Why Budgeting Matters – Align Your Finances

Daniel Wrenne: I love the saying, don’t tell me what’s most important, show me your calendar and your checkbook or your online bank statement, whatever, and I’ll tell you what’s most important. 

Heather Lovallo: That’s right. Yeah. 

Daniel Wrenne: Your money’s, I think your money is a great representation of what’s most important to you.

Welcome to Finance for Physicians, the show where we help physicians like you use money as a tool to live a great life. I’m your host, Daniel Wrenne, and I’ve spent the last decade advising physicians on their personal finances with the mission to help them understand that taking control of their finances now means creating a future where they can practice medicine where, when, and how long they want to.

Daniel Wrenne: Heather, how’s it going?

Heather Lovallo: It’s going well. When I went out on my run this morning, it was 53 degrees. And can I tell you how happy that makes me after a whole summer of 80 to 90 degrees? 

Daniel Wrenne: I think that, I would say that’s perfect running weather in the 50s. 

Heather Lovallo: Hmm. It was delightful and it makes me feel like fall has actually arrived. I hope it stays. 

Daniel Wrenne: And where I live, I’m in Kentucky and I feel like the fall is probably my favorite, gotten to be my favorite season. It’s right there in the, now Heather’s in Florida, so your fall’s a little different than my fall. 

Heather Lovallo: It’s still humid. But–

Daniel Wrenne: it takes a little longer to kick in.

Heather Lovallo: Uh-huh. Yeah. 

Daniel Wrenne: Well, it’s been a while since we talked on the podcast. I don’t even, it’s been a really long time. I took a break from doing the podcast. But we’re back, so I’m glad to be talking with you again. I love the topics we have.We were chatting about it a little bit before we hit record, but I think we have fun topics. We’re also financial planner geeks, so we–

Heather Lovallo:  Yeah, little nerdy.

Daniel Wrenne: Don’t like the same to topics all you guys like, but hopefully, it’ll be enjoyable. And so, well, this first topic, so what we’re going to be talking about in this show, I think it gets a little bit of bad rap. People, it’s almost like a bad word.

People are like, “I don’t even want to talk about it.” I wonder if you can guess what I’m talking about yet. I’ll give you some hints. It starts with a B. It involves counting, figuring out where your money’s going. The B word, budgeting. I personally don’t love budgeting. I don’t budget and I watch where my money’s going, but I don’t know exactly where it’s going, like every category, every month. So I have, everybody I have noticed in working with families with their money, everybody has kind of their own flavor of budgeting. So, and it kind of evolves over time too. So I don’t think that there’s necessarily a right or wrong way to do it, but I do think it is something everyone should do.

Or maybe a better way of saying it is it can, it’s a helpful exercise to do for everyone at, especially at a minimum every once in a while. So hopefully, we can shed a little light on some ideas for how to budget without making it so monotonous or undesirable. 

Heather Lovallo: Absolutely. It should not be viewed as a punishment. It should be something to feel empowered by. 

Daniel Wrenne: And at the end of the day, I guess maybe a good starting point is well, what’s the reason to budget? Like why should I budget? I mean, that’s probably a good starting point. What’s the purpose of it? 

Heather Lovallo: Yeah. I think for a lot of people, when they hear the word budgeting, their first thought is, “I need to cut back on something. There’s something wrong. I’m overspending.” And that’s why I would think about a budget in the first place. But I would argue that budgeting is And it really has a lot to do with how we feel in control of our money, as in how do we get clarity about where our money is going, and how do we feel good about that being an alignment with our values and our goals. And so in that way, it’s less about, “Oh, I need to ratchet back in an area.” And it’s more about, “I want to be in control of having a say in where my money goes in order to have that in alignment with where I want it to go. “

Daniel Wrenne: I love the saying, don’t tell me what’s most important. Show me your calendar and your checkbook or your online bank statement, whatever, and I’ll tell you what’s most important. 

Heather Lovallo: That’s right. Yeah.

Daniel Wrenne: Your money’s, I think your money is a great representation of what’s most important to you. 

