“All You Need to Know – Orchestral Version” by Gryffin, SLANDER, Calle Lehmann, Max Aruj 🎵
I posted 2 weeks ago about how not every 401K company match is the same.
I did this because I believe one way to invest in your people is to invest in them personally – not just in their technical training, but in life experience and failure.
We can invest in those we care about for their career not only when we’re responsible for them – a mentor, a leader (regardless of if you are an individual contributor or a manager) is responsible for your people and their career growth at your company, but also beyond. That’s something I live by for people I care about.
That was the goal with that 401K post. I thought maybe it would get 1,000 views.
I remember when I started my early career I was absolutely terrible with managing money – and I wish really any manager had been a guide then in that because it’s hard to have a career without understanding money.
Many are uncomfortable talking about money AND no one wants to get in trouble with the Investment Advisers Act (“IAA” or “the Act”) for giving financial advice in a regulated industry while not being licensed or qualified financial advisor, which is why I absolutely never write about stock in public posts. That said – several people are jobless in games. I’ve been you – you will get through this. I write this knowing from experience that when coming out of it in games, you will wonder “How do I prevent ever again from feeling so vulnerable financially?” Always improving. That’s a team effort – this industry is a wild ride.
As mentioned in that same 401K post, this is not financial advice – there are many people who will give you real financial advice for your portfolio and legally can. They are not me. If you see a way I can improve what I’m doing when you read this, please share. This is sharing how I live, what it’s done for me, and why I took this approach: Years ago, I started with no plan, no budget for my life.
3 Financial Principles
I have memories of my grandmother writing her own checks for her business in her kitchen. She used to sit me down next to her, open her checkbook, wink, and say “This will be you some day.” Then she’d follow it with stories about how on the farm sometimes it would freeze and they would be unable to get food for weeks.
She wanted to impress on me frugality.
The first step to having a good budget is understanding what your goals are. My entire budget is based on: Save aggressively. Then invest. Have many backup plans for when things go wrong. Give yourself the gift that is options.
I learned three very strong lessons from the women in my life who ran businesses:
1. Money may not be there.
2. Don’t use fake numbers to estimate what opportunities may provide for you.
3. Don’t stay in indecision. It expensive.
Running a business taught me so much I could write about it every weekend, but for YOU, readers, especially those who are younger, your principles and beliefs also apply to your personal budget.
Step 1: I Bought GOOD Modern Budgeting Software
Clint Doriot, an excellent leader and CTO, who I worked with a few times both on the same team and later he was my customer, recommended You Need a Budget (YNAB for short) to me. Transitioning to using it was hard.
It’s $99 a year and the best money I’ve ever spent hands down.
It has a 34 day free trial and the average money saved in the 1st year by their customers is $6,000. I can for a fact say that is true for me. I saved so much money just going through the exercise and cleaning up my brain and bank to focus on this. I have 0 relationship with the company and they have no idea I’m writing this post, but I’ve been a long time customer of YNAB.
While for the business I was completely setup in a separate bank account and separate budgeting software (Quickbooks), for my personal budget all I had were expenses.
First step was spreadsheeting out a guessed budget (You can use Google Docs or Excel). It was VERY high level back then (we’re talking years ago) and not what I use today. From what I remember I tried to break down the recent month. Something like…
- Savings (at that time, just money left unspent)
- Family Planning (nothing in this)
- Emergency Fund (nothing in this)
- Vacation (nothing in this)
- Education (nothing in this)
- Groceries (most of the money)
- Rent (most of the money)
- Car Insurance…etc.
Goal 1: Find $99/year somewhere so I could fix this problem.
Don’t over complicate it, just try.
The reason I did not want to overcomplicate breaking down the month while I had 0 software or a real plan in this step is once I setup You Need a Budget I redid any vision I had and realized that GOALS matter! (Goals are “targets” an actual feature in the software one can use too).
Pro Tip: If you start this right out of college, it will impact the rest of your life.
Step 2: What Aggressive Savings Looks Like Today
I’m not going to screenshot real dollar values – while I’m sure some would be interested in that, I get phished daily. What I am going to do is share a screenshot of my categories, talk about approach, and the path I took to get to today.
Let’s start with what’s in Savings. About 33% of my monthly income after taxes, 401K contributions, and not including stock goes into the “Savings” part of the budget. Savings for me is broken down into the following categories.
- Investment
- Family Planning
- HSA / Medical
- Emergency Fund
- House Major Expenses
I did not aim for 33% when I started. I did this over time. When I started I had ONE goal and that was Get 1 Month Ahead based on total income per month.
Emergency Fund vs Look Forward Allocation: If you read my 401K post then you read that I didn’t have things like a 401K match from a company or stock for a long time – especially while running my own business which meant I needed my own strategies for investing AND buffer. The business had a forward looking 6 month budget, but on a personal level I did not.
