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Balanced Budgeting

My personal budget closes out this Wednesday.  After spending more money than my paycheck brings in consecutively for the last few months from my mom's passing (due to various costs related to being the executor of her estate, and taking over as cat dad and the house and such)... I've managed to zero out my budget this month.  I should, actually, end up saving a few bucks too.  My mom would be proud because she was always all about saving money.  I got my sense of financial savviness from her.

I can just hear her saying "Great job Ken!"  And then giving me a thumbs up.

In reality I'm going to end up spending more money than I made by 10 bucks because I'll have my Planet Fitness auto debit charge on Monday.  Not much I can do about that one.  It's kind of a necessity since the gym is one of the things saving me money too.  It's a nice thing to do for an hour and it doesn't cost any extra above the monthly gym membership fee.  I just go and run on the treadmill, or use the elliptical while reading a book or listening to iTunes U courses or conference presentations.  That charge may also end up being reimbursed at the end of the year.  We have an updated health plan at my job that actually gives us back up to 300 bucks if we go to a fitness club more than 120 times in a year.  I'm not sure what my number is at so far but I'm going fairly often so I should be able to hit that 120 no problem.  Planet Fitness is 20 bucks times 12 times a year... 240 bucks.  So basically if I go to the gym at least 120 times... my planet fitness membership is free.  It's a no brainer.

Now, as I mentioned before I will, according to my personal budget accounting cost analysis spreadsheet that I keep (Yeah, I'm a nerd, whatever, I love spreadsheets), go beyond my budget by 10 bucks.  However, I'm able to subsidize that cost from my credit card cash back.  I received $51 back from the previous months credit card expenses.  That money was deposited into my account at the beginning of this month.  So, it falls within this months budget as an income on my personal accounting tracking.

My budget runs by my credit card statement dates.  So the budget runs from the 20th to the 20th of each month.  From December 20th to today, I've spend JUST under 10 bucks of what I get paid at my 9-5 job.  However, I do have some additional float space...

I withdrew 100 bucks from the ATM during my budget period but I still have 90 in cash left from that.  So technically I'm under budget, but I used that 100 dollar cash from the ATM in as an expense.  Then I have the 51 bucks income from the credit card cash back.  This only works because I pay my card balance in full every month.  Carrying a balance would mean finance charges which would work against me.  So I grab the cash back and pay it in full to capture an extra little bit of money each month as income.  Then on top of that  I did make 23 dollars in CD Baby deposits from digital music sales and I have about 140 dollars in stock dividends.  I have to be careful with the stock dividends and the CD Baby music sales because that is top line income and not bottom line.  That's revenue and not profit.  So, additionally there are taxes that will need to be paid on those income sources, whereas my paycheck from work already takes the taxes out ahead of time.

I'm a huge fan of positive cashflows.  I'm not so much concerned with total amount that is in the bank, so much as what the month to month income is.  I use this in my personal life for my personal finances and as well when I do research for investing.  I like to call it, income velocity.

I think of income velocity as a faucet.  Let's take the example that you have a bank account with a pretty good size amount of money in it.  It's not earning any income though, or maybe it's getting a small interest rate of a few pennies to a dollar a month.  So, it's like a bathtub full of water.  you can make withdrawals on a bank account... and the balance slowly goes down.  You can take small cups of water out of the tub and it goes down.

Eventually, without replenishment it will run out.  I don't like this.  This makes me not sleep well at night.  This makes me worry about the future and the possibility of my finances drying up.

Instead I like faucets.  Faucets can drip into a tub, and if you never take cups of water from the tub... Eventually it will fill up... As long as you keep that tub drain plugged up.  SO if you only save small drips into a tub... Eventually you might end up with a significant savings... but it's highly unlikely and it will take a long time.  In life, this is nearly impossible. There's always going to be cash flowing out.... So there's always going to be some water going down the drain.  My thing is, if that faucet is always running... so the income is always coming in.... and it's coming in at a faster and faster flow rate (increasing income velocity)... it doesn't matter what your drain looks like.  Eventually that drain could be completely unblocked... if that faucet is roaring out water like a fire hydrant...

That tub will fill up in seconds, not minutes, not hours, not days.  That's what you want.  You want consistent and ever increasing cashflows.