Heather Lovallo: Absolutely. And sometimes money can also be an indication of where we’ve just gotten into a habit with something without looking at it to see if it’s, where it is still important.

So things change over time, right? And so sometimes the subscription we had three years ago might not be something that we’d really want to continue if we were even looking at it on our statement to know that it, “Oh, that’s still being pulled. I don’t watch that streaming service anymore.”

Daniel Wrenne: Right. Yep. And that’s. Yeah, like everybody’s got Netflix and Hulu and all those things, a lot of people, and it’s like are you actually using the thing that you’re spending money on? We have families we work with that have a boat payment kind of or, related expenses, and they don’t actually use the boat any, and that’s another example of potentially not being, it may have been a potential desirable thing to use, but if you’re not using it, it’s not even–no sense spending the money on it.

Heather Lovallo: Right, right. Sometimes that happens to fall into the category of say gym memberships or fitness things. 

Daniel Wrenne: But it’s like, “But I’m going to use it in next week.”

Heather Lovallo: Yes. Well, and if that’s the case, right? If that’s the case, like if that’s the goal, then absolutely it should still be there. And then it’s a focus on how do we actually put that into use.

Daniel Wrenne: Yeah. So I think one hurdle people have with budgeting is where to start. I think, well, there’s probably a little bit of barrier ahead in the sand. Like I don’t really want to see no evil here, hear no evil with a budget. So, you know what, assuming you’re like ready to dig in, what’s a good starting point? Like, how do we actually, I think there’s two different, people sometimes think of a budget as like a what I think I’m spending money on, which is kind of like part of it, but that’s the real question is what you’re actually spending money on. There’s like the target and the reality,

Heather Lovallo: Right. Yeah. And it can be very overwhelming to first approach it and to even know where to start because really, like you said, the first step is just getting a snapshot of where you’re at. And so for a lot of people, this might actually be the first time or the first time in a long time that they’ve really paid attention to how much money is actually hitting my bank every month. And then where is it going? If I were to look at just the high-level categories, not even getting into the exact transactions, but if I were to just look at the categories of spending, so things like food, dining out versus getting into all of the little transactions throughout a given week, that’s really the first place to start. Just a high-level this is what’s coming in, this is what’s going out, and where is it going? 

Daniel Wrenne: Yeah. Yeah. Where are you–it’s good to start out. It’s good to, yeah, from a starting point, we need to like, “Where are we at today?” Because a lot of times. There’s not much awareness for, we work with families all the time.

And a lot of times we’ll go through what people think they’re spending is. And it’s like I don’t think it’s ever been too high, what they said, like no one ever, 

Heather Lovallo: Right. Especially when it comes to the food and dining out. Those are big ones for a lot of our clients. 

Daniel Wrenne: But what’s a good, so I think you could just write all your expenses down. That’s like on a sheet of paper like old school or like Dave Ramsey envelopes. There’s a bunch of different ways to do it. But there’s also a bunch of nice technology out there. What are your favorite approaches to start to track things and get organized? 

Heather Lovallo: You can absolutely use an app, and I do. I often recommend for our clients, whenever we’re digging in on things to select some sort of app that’s going to help them with categorizing their transactions and get that high-level view. But that being said, you can start simply by looking at your bank statement and taking a look at the direct deposit that’s coming in for the income that’s coming in.

And then just high level, what are the bills that we have? Like those are going to be the same every single month. And to write those out as a known, these are fixed expenses that are going to be coming out. There’s not wiggle room in how much you pay in your mortgage. It is what it is. And so we know that is going to be the same every month.

And then when you look at things like, “Okay, I have paid off my credit card for X amount.” That’s where you can really start to dig in with an app, for example, or even just going to your credit card itself. A lot of times credit card companies will allow you to go back and look at your transaction history by category.

They’ll automatically categorize it for you. Might not be 100 percent accurate, but again, if what we’re after is a high-level overview, that’s a great way to start, and it’s free. And then beyond that, yes, absolutely. There are a variety of apps out there. Some of them free and some of them for a relatively small subscription each month that you can link up your accounts to and actually have your transactions flow through and it will categorize those for you as well.