I think it’s Important to add some color to this – In YNAB you can invest in the future. You can allocate many months of budget in advance per month. Today, I don’t only have an Emergency Fund, I also allocate money and roll it over in advance. Which means I won’t actually spend from my emergency fund until I run out of my advance budgeted money (currently 3 months advanced). Every time the month is over, if there is money left over that wasn’t budgeted, I roll it into the next month by “assigning” money into future months (budgeting ahead). So not only did I set aside monthly money for an emergency fund, I also allocate ahead. At first my goal was only to “get ahead by one month” which was easy because I was putting less into savings, but then my goal became “get ahead by 2 months” and so on.
Once I hit 3 months ahead I started diversifying my savings strategy and created an Emergency Fund that I also fund into, but I could have just not done that and focused on forward allocation. I started with my Emergency Fund goal (I think I aimed for ~$10K in a year? It’s been 8…9…years). That goal would require about $835 in a month after I had achieved a forward looking budget I liked. This was hard as I wasn’t making much – so I ended up aggressively cutting anything fun, didn’t go out, didn’t eat out. One focus. It was also hard because I ran a business – I paid myself very little out of the business (to have cash on hand for next year) but still got hit with awful taxes as a someone who owned majority of the shares and I just ate them instead of pulling it out of the business. How much you can put towards it to “catch up” is very personal, but it’s important to start. I changed (up/down) this every year as a stretch goal for me – as it filled, I was able to pull it down, but my fear was that I hadn’t had one at all.
Beyond that, Users of YNAB can also do things like set an overall target ($20K, $50K, $100K) by a specific time frame for an emergency fund and then YNAB will break down how much I need to set aside to achieve it as well as tell me if I am still on track to meet it by year 2020, 2024, 2030 even if I make some adjustments every now and then. Once I’ve achieved a minor target, I can reinvest it to let it grow on it’s own into short-term investment options so it’s still accessible – talk to a Financial advisor once you hit specific milestones in how accessible you want your emergency funds to be. I will say tracking it after I split strategies in YNAB is hard but not impossible. Key point though: I started small in my 20s, I didn’t try to boil the ocean, but I tried to put pressure on myself to spend less everywhere else just so I could have that. I also was still renting at the time.
Investment category is used to take money later and put it into things like CDs, stock (non-T2), and long-term strategy. It took me 15 years to get to a point where I could do that so don’t beat yourself up. All of this is ALSO outside of having a 401K and company stock. This is ENTIRELY based on base income – which means that 33% I do not factor in as part of 401K and stock. I pretend 401K and stock don’t exist (similar to how others have said in a reply on my 401K post). I don’t pretend from the sake of not valuing them – try to find the best one, but I do from the sense that if I had 0 of those things, I would still have a savings and emergency fund strategy. I also don’t try to visualize them in YNAB because it’d be a pain in the butt. A separate category makes me feel safe and helps me learn.
HSA: This isn’t a budget as much as it is just keeping track of HSA contributions in the same budget in You Need a Budget from a visibility stand point.
Family Planning: I created this when I started trying to have children and it wasn’t working. I use it for anything insurance, HSA won’t cover. Fertility planning and going through it is hard and expensive – I don’t trust companies or insurance to do right by me and generally, the US and most of its 50 states also don’t have paid maternity leave laws. I made this, because I know the reality: Many women don’t ever get to take maternity leave because they may be jobless by the time luck and timing happens. Luckily some companies have Maven which is also helpful there for reimbursement. I intend to keep this for the rest of forever and roll over that from Savings to a “True Expense” for daycare if we are successful. I am sad I have this, but also, it makes me feel safe.
House Major Expenses: There’s a lot of great writing on what to do when you buy a property (vs rent) but you’ll need to allocate for upkeep (new roof, new hot water heater, new AC unit, new windows…etc). 6% of my base goes here plus bonuses or sometimes underspent allocation. I treat this somewhat adhoc as when I have to repair something on my house It may require its own strategy just depending on what it is.
Step 3: Immediate Obligations & True Expenses
These are the sub-category breakdowns I have for Immediate Obligations & True Expenses. While Mortgage is a debt, I don’t keep it in debt payments (and actually have 0 in Debt payments as that was for paying down my car and student loans which I focused on first).
There’s a lot here so I won’t go over every category and it depends on how granular you want to be. I separate Work Lunches and Groceries because Work Lunches I’ve had since running my business – I reimbursed myself for those if I took people out on behalf of my business. Today, I don’t need to do it that way. These categories I try to not change much – they should be normalized and recurring almost always. It also helps to keep Gifts and Giving consistent and allocate so there are no surprises for birthday or charity.
