month. And so there's plenty of ways around it. Don't let perfect be the enemy of good, get to the 80 percent solution and the 20 percent will sort itself out.

And if, and again, like if you're in the cash envelope system for a month, trust me, your spending is going to decrease. You are going to find that there's other things to do out there than to go and spend money because you're going to be like, shoot, this cash is not going very far.

So I think, yeah don't let the excuses. Don't let the excuses take over and use that month that you're on the cash envelope system. And if you're on, if you want to do it for the rest of your life, that's great too. But I know for us, we were only on it for a month or six weeks and the inconvenience built up to the point where we're like, okay, we're going to start using a debit card, but we know that we can stick to the dollar amounts that we set. And we've trained ourselves so that when we go to the grocery store, we buy the things that fit into our budget. And we don't just throw in the extra hot sauce and what is it?

Angry bird hot sauce. Yeah. $10 a bottle. And we don't shop, we didn't shop at Whole Foods then I'll tell you that much for sure. So yeah.

[00:20:10] Jamie: Yeah. Great point. The other thing we did with the cash envelopes for a while as we used actual envelopes like you would mail something with and the cash was in there and then we would literally write the.

Register of transactions on the outside of the envelope. So you don't have to spend any money. You can spend money if you want, but it's pretty easy to get started with that. And like you mentioned, Spencer, I think there's probably two main goals of this realizing you're spending. And cutting back and then also trying to get ahead.

You mentioned all three. So I guess that's three total, not two, but trying to get ahead is when you're waiting for your next payday, that's a terrible feeling, but if you can temporarily make that adjustment, like you said, then you'll have the ability to get ahead and have the cash on hand or in your bank to cover.

The next two weeks worth of expenses or ideally next month's expenses, or when you get really caught up, then you're hopefully working two or three months in advance, depending on how you use your emergency savings and things like that. So cutting back expenses you talked about, but there's something physical.

It's emotionally hard to hand over cash. To someone, but when you swipe a debit card, it doesn't have the same trigger in your brain. And that's why you mentioned rewiring your brain. It is, try it, go to Best Buy next time you want to like the other day, I bought a new thermostat for home $220 at one of the Nest ones and Oh, nice.

Try handing over $220 to the cashier at Best Buy in cash and see if it is painful. I can pretty much guarantee that it will not feel great. So anyway, cash envelopes are a great point Spencer. Great way to start your budget or to get recaged. If you've heard that term, you're a little bit distracted and hey, we need to focus again.

Let's re-cage our focus a little bit and it can snap you back to reality and help you out there. The next way you could do a detailed budget is version two. I'll call it a Google spreadsheet or Excel document. Basically you track everything. You can make a template. You can find plenty of templates online, just like you can for a paper budget, but you just put it like checkbook register style, or you can have a tab for each credit card if you have multiple in the sheet, however you want to do it, basically the important thing is to track we're spending this amount that, or our plan is to spend this amount this month on this category, work all the way down to your priorities.

And then on the other side of the page or in a different tab, keep track of how much you've spent in each category, so you know how much is left. So that's the Google sheet version. You can make it very detailed. It doesn't have to be super detailed, but it's definitely going to be an intentional way of keeping you on budget, looking at what you plan to spend this month and being.

I don't know. Intentional is the only word I have there. What do you think of the Google Sheet? You mentioned you guys used that in the past.

[00:23:09] Spencer: Yeah, and the way that we did it was we would, the paycheck was going to be $2,000. We would have each line item deducted, so we'd put $2,000 at the top, and then we'd have each line item deducting from that.

That amount and if it was a monthly charge, right? Because in the military, we usually get paid on the 15th. We would just divide it into over the two pay periods. And then if there was, we always had a margin of safety, which was something once we had broken the paycheck to paycheck cycle, we just had a miscellaneous column and we always tried to have leftovers at the end.