Daniel Wrenne: Got any favorites? 

Heather Lovallo: So I personally use Every Dollar and I use the free option. They do have an option that you pay for that will have transactions coming through from your bank and debit card. That is a Dave Ramsey solutions product. Yep. And now they do not have a link up to credit cards.

So for those of you using credit cards and you’re wanting to itemize those transactions, this would not be a good option for that. For clients that we work with, they actually have access through eMoney, which is a software that we use in our financial planning with them. They actually have access to budgeting tool and transaction categorization through that platform for free. And so for our clients, I often recommend that we start with that as a starting point. I just recently did a budgeting meeting with one of our clients who used Monarch, which is something that you pay a subscription for, but it’s, I think it might be one that may have taken over Mint.

It’s one where you link up your accounts and I will say from an aesthetics point of view, it’s really pretty awesome, a lot of really nice charts and graphs if you really want to dig into things, and it puts it in a visually stimulating way that makes it easy to translate the data. 

Daniel Wrenne: YNAB is another good one. That’s it. 

Heather Lovallo: Yeah, a lot of our clients use that. Now that can be for those who end up feeling like budgeting might kind of be a hobby. Like if you really want to dig in, YNAB is a really robust one to really get into all of your transactions, categorize them and really stay on top of it. And the goal there of course is for every single dollar to be accounted for, which I would say should be the goal with any budget that we’re creating.

[Midroll]  Let’s take a quick break to talk about our firm, Wrenne Financial Planning. The goal of our podcast is to empower you to make better financial decisions. But sometimes the best financial decision you can make is to work with someone who understands your financial goals and has the expertise to keep you on track to reach them.

That’s where Wrenne Financial Planning comes in. We are a full-service financial planning firm that works with over 400 physicians and their families across the country. We charge a transparent monthly flat fee for our services and offer virtual meetings you can take from anywhere. Best of all, you’ll get to work with a team that specializes in working with physician families.

So whether you’re starting out and wondering how you’ll balance your student loan payments and saving for a home, or you’re an established physician trying to figure out how to pay for your kid’s college and how much you need to save to reach financial freedom, we can help. I’ll put a link in the show notes to schedule a no-obligation meeting with one of our certified financial planners.

Wrenne Financial Planning LLC is a registered investment advisor. For more information about our firm, please visit wrennefinancial.com. That’s wrennefinancial.com.

Daniel Wrenne: So the way that I was saying earlier, I don’t budget, but I kind, I keep an eye on where our money’s going. The way that I do it is I just track each month how much in total is being spent by just going onto our checking account and looking at how much we started with, how much came in, and how much we end with, and then I can do the math and figure out how much was spent. It was not that complicated math. And so basically every month I record how much came in, how much went out of my accounts.

And then, so I can see total spending like the total, and then I can, really the variable, like you were saying, the variable one is credit cards. So every probably six months or so, I don’t like the number somewhere. And I’m like, “Ah, we need to dig in.” So we do a kind of a one or two-month audit kind of his way.

I would look at it and that way it is kind of tedious to track it every single month, at least personally, I don’t love to do that, but you don’t want to not pay attention to it for years and years and years. either. So you kind of have to strike a balance. 

Heather Lovallo: Right. Well, and again, it’s what is the goal?

Is the goal just to have an awareness of where your money is going and that’s it? Or is it we really want to be reallocating our money towards a specific short-term purchase? So maybe we’ve got a big trip coming up and we would prefer to have that saved ahead of time as opposed to trying to pay for it after the fact on a credit card.

It might be that we are wanting to ratchet up our savings in some way, shape, or form. And so maybe we have a baby on the way and we want a little more cushion for all of the stuff we’re going to buy, or we’re knowing that we’re going to be taking time off from work. These are all very good reasons to be taking a look at the budget and saying, “Okay, we have a certain amount of money every month.”