Obviously it's good to manage expenses too... Because you can be making billions and still lose money...

Amazon does this.  They keep making MORE and more money... but they spend through the roof.

But again, I don't worry as much about total account values, I don't worry about how much is in a tub, because if that drain plug is pulled out, or someone shows up with a huge bucket... They can just take all the money in the account out and drain it SUPER fast.

What I like to balance is the in amounts and the out amounts.  Whatever is coming in should be your limit to what is going out.  Doesn't matter how much is in the account to me at least.

But if you've got a fire hydrant of cash generation ability.... People can show up with buckets and fill their buckets and go on their way.  That thing will keep pumping out money.

The key is to keep that money flowing in.  When that money starts to dry up... Things get dicey.

Most people will change their lifestyle to match their income, which is fine.... but if you suddenly lose your job or something happens that the income is shut off... you could be in big trouble.

This is why I'm always a fan of trying to diversify your income sources.  Don't just have one source of income that could get shut off at any moment.  Lets say you got promoted to a great top level job at your company.... That's awesome... but... Just be wary... Things happen in life... So maybe scale your lifestyle back and save and invest a good amount of money and start to generate income from your investments.  Or start a side business or hobby that also brings in money.  Two, or ten.  Or 100 fire hydrants are better than one.  Or... Instead of one big fire hydrant... You could have 100 garden hoses.  Same amount of water coming in... But if one or two or even 10 of those turn off suddenly... You've still got water coming in to fill buckets with.  Just at a slightly reduced rate.

Here's an example of a guy that got fired from his executive level job because of an incident that occurred last October...

He went out that night probably thinking that his job was very secure.  The idea that he could possibly get fired from his job... Probably was the LAST thing on his mind.

One thing leads to another and suddenly... That income source that was probably actually pretty sweet... Dries up.  If his lifestyle had been right up there with his salary, he might have trouble keeping up with his bills once his savings runs out.  Unless he can find a new job that pays the same or better very soon.  But with such publicity it could be tough to get beyond an interview once that interviewer does a quick Google search.

Side note: Always be on your best behavior and always act professional in all aspects of your life and know that what you do in one area of your life, will probably be known in another area of your life.  It's hard to keep work and personal life separate these days.  So always just be on your best behavior no matter who it is you come in contact with.

Anyways, incomes can dry up, this is why I'm always trying to budget some of the money I make and put it into new ways to make more money.  Then I'll take some of those ways of making money once they start generating income and put that money into new ways of making money.  Create a positive income velocity feedback loop... and diversify to additional incomes.

It's not 1 single rain drop that fills up a stream causing it to overflow its banks.  It's a lot of them all together.  Just like it's not 1 single water molecule that fills that tub... It's a lot of little tiny ones.

Yes, it's nice to splurge a little while on yourself... And every now and then I'll do that.  But... if you keep that as a percentage of your budget and save/reinvest the rest of your money and let it build.... You can have a much bigger total amount of money to spend in the splurge category...

You never know what bumps lie ahead in life... So I recommend whenever possible to not use that extra money in your budget, but instead to build up your savings and even try to think of a way to put the money to work for you and then use that income for the unexpected things in life.  You never know what tomorrow will bring.  Always be prepared for worst case scenario.

If you spend more than you make, you can only sustain that for so long... If you spend as much as you make... or less than you make... You can sustain that indefinitely.  And especially if you spend less than you make and then invest that extra money back into something that generates more income... Then the income you have to work with and budget from each month can start to grow.

That's just my meandering outlook on money and finances and budgeting and what not.  I realize there are different ways to slice the pie... so whatever your way is... If it works for you.  Awesome.  If not... Maybe try out a different budgeting strategy.

I feel like the this whole blog post can be summed up as income sustainability.  In other words, give someone a fish and they will eat once, teach someone to fish and they will eat for a lifetime.. Unless they don't like fish.  That would suck to have to eat fish your whole life if you don't really like fish.  Maybe try out farming too.  Farm one day and fish the next.  Diversify your food source.  Then you can sell options contracts on your futures crop commodity prices... And then take that money and invest in a start up that makes more efficient farming equipment for farmers and fishing equipment for fish catching workers.  Then take that company public and cash out your shares after the IPO...  Something like that.


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