So even if we allocated everything, mobile phone rent about the time is probably a mortgage. Car payment student loans, Roth IRA, we would have everything there. And at the very end, that number had to be positive. And we were trying to make it positive by a couple hundred dollars because, things happen there's always something that's coming up.

And especially with social activities, there's always, oh, it's. So it's those birthday let's, let's go out and buy a couple of drinks and you don't think about it, when you're setting up the budget two weeks ago and now you're a couple of days to payday and it'd be nice if you had a couple hundred dollars in there and you're ready to you're ready to go out and have a good time with your friends.

[00:24:34] Jamie: Another thing I think is really important that reminded me of your unplanned expenses. You can even have a category in your budget called unplanned expenses, or things I forgot to budget for, or something like that. But another important one is fun money. So my wife and I each get a certain amount of money each paycheck.

So we get, times two in the month. And that's just for whatever. So she uses it almost exclusively at Starbucks, which I think is silly, but it's her fun money. So she gets to do whatever. And when I spend mine on dumb stuff on Amazon that I end up not even liking that much or whatever, whatever I choose, it's my fun money.

So no one gets to say anything about it. So it can start small. Like when we first started, I think it was 10 a paycheck, 20 a month, maybe. Then we worked up to 20 a paycheck and you can go up from there, but it doesn't have to be a lot, but you have to have a little bit of wiggle room in there or else you're going to go crazy.

If you gnat’s ass, every little detail of it down to the penny.

[00:25:37] Spencer: Yeah, because over like you've said, like over a 12 month period, everything kind of averages out and some months you'll spend more on one category. Next month you'll spend less on one category.

But one thing that I've noticed is that even when I don't track, right now when we track our budget, we do it on an annual basis, so I wait until January or December and then I look back over the year and if you go listen to the episode where we talked about Spencer's end of year report, we'll do another one for 2022 coming up, but that's just I just look at what do we spend over the last year and then talk to my wife about it and make sure that like it's still aligned with our values.

And what's crazy is even though. We moved from Abu Dhabi to Hawaii. Our rent went up from nothing. Because we weren't paying rent of $3,900 a month. Food costs, like we had a car, we didn't have a car, all these different expenses, but it still averages out and like you basically.

Even though we weren't tracking it day to day, month to month and just tracking an annual basis, it's still averaged out and we were like, wow, that's crazy that, we didn't track it and we still ended up spending just about the same amount of money.

[00:26:54] Jamie: It is amazing, but you can't expect to start out like that.

You have to set the foundational behaviors with these habits we're talking about in order to get to the point where it just happens.

[00:27:04] Spencer: Yeah. Yes, absolutely. Absolutely. Yeah. So you mentioned Jamie the, so we've got the kind of the detailed on paper budget, the classic, 1950s.

Let's, and really what you're doing is you're doing accounting, right? This is your income. These are your expenses. If you go to getrichslowly.org. JD Roth, he has a book called, I think it's The Money Boss Manifesto. And basically what he's realized is if you run your personal life, like a business, you'll be way more successful than anybody else out there.

When it comes to personal finance, he's got a great website, getrichslowly.org, which I think he's bought and sold it. Like he sold it to someone and then he bought it back a couple of years later for way less than he sold it for. Yeah. So we talked about the detailed budget like on paper, listing everything out, using the cash envelopes version two, maybe moving into a Google sheet.

And just an Excel spreadsheet and again with that, I found that when we use that method, the easiest thing to do is say, okay, how much am I going to get paid? On my payday, what are our expenses and a lot of expenses are just recurring, Netflix is going to cost 21 next month because you're on the HD for Screen plan and your mobile phone plan.

I know. Okay. Okay. We'll go, we'll drop it down to the one screen plan, but geez, dude, you know that your cell phone bill is going to be a hundred bucks, right? Unless you call your mother in law in New Zealand for a hundred minutes. And then it's going to be a little bit more than that.