You may have seen Quality of Life Goals and Just For Fun as Well in the original list.
Quality of Life has two subcategories – Vacation and Education (which is where my personal AWS bills go, payment for certifications or training not covered by any company). Generally Vacations, I try to not take extravagant ones. A trip to the Smokies is a wonderful break for me and very affordable as it’s close by – we let this build and if we feel safe we’ll take a nicer one, if we don’t, it becomes another emergency budget (see below). We love staycations too.
Just for Fun has 5 – Entertainment Events (think going to the movies), Dining Out, Gaming, TV, Music.
I learned how to define education, fun, and vacation for me, but you will have your own preference.
In an Emergency: The Playbook For My Career Sevs
I’ve only ever been in a few career hits – the first one was before I had a real budget and it was extremely difficult to get through. They have only ever required me after that time to do what I like to call “SEV 3 and SEV 2 playbook responses.” But so you know it’s real, this is the playbook I do to make sure we can be okay:
- SEV 3: Quality of Life: Zero Out: I zero out everything going to vacation and education. I assume as a backup I can move money from these categories as well to Emergency Fund.
- I make sure all credit cards rolling over are paid off (this is true every month regardless, but I double check everything).
- SEV 3: Optional – Fun: I re-evaluate lowering Gifts, Giving, Entertainment Events, Dining Out, Clothing…etc. I do a pass at every category and check to see if it is too high as well as incoming expenses allocated. This is practiced for me and my husband so we have a good idea of how to lower these responsibly at any moment.
- SEV 2: Check Credit Alerts, Freezes, And Documentation: You are extremely vulnerable in times of need because of data breaches. Many Americans (and others!) have had their personal data shared in data breaches (including 143 million people in the Equifax breach). Pull a credit report immediately, make sure your freezes are in place, make sure your passport is renewed or up to date, and all of the other things you will need so you can quickly move through the job process when opportunity is there OR to shift funds if you need from your investments to cover the extended period. I am extremely vigilant on my credit with alerts – Credit Karma is free and will send you hard inquiries. You can set up alerts on your bank account too not only for access but for transfers – many of these features are free. Protect. Your. Stash. And. Watch. It. Become friends with your bank in person.
- SEV 2: Savings Zero Out: For the current month and the future forward 3 months that had already been allocated, I zero out any budget contributions that would go to savings. I assume I will not be adding anymore to the budget during the window. I do not PULL from savings, I just make sure that 0 contributions will be going to them during that window.
- SEV 1: Optional – Home: For mortgage I’ve been paying towards and over principal it’s helped to reevaluate in that window if we want to keep paying down over principal. When you have a mortgage, some mortgages let you pay what you owe PLUS some, which I do because I want to pay it off faster. In an emergency, I can choose to slow down that a little bit if I need. There are other ideas a mortgage provider can evaluate with you as well to speed up or slow down, but some strategies or re-financing all impact your history – it’s important to do the easy things first. I have never had to do anything here largely due to aggressive savings.
- SEV 0: 3. Nuke the Emergency Fund, 2. Nuke stock. 1. Nuke 401K. Re-finance the mortgage.
My goal is always to use the allocated forward looking budget at a reduced budget and THEN use the Emergency Fund – that is a last resort for me.
The Bank
Your bank will always be able to give you better advice than I can about what accounts to use, what CDs to invest in, and a financial advisors will also do so as well which is why, again, this is not financial advice.
That said, I learned a long time ago that Savings Accounts can absolutely suck. There are better accounts out there to store money both for business bank accounts and personal accounts like Money Market accounts that have a better return.
The restrictions on transfers also are livable even without an aggressive saving strategy. Depending on what your budget is and what you want to do with it, determines how much money you need to access at a given time and where it is stored. This is entirely separate from a budget – while it may be reflected in a budget or represented, for example, a person may choose to keep part of an Emergency Fund in an easily accessible Money Market account and put another bit of it in a short-term CD, make sure to talk someone who can give you real advice on where to put it.
It’s not hard to open a bank account and move money to a better one. Actually make the time to do it is the hard part.
Why Did You Post This?
I have lived as a gem and a class act in this challenging industry. Make no mistake.
Many people don’t have support or any transparency to build a plan from others. I don’t pretend to be an expert, but I want to provide the tools that worked for me, especially this software, and how to use it to both (1) save money now and (2) grow one’s budget later.
Let’s get you a job. Then let’s grow your budget.
PS. Allies – If you have a daughter or someone in their early 20s please share this with them. I wish someone had for me. I would have really loved that. I am lucky to have met Clint (and you should hire him) because without him, I never would have known it was far better than Quickbooks for personal budgeting.
Image Credit: You Need a Budget features page.
