At this point and I could not wait to go home and fire up Excel and start budgeting. As Rachel and I were guesstimating our monthly and future expenses, we had to make calls to her and my parents. We had both lived with our parents and were oblivious as to how much things cost. Once we figured out how much we’d spend on recurring items like utilities, groceries, car insurance, clothes, etc., we started to think about our future big-item expenses. Suddenly a lot of unexpected things showed up on the list: furniture, car insurance deductibles, a new TV (that was when big TVs cost a lot of money) … and this was all before we had kids.
As I am thinking about this almost two decades later, I see that Mark’s budgeting advice turned our spending from a mindless, often impulsive endeavor into a mindful one. It was a great prioritizing tool. Rachel and I intentionally allocated our limited income to the things that mattered to us the most, at the expense of things that mattered to us less. By bringing all current and eventual expenses into our monthly spending budget, we got rid of unwelcome surprises. Also, when unexpected things happened – a car accident, a significant repair to the house – since money had been saved in the “emergencies” sinking fund and it came out of a different savings (and mental) account, writing a check was a lot less painful.
I realized over the years what Mark saw then: that our wants are unlimited and will always exceed our income. No matter how much money you make, be it $100,000, a million, or ten million, without a system your insatiable wants (if not controlled) will always outpace out your income. You think if you double or triple your income you’ll be happy, you’ll have enough? Unless you keep your expenses the same, which most us of will not do, then you won’t have enough. As we make more money we seem to develop a taste for finer wines, more luxurious cars, and larger houses in pricier neighborhoods.
We’ll always have neighbors and friends who have fancier things than we do. If we allow our internal compass to be magnetized by them, we’re guaranteed a life of misery, as our income will always lag behind our envy and we’ll be destined for the never-ending rat race. Warren Buffett says that envy is the stupidest of all the deadly sins – at least you get some pleasure from the other ones.
As you can imagine, in the investing industry, where you rub shoulders with multi-multi-millionaires and billionaires (be it your clients or colleagues), it is very easy to let your internal compass get out whack. Over the years when our (mainly my) impulses were getting the worst of us, my wife and I would go to the budget and see what we’d have to give up if were to opt for a new car or a bigger house. Was the new house worth a winter without skiing or a Florida vacation?
We realized that material things – houses and cars, etc. – were on the lower end of our priority list. We found that four categories were important to us: health, experiences, time, and education. It’s not that we don’t have a budget for these categories, it’s just the budget is larger and much looser.
Let’s start with health. Without health nothing else matters. A personal trainer may look like an unnecessary luxury, but without him every attempt I have made to work out has failed. (I’ve been working out with a trainer consistently now for over a year). Food fits into this category as well. We simply don’t pay attention to the price of tomatoes or meat at the grocery store.
Education: On top of paying for the education of our kids and their after-school activities, we put no limits on how much money they (and we) spend on books. The same applies to our own education, be it for seminars or coaches.
Experiences: As my kids are growing up I have become acutely aware that we’ll have only a limited time with them. Family vacations, skiing in the winter, and day trips are very important to us. Whenever I travel for business I always try to take a family member with me.
And then there is time. Time is the most finite asset we have. My thinking on this topic has changed over the last five years. I was always bothered when my investment friends used assistants to schedule calls with me or their assistants replied to emails I sent them. I incorrectly perceived that it was their way of telling me that they were more important than others. However, I realized as I got older that money buys time. The time I save by not doing low-value tasks (e.g. going through my inbox, replying to emails that my assistant can respond to, scheduling calls, making doctor’s appointments, or booking airline tickets) I can spend doing research, talking to clients, and yes, hanging out with family and friends.
I am not sure if money can actually bring happiness, but I am sure that the lack of money is a source of a tremendous of unhappiness. On the surface this sentence may fail a test of logic as it lacks linearity, but it’s true just the same. Oxygen doesn’t make you happy, but a lack of oxygen will make you unhappy very quickly. So it is with money. (Although we’ll all disagree on what “a lack” means).
Happiness is reality less expectations. When you control your budget you control your expectations.
When you constantly spend more money than you earn, after you chew through your savings (if you ever had any), then you’re getting deeper into debt. Therefore, to maximize health, education, experiences, and time and still live within our means, Rachel and I had to give up things that were less important to us – a huge house and brand new cars. My wife is driving a 13-year-old car, and I would still be driving the 10-year-old car that I owned for eight years if it hadn’t been stolen. We have lived in the same, not-so-fancy house in a safe but not-fancy neighborhood for 15 years.
I have found over the years that I absolutely hate the feeling of being helpless – a feeling you get when you have no control over life or circumstances. I know that control is an illusion, but I don’t give it up voluntarily.
By living within our budget (and, I am sure, thanks to plenty of good luck), Rachel and I have never had to argue about money (we had plenty of other topics), because we were on the same page, since we both created that budget.
I was lucky to have Mark as a friend who, with just one lunch, made my life richer and easier. I hope that with this article I’ll do the same for others – and Jonah, I hope you’re reading this!