So your expenses are pretty fixed month to month. And you can plot that out in a grant. All right, if we want to take it to the 21st century, Jamie, talk to me about apps, what are we using for apps to budget?

[00:29:06] Jamie: So there's several options. We mentioned last week, there's free options, mint.com, which you used a bunch in the past. And I used it briefly. Every Dollar is the Dave Ramsey app. There's a free version and a paid version. And there's other paid apps like YNAB. You need a budget, which you mentioned, and we've mentioned several times in the podcast they should sponsor, they should probably sponsor me by now.

I think I've mentioned it so many times. You need a YNAB. You need a budget that costs just under a hundred dollars a year. And basically their philosophy and the founder of YNAB, Jesse Mecham he wrote a book and he has basically four principles that are pretty good. He'd be a good guest. We should try to get him on Spencer.

You only budget what you actually have. So you don't forecast next month's money or anything like that. So it's just what you have in your account right now. And it's very. Intuitive. It can link securely to your Amex card, your Chase cards, your USA bank account. And basically it has everything all in one.

So you can get reports on your spending habits, how much you've done over the last year, over the last six months, it tracks net worth in there. If you feed it all the data from external sources as well. So all my investments are tracked in there. And all that stuff goes in there. And then tonight I was at Publix and went grocery shopping and I'm sitting there at the register and it was, $86.33 or whatever.

I opened up my app. I hit plus to add a new transaction, $86.33. I say it's that I'm at Publix and it's going into the grocery budget and I used my Amex Platinum card ending in this one xxxx because I got a couple of them and then boom I'm done and then it's OK, minus 86 out of your grocery budget.

Here's how much is left. So, my wife and I share the budget details on each of our phones and on the website. It's an incredible, incredibly powerful system when you feed it accurate data and keep up to date with it. It can be a little intimidating, full disclosure to start. There's a lot of great YouTube help videos and help resources.

They even have a way that you can ask a question to their customer service and you can temporarily grant them permission to look at your budget so they can see exactly what you're seeing. Hey, I thought I paid off this credit card, but it's still showing red. I don't understand what that means.

So anyway, all that being said. Any app like YNAB or similar, you should be able to input your transaction when you're right there at the store or at the end of the night when you're compiling your receipts. If you still want to keep paper receipts, you should be able to see exactly how much is in your budget, and then you should also be able to budget each month and allocate where you're going to spend the money that you have.

And what one of the things I love about them is that they try to get you ahead. So they really want you to cover next month's expenses. Here it's July. If I can have August fully paid for and start working towards September, then that's when you're in a really good, safe and secure spot with your finances.

And that takes away the anxiety. And then the last thing I love that I mentioned last week is the reports. The awareness is so helpful when I total up things like I'm spending more than $300 a month on discretionary streaming services and stuff like that. I'm like, okay, that is interesting to know. I didn't realize I, I still had all the, you may not even know that you still have HBO max or Netflix coming to your bill if you're not looking.

So I'm a huge fan of that. If you're interested in a detailed budget, reach out to us and I'd be happy to share more of my experience on that, but I will stop now. So I don't bore the rest of you that don't care.

[00:32:35] Spencer: Jamie, I want you to know that. While you were talking, I just went and signed up for YNAB, and it took me about 30 seconds, and I just connected my bank account to it, and I'm going to check it out, because I've used it a few times in the past, and I've just never fully committed to it, but one thing I'm interested in is the reporting feature.

Because it would be really nice if I didn't have to go and total up all of my different different credit cards and bank accounts. And I know Mint does it for me, but sometimes Mint doesn't work that great. I'm going to take a look at YNAB.

[00:33:15] Jamie: You should ask for my referral code, but I think they offer a one month trial.

And I have anecdotally seen that if you reach out to them and ask if they have a military discount, they will offer you a four month trial. But I can't guarantee that it still works, but I have heard of it working.

[00:33:32] Spencer: Wow, that's great. Yeah, I didn't know about the military discount.

