This week, we’re revisiting the very important subject of budgeting. This is inspired by a wonderful email received this week from a listener called Martin in Pontefract in the UK. I was just going to read the email out, but I decided instead to ask Martin onto the show and he agreed! We’ll hear from him in just a second…
It is also timely as I am about to launch MeaningfulUniversity.com and the inaugural course at MU will be Learn How To Budget. I’m taking a break from our investing mini-series for this, because the release of this session will coincide with the launch of MU, give or take a few days. Stay tuned for an MU discount code specially for you lovely podcast listeners too…
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I covered budgeting right back in Episode 3 as it is such a core skill that pretty much everything else is built upon it. Unless you are lucky enough to have more income than you can possibly spend, chances are that you’re going to have to watch those pennies each month, to a greater or lesser extent.
Just then I called budgeting a core skill; really it is foundational. Foundational in that if you don’t have a solid foundation of spending less than you earn and paying yourself first then your financial plan is going to be pretty shaky and your future uncertain. So let’s chat to Martin and take from that conversation some key points (here's his email to me, which covers the main points of the conversation):
Conversation with Martin
Just wanted to drop you a line and let you know of some recent financial successes, which I put down, in no small part, to you and the Meaningful Money podcast.
I have always kept a watchful eye on my finances but your podcast (which I have listened to since episode 1) gave me the focus I needed to take action. In early 2013, I had a sizeable car loan and a personal loan (from splashing out on a new kitchen) and I was contracting so building up a sizeable tax-bill for the following year! These are now gone! All paid off and we own both our cars outright. I have no intention of taking personal finance again in my life.
At the same time I also practised ‘pay yourself first’ by starting to overpay on the mortgage. Only a small amount each month but it adds up. Late last year we celebrated dropping a digit (before the decimal point!) off the outstanding balance and I cannot tell you how good that felt!
Since paying off the debts, the focus shifted to building an emergency fund and I am pleased to say that as of this month it is mission accomplished. 6 months take home pay in an instant access cash ISA! So what next? Well, it is all about the mortgage now. I intend to be mortgage free by 43 (currently 38). In fact “Mortgage free by 43” is my new mantra that I say to myself whenever I am tempted by an impulsive purchase!
After that, who knows?? Property investments and ISA stocks and shares investments probably. See if I can replace my income by the time I am 50 so that I can travel the world. What is that saying? Ah yes, “Live like no-one else now, so you can live like no-one else later”.
Cheers Pete, your podcasts continue to be an inspiration!
Key points to take away
1 – Even if you have debt, it is possible to deal with it by careful budgeting
Car loans, personal loans and looming tax bills – Martin dealt with them all by careful budgeting
Debt can be crippling. The number of zeros on a statement and the likely time it will take to pay it off can lead to paralysis. But there is a way to pay off debt and celebrate some quick wins. I covered this back in Session 4, and I’ll be adding some detail in MU as part of the course.
Debt needn’t be paralysing – Martin proves that
2 – Watching is one thing, taking action is another
Martin says that he had always ‘kept a watchful eye on his finances’ but that (partly due to this podcast) he was inspired to take action.
A key part of success with budgeting is that it is about planning and implementing , rather than looking back – keeping a watchful eye.
I always knew to the penny where my money had gone over the last week, fortnight, month. I was great at tracking what I had spent. But I was rubbish at deciding what I would spend. I never told my money where it should go and then kept an eye on THAT!
Martin decided to take action, planned his finances and then monitored as he went along – that’s the key to success with budgeting. I reckon it takes half an hour per month to plan and then ten minutes per week to track your spending.
In the Learn How To Budget course on MU I cover off how to set up both a monthly plan and a weekly review so that you’re always on top of things. This is what I do now and it works…
3 – Pay yourself first
Once Martin’s debt was gone he didn’t stop there. While he was clearing his debt, he was paying for someone else to get rich. The people he owed money to were creaming it off at his expense.
Now he’s free of that, he can pay himself first.
By paying down his mortgage, Martin is building himself an asset, the money hasn’t been spent on things which depreciate like kitchens and cars. And he is OVERPAYING, which means he is now building that asset even faster and nailing that debt as quickly as he can. Mortgage free by 43 – what a great mantra that is!
4 – A changed mindset
Martin mentions that his ‘mortgage free by 43’ mantra keeps him in check whenever he is tempted by an impulsive purchase. He keeps his eyes on the prize which means he isn’t swayed by short term temptations.
This is doubtless a change from how he was before, when loans were taken out without much regard for the consequences.
Martin has gained control of his money, something so many of us fail to do. He has mastered it and himself by celebrating the wins he has achieved while keeping his head down and running full-pelt towards the goal.
5 – A bright future
I love that Martin is already looking at what comes next after the mortgage is paid off. Property investments and S&S ISAs he says. He’d love to set up a passive income so he can retire at 50 and travel the world.
I get the feeling he will make it – don’t you? How fantastic to be able to allow yourself a look beyond debt, when Martin will own his property outright, and see a bright future.
Meaningful University and Learn How To Budget
Want to say thank you so much to Martin, and to others who have emailed me their success stories, for encouraging me so much. I’m delighted to have been a small part in his and others’ successes, but make no mistake, he’s the one doing all the work. I’m just a voice in his ear each week!
For a while now I have wanted to develop a mechanism for going further with the information here on MeaningfulMoney. MeaningfulUniversity is a bid to achieve that, where I can go deeper and have some interaction with those who really want to move forward with their own finances.
Learn How To Budget will be the first course, launching, I hope on May 15th (notice I said May 1st in the podcast – I have had to shunt things back a couple of weeks). It’s is everything I know about how to budget effectively in one four week course.
You don’t have to take it over four weeks, you get full access from the point of enrolment, but the idea is that if you have never budgeted before, then you get a month of preparation before hitting the ground running with your first full month of budgeting.
I’ll give you the tools you need to get a budget up and running including the monthly budget sheet that I use myself. I’ll talk about apps and tried-and-tested paper methods of keeping track.
I’m planning a private Facebook group so that students can interact and we can help each other as we go along.
Launch is on May 1st 2015 and it will be an initial launch of a maximum of 150 students so that I can then make sure everything is working and that the course will serve you as well sit possible can. I’ll doubtless make tweaks and modifications as we go along, and then I’ll relaunch later in the year.
The price of the course will be £67, but for MeaningfulMoney Podcast listeners there is an exclusive discount code. When you get to the checkout, you need to enter the code PODCAST20 to get £20 off, leaving a cost of £47. Be quick though – only the first 50 listeners who use this code will get the £20 off!
There is of course a 100% satisfaction guarantee so if during the first 60 days you don’t think the course has been of value, all you have to do is send an email and I’ll refund you with no questions asked.
Check it all out at MeaningfulUniversity.com – look forward to seeing you on the inside.
Don’t forget, a full transcript of my conversation with Martin and this entire episode is available if you hit the button below:
Podcast Session 3 – How To Budget
Podcast Session 4 – Five Steps To Get Out Of Debt
Video Episode 235 – How To Budget: The Key To Financial Success
Video Episode 236 – A Budget Example
Big thanks to Arbits and Stevie the Gecko in the UK, for their reviews this week – much appreciated!
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Next Session Announcement
Next time we'll be returning to our Investing Masterclass and talking about Setting Targets.
If you have a question on this subject, or any other financial query that you want answering here on the show, then the best way to do that is to leave me a voicemail at meaningfulmoney.tv/askpete