[00:33:36] Jamie: So I know that Spencer, you use a slightly different model.

So we went over the detailed budget in detail, no pun intended. And in your book, you talk about the reverse budget, or I've also heard it called, I'm sorry, you talk about the anti budget. I've also. Heard it called the reverse budget before. Can you explain that technique? And if people have never heard that term, what does that mean?

Sure.

[00:33:58] Spencer: I did talk about my book and it is the method that I use now, but I think it's important. And maybe I should have mentioned this in my book too, that you have to use the budget for the situation that you're in. When I was in, when I was Paycheck to paycheck that the budget, the flexible budget that I use now, it wouldn't have worked and I needed to break out of that paycheck to paycheck cycle.

And the way that we did it was with the cash envelope system. And then we moved to Google Sheets and we used Google Sheets for probably, I want to say 10, eight years, maybe eight years before finally moving to the anti budget, the flexible spending thing. Budget that we do now and I talk about my book.

I said, instead of taking the time to track every category and every last dollar, I prefer to set an aggressive savings goal and then not worry about the rest and this kind of gets back to what we were talking about, if now I've gotten to the point where. My lifestyle is pretty set, but that's come after a lot of increases in income through the military and a lot of now, and having a lot of savings set aside and having habits that we talked about earlier that were built on the bedrock of using the cash envelope system, using a strict budget, using Google sheets, using mint.

com and knowing that, hey, it's okay. If I want to go get a kebab salad every week, like that's not going to break my budget now. And, but that's something that 10 years ago, 12 years ago, when I first joined the military. First of all, I don't know if you could find a kebab salad in Del Rio, Texas, second of all, or if it'd be any good, but second of all, I didn't have the habits.

I didn't have the strength in the, it's like building muscle memory or going to the gym and, like doing the bicep curls. Like you have to, you can't just start with the a hundred pound barbell. You have to work up to it. So I think it's important.

And I probably shouldn't mention this in the book that you have to use the strategy that's right for the situation that you're currently in. And but the situation that I find myself in at the moment is that I can do the anti budget or the reverse budget, like you talked about. And the whole point of the anti budget is you set a savings goal and then you don't worry about the rest.

So you automate and the beauty of it. And some of the books that have really dove into, setting up these automated systems. I know Paula Pant on affordanything.com. She's got a whole article in the anti budget. Ramit Sethi. S E T H I. He's got his book, I Will Teach You To Be Rich, which I think the second edition came out a couple years ago.

And it's on Amazon for 19 bucks or at your local library, I'm sure. Or you can probably borrow it on Libby. And read it on your Kindle. That's another good option for books. If you're trying to save some money, it's all about just setting up automated systems so that your savings are done.

You're paying yourself first and then whatever's left over, just spend it however you want. Don't worry about it. You've done the savings bit and that, but a lot of that is, is being intentional. What are you saving for? So if Christmas is coming. Like it does every year, you're going to have to automate the savings.

And that's one thing that we did. Like we set aside $50 bucks of every paycheck so that when we got to Christmas, we had $600 sitting there that we could spend on whatever we wanted. It could be presents for the family. It could be tickets, airline tickets to go see family. It could be, we would go see the Rockettes when we lived in New Jersey, we went to see the Rockettes in New York City.

We like to go see, what is it, The Nutcracker, a play every year. Being able to have that money set aside and knowing that that's our Christmas fund, and we can spend that money on whatever we want related to Christmas. That's a great feeling. It's very liberating. It's like what you talked about earlier, Jamie, where a budget is there so that you know that you can spend money on certain things.

And it's okay. And it removes the guilt of it. Just it just helps you build a healthier relationship with your money and recognize that it's a and what you've done is you've done the work. You've been paid for it. And now society has said, Okay, like we've handed you these fun tokens.

Go have some fun. Go do something with them. But the interesting thing that doesn't happen in theme parks, right? Is that you can invest your fun tokens. Actually, that'd be a really interesting concept for a theme park if you could like some kind of cryptocurrency thing that you could invest while you were in the theme park, like at Disney world, a little side tangent there.

But yeah, so long story long if you're saving 50 percent of your income, what I advocate in my book, like if you're saving 50 percent of your income, you are no further than 20 years, probably less than that, probably like closer to 17 years away from financial independence. And I think what you're going to find too, is that if you set a 50 percent savings rate, when you're, let's say a E-6 or an E-5, or if you're a captain, like an O-3, a senior captain, if you're setting a 50 percent savings goal, you're going to find that your income is going to grow.

And. You're going to be still living the lifestyle that you were living when you were, saving 50 percent as a captain and you're going to realize, Oh man, I could probably save 60 percent as a major, as an O-4, or you're going to realize, you know what, I can cut, I can loosen the purse strings a little bit.

I can spend a little bit more. I can upgrade to a better house. I can have my wife drive a newer car if I want to, because I've got the savings there and we've got a good savings rate and we're going to be fine. Like we know that we're going to make it to financial independence one day and 5%, 10% like the stock market goes up, the stock market goes down.

You can't control that, but you can control your savings rate. And so if you focus on setting money aside for your goals. And then letting your budget or letting your spending just happen naturally, then I found that to be a good way to set up your money. So I think, the main takeaway for the anti budget is you got to have the high savings rate.

And for most military service members, that's going to be maxing out your TSP, maxing out your Roth IRA. I'm not saying that you can do that at every level in the military, right? If you're an E-3 who just came in a couple of years ago, you're going to be hard pressed to max your TSP and max your Roth IRA, but you could set, I don't know, a 25 percent contribution to your TSP and then spend the rest of your money if you've got an emergency fund, like life's short.

If you're living in Germany, go travel, go see Europe. It's a heat wave right now. Pack some water, have a great time. If you're in Japan and you're 22 years old and you're stationed just outside of Tokyo, man, get out there go spend your money, go skiing, go just go exploring, go have sake up on some mountain dojo and learn karate or something.

I don't know. Have a good time. Life's short. So if you've set that savings goal and you've set that savings rate and the nice thing for military service members is you got the TSP. So you can log into MyPay. You can put, say I'm putting 20 percent of my paycheck into the TSP. And then the rest of your pay, like when it comes into your checking account, that's your money.

So allocate it as you see fit. And if that means, you're going to go out to eat five times a week, cause you've got tons of friends and they like to do that. Good man. Go for it. No one's stopping you. And you can rest, you can sleep easy at night knowing that you've got 20 percent of your paycheck on the TSP and you're going to be fine.

That's probably still like a 40 year, just shy of a 40, 30 year, maybe working career, but Hey like we said, like life's short and your income will probably increase in the future and then you can increase your savings rate just naturally. Plus the 20 percent is going to increase your the 20 percent of a higher income is going to be more money going into your TSP anyways. So I like the anti budget because for me, at least I don't like logging into the apps. I'm going to try, I'm going to give YNAB a try. I just signed up for that. Like I talked about, but I don't like logging into the apps. I don't like allocating my spending.

I think part of it too, is. I grew up very frugally and so sometimes when I see oh man, I spent $2,000, in the last two months on groceries and going out to eat man, that sounds like a lot of money if you like only $250 a week. So that might be like one nice meal out, it could be a hundred bucks plus $150 of groceries, which depending on where you live, that can be pretty reasonable.

Yeah, it's still like when you are confronted with those like large sums. It can be hard. It can be difficult to be like, Oh like what else would I have spent $2,000 on? That's a nice vacation or that's a new mountain bike.

[00:43:55] Jamie: So there's a great segue into rehashing what you already gave us a preview of the fact that budgeting, whether it, whichever method you choose can give you a sense of freedom to spend in accordance with your alignment.

So if you're investing 50 percent of your income, Go enjoy your life, enjoy going out with friends and all that. If you're doing a more detailed budget, what people sometimes experience is uncertainty can breed anxiety or doubt and not knowing, especially what my wife and I experienced when she was finishing up nursing school and I was working and she was not bringing home any income at the time she, and we were newlyweds, she experienced guilt of wanting to buy a new t shirt or something like that. And it was like, yeah, babe, of course you can buy a $10, $15 shirt, like whatever it was. We were in Columbus, Mississippi at the time. So I think the shop was like Walmart.

We didn't have a target, so it wasn't anything crazy, but she felt because it wasn't her money, she was bringing in something that she didn't, she wasn't. Didn't have permission to spend it, but once we got on the same page with the budget and talked about it and had discussions and meetings where we were, we agreed on the budget together.

So if we agree that our clothing amount is a hundred dollars this month or whatever makes sense for your family and there's money left in the clothing envelope or in the clothing line of your spreadsheet, then go buy clothes with it. And. That's completely okay. So it releases the constraint of doubt and anxiety and fear and waiting for the credit card bill to come.

And you don't know how much you spent or how you're going to pay it off when you're intentional about working ahead of it. So that's a personal example of guilt. Did you, have you guys, did you guys experience anything like that? Spencer of one of you thinking differently about money and having to get on the same page with it and the sense of freedom that working together can provide.

[00:45:57] Spencer: Yeah, I definitely had a system worked out in my head when I was living paycheck to paycheck where I knew how much money I'd put on my credit card. I knew much money was in my checking account. And I always made sure like I never put more on my credit card that was in my checking account, but somehow it always ended up, if I had $1,001 in my checking account, I put $1,000 on my credit card.

And then that was it. Like all the money was gone from my checking account. And like I was telling my wife Oh, just wait till the next page. Just wait till next pay. We'll get ahead, but we never did. And that was tough for my wife. Because she was like, I can't live like this.

I need to know how much money I have to spend on groceries, how much money I have to spend on clothing. And so that was a tough time or a difficult learning experience for both of us to get to the point where we had a shared mental model of what our finances were. And how we were in it and then how we were going to get to our goals.

And I think, but a lot of it started where I knew I wanted to pay off my student loans, but I didn't really have a goal past that. And so that was really, it was really convenient that I found out about financial independence and retiring early in 2012, I think Mr. Money Mustache was the impetus behind that.

That's also when I started my website to document my own journey there without having that goal, I knew I wanted to pay off my student loans, but it's okay, but then what, what, like why save money? What's the point? Why not just spend it all today if I'm going to earn a 20 year pension in the military, which I did not end up earning because I left.

So I think that's the other thing too, is like you'll change. And that was a point that Morgan Housel brought up in his Psychology of Money book: it's hard to plan for the future because the person that I was in ROTC was not the person that I was two years after graduating.

And it's not the person I am, 12 years after commissioning. But one thing, one favor that you can do for that future person. Send some money to yourself. And the way that you do that is you invest it is you buy low cost, passive index funds, or you buy some investment real estate and you take some of your income today and you put it to work so that future you.

has some income and some assets that they can fall back on.

[00:48:40] Jamie: So two other quick things I want to mention about budgeting. Some ideas for you to talk about with your spouse if you're married, or just things for you to think about as you work on your budget for the first time or try again. One of them is sinking funds, which we've mentioned in the past in a previous episode.

This is a concept of knowing you have an expense in the future, dividing it up by the number of months away it is and figuring out how much you need to contribute each month. So you're not caught behind. One of the worst feelings with money is being behind. So if in a couple of months, you have a $500 auto insurance bill, then say it's six months away, then you need to contribute $83 a month into that line item of your budget or that cash envelope and label it Auto insurance bill and it's due in December or whatever. And then you put $83 a month in there. And then in December automatically, or. Surprisingly, you have $500 available for that bill instead of what you've done in the past, which is getting the bill. And you're like, Oh my goodness, how am I going to afford this bill?

It's Christmas time. I barely have any buffer. You have $120 ballet performance in three months, then you need $40 a month vacation coming up and you want to spend $1,200 and you're 12 months away. $100 a month, whatever it is, the amount divided by the number of months you have. And that's how much you should contribute each month.

And that's sometimes called sinking funds. If you hear that the second concept I want to talk about for budgets real quick is to watch out for your percentage of your total budget that you're spending in each category. There are suggested. Templates and amounts out there online of, you shouldn't spend more than 25 percent on your housing or no more than 10 percent on this and no more than 3 percent on whatever you have to figure out what's right for you.

And as long as it works, like who cares, but if you do find yourself spending 40 percent of your budget on housing, that will probably constrain you in other areas that may or may not be in alignment with your priorities. If you spend 10 percent of your budget on eating out, it might be okay for you.

And it may not. So not that there's right or wrong amounts, but sometimes just being aware of the percentage of your budget can help you make decisions of, is this really where we want 10 percent of our income to go?

[00:51:01] Spencer: One thing that we did for that was we opened up multiple checking accounts and multiple savings accounts.

And then we didn't know the concept of a sinking fund or I guess the term sinking fund. But that was the concept that we came up with just naturally was we knew we Expenses like auto insurance that was due every six months and renter's insurance and various other bills that don't come due every month.

And but like you said, it's just math, like you said, $500, $83 a month, just set it aside. And then when you get to the month that it's due or the day that's due, then you've got the cash right there and you don't have to worry about it. 

The other good thing about doing a budget and especially knowing what your expenses are, that's just the first step of budgeting, is that you can plan for emergencies.

So if you know you're liable for and the other good thing about that too, is you can decide what is actually necessary. And what is just a want? So what are your, what are your wants and what are your needs? That's a concept that a lot of people struggle with sometimes, but I hate to break it to you, but HBO Max, Audible, Amazon, like all those things, those are all wants.

They're not needs. And when you do the expenses and you list it all out, just put a little circle next to the ones that are wants and maybe a check mark next to the ones that are needs and just recognize okay, like we're spending, like my wife and I a couple of years ago, like we were spending three to $4,000 a month on just living expenses, right? So about $48,000 a year. But when we went through and looked at, okay, what is no kidding, actually, can we actually live on probably half of that, honestly, and that would be staying at home every night reading a lot of library books and just chilling. But guess what happened?

Like COVID hit in 2020 and there were a few months where our expenses dropped to even lower than we had anticipated because when you really came down to it, like we needed to pay our rent and we needed some electricity and internet and we needed some food and then everything past that was just B.S. Like it was just, it's good. It's good stuff. And like when you're having You know, having people over, you're having parties, you're traveling yeah, like that's awesome. Like you want those expenses, but if you need to, if you have some kind of family emergency, or if you have some kind of situation where you need to cut back going through and looking at your expenses and honestly assessing, is this a want, or is this a need can be really powerful.

And you can recognize like. Okay. I'm spending $3,000 a month. My income is $3,000 a month. I am living right on the edge, but if I look at my actual expenses, shoot, I could cut $500 of things today. And all of a sudden, now you're building, now you've got a gap. Now you've got a gap, a $500 margin of safety there.

And whatever pleasure you're getting from Netflix, from, we're picking a lot of the streaming services, but they're pretty, It's too easy. It's too easy, they're too easy to pick on. Whatever pleasure you're getting from them, I think you'll get a lot more joy from having a margin of safety. And being able to relax and being able to just not check your bank account balance at, in the five days leading up to, to a military payday.

Cause you're like, Oh, did I forget something? Did I use my debit card too much? No, you've got a couple hundred dollars in there. It's going to be fine. And maybe one day you'll build it up. So you've got a couple thousand dollars in there. And that's just a, it's just a nice feeling when you're not budgeting down to your last, $10 until that military paycheck comes in.

The other thing that, before I started this rant, the point that I was trying to get to is that when you know your expenses, you can, and your true expenses, you can build a good emergency fund, and you can know that, all right, we, let's say we based our emergency fund on $4,000 a month of spending, and I want to have five months set aside in there.

That's $20,000. But if I know that I can, that we can cut our expenses down to $2,000 a month, cut them by 50%, all of a sudden that five month emergency fund becomes a 10 month emergency fund if it came down to it. And COVID was like a stress test for that. Because there were some months where we barely left the house, right?

Like we got groceries delivered and that was it. And that's sure enough. What happened? Just like I said, our monthly expenses dropped much lower. Then we had planned for and so that was a good reassurance that hey, our emergency fund is appropriate and that if if I did lose my job unexpectedly or my wife lost her job that we would have the savings there and we would be able to tide ourselves over to the next job or to the next thing that we wanted to work on.

[00:56:31] Jamie: I think that's a really powerful sense of peace and lack of stress, knowing that you guys will be good no matter what. And it, all it takes is knowing the actual expenses and writing that out of, like you said, if we need $20,000 in our emergency fund and we have $20,000 in the bank, no matter what, whether I get med boarded or I have to retire early because they're doing a reduction in force, or if I choose to get out, but the job market's not what I expected, like we'll be good. We have 10 months of coverage in that example you gave, and that should be plenty of time to find a job hopefully for you guys. So that the lack of stress is a very powerful way to use budgeting.

And personal finance as a tool to add value to your life instead of having detract from your joy and peace. All right. The last couple of points I want to mention Spencer, then I'll pass it back to you for closing in your book you wrote “Identifying where your money is going, helps you recognize whether or not your spending is in line with your personal goals.”

And I think this is one of the most important takeaways from today. And if you've never thought about budgeting in, in, in that. Aspect then please soak on that. Think over that a little bit. I think it's key because, one, it makes you think what are my financial goals and two, it helps you be intentional and prioritize what's worth spending your hard earned dollars on.

And I think you've mentioned before on the podcast of thinking about spending money in terms of how much of your time you had to work for to actually pay for that. So let's say you make 25 an hour and you wanted to buy a $200 gadget. Like I did it, best buy. You would think of that as working eight hours or a full day of work to pay for that gadget.

So is that worth it? Maybe not, but at least you frame it in a way that makes you think about what your time is worth. If you're doing something that costs a week of your time to pay for, yeah, that might make me a little uncomfortable. But if it's only two hours of work or it's one hour work then go spend and enjoy life.

But it's just another way of giving a sanity check of, is this in line with my priorities and is this something I should be spending money on? So yeah, that's my kind of final points here for today.

[00:58:48] Spencer: Awesome, Jamie. Thank you for all that. For the listeners. Hey, thanks again for listening to the podcast each week and joining us as we discuss different ways to budget on this week's episode.

To review, we discuss three main ideas that you have options. You can go from the full up spending plan, the full up budget, listing it out on paper, doing it in Google sheets, using YNAB. Or you could, if you're a little bit further along in your financial independence journey, maybe you can take the Spencer Reese reverse budget anti budget method and if you know that your lifestyle is set and that even if you do spend a little bit extra if you've got the savings there and you've got, you've built the habits, you've built the financial strength.

That you'll you're going to be okay, budgeting can actually give you a sense of freedom to spend in alignment with your goals and priorities And it doesn't have to feel like handcuffs or constraints So that's point number two and then finally point number three no matter what method app spreadsheet, whatever you choose Budgeting is almost guaranteed to make you more financially secure just knowing where you're at Is going to help you so much and where you're going We really hope today's discussion will help you get started towards financial independence or can help keep you on your way to achieving financial independence while you serve in the military and can also help you maximize your military benefits as always if you have any questions or feedback message us on instagram @militarymoneymanual or email info@militarymoneymanual.com. 

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