And we know that in order to build up some savings, we have to reallocate the way that we’re spending it right now. And so that’s where budgeting can really come in handy to figure out where’s the wiggle room, because we know it’s not going to be changing our mortgage amount, but where’s the variable spending areas that we can shift things to say, “Maybe we don’t eat out so much this month in order to save a certain amount and put it into a savings account for what we really want to spend it on in the future.”

And I like to say, whenever I’m working with people, a lot of times, again, budgeting can feel like punishment, like a bad thing. “I’ve done something wrong. I’m doing something wrong with how I’m spending my money.” And I would say focus less on that and focus more on what are the things that you really want to say yes to?

What do you want to say yes to spending on? Very intentionally. And in that way, it makes it a lot easier to say, “I’d rather say yes to this thing than to the other thing that maybe I’ve been spending on in the past.” 

Daniel Wrenne: Yeah, it’s all trade-offs and one approach that I have used before and have, I think, can work really well is to go through and look at, if you are going to say it’s, so it’s kind of a long lines of the trade-offs.

If you’re,you know, a thing you regularly spend money on say it’s like Hulu subscription or something, and you’re like, “How important is that to me?” So you kind of rate the spending on a level of how important it is to you. You could even use a number scale. So it’s like one through five. And so you go through, I mean, you could even go through every single transaction, but you know, maybe you go through the categories at least.

And for those that are, so a five is most important, one is least important. Maybe the things that are like a one, you’re like, okay, we’re going to cut those things or spend less in them. And then on top of it, you come up with the plan for where the excess money is going to go when you, or as you spend less so that it doesn’t get–‘cause the problem is it just kind of get creep, it’ll creep into another expense if you don’t do something about it. So that’s kind of like the phase two of budgeting is like as you start to ideally make adjustments to where you’re spending that aligns more with your values, you then are intentional about redirecting the money in alignment more with what you’ve defined as like the top priorities. 

Heather Lovallo: Yeah, absolutely. And I think it’s a lot easier to do the writing when, the thing that you’re actually trying to work towards, again, getting back to that, would you rather, right, would you rather watch the Hulu or would you rather do this other thing that you’ve got your eyes set on?

Daniel Wrenne: Yeah. Or could even be spending money. Or I’m sorry, saving more money, but it could also be giving more money. So everybody’s going to be different, but the last thing about budgeting, I think that’s important that I think, I don’t know how many people are thinking about this, but you also, you gotta know what your lifestyle is so that you can plan for retirement correctly.

People don’t think about, maybe a lot of times people aren’t thinking about lifestyle when they’re thinking about retirement planning. Maybe they think about how much money they need. But the key factor we have to know is what is that? How much money do you need every month for the rest of your life in order to retire?

So that’s where lifestyle comes in. So basically we have to know what your lifestyle is and then. Use that to estimate what it’s going to be in retirement so that we can then get to a point of saying, “Okay, well, so we know how much lifestyle we need to plan for so that we can give you kind of like your number. Like we can know how much you need to save to be on track for it.”

Heather Lovallo: Absolutely. Absolutely. 

Daniel Wrenne: But it all starts with budgeting. 

Heather Lovallo: Yes, it does. It does. I would say there’s also another area that as I’ve worked with our clients on budgeting seems to be an aha moment for our clients that I’d like to share too, is in approaching in a given year when people know they’ve got major expenses.

So, here we are coming up on Thanksgiving and very soon it will be Christmas, for a lot of people that’s a month where they’re taking a huge hit on their credit cards because there’s a lot of extra spending going on. And so something that people might consider in order to not feel such a big hit is to plan ahead for that.

Like start saving for Christmas in January. Set aside a little bit each month. And then that way you’ve already got it in cash, ready to go. And it’s not a big hit to your cash flow. And this is something that a lot of our clients have expressed that they really like thinking about that approach. And that’s something that I do a lot in my personal budgeting so that I know that my spending each month still stays relatively the same.

There aren’t going to be any months where I’m taking a really big hit and I’ve got a ratchet back in my spending in some other area in order to pay things off on the credit card. But just to plan ahead, you know what those big expenses are. Maybe it’s private school tuition.

Maybe it’s an annual trip that you guys take to visit family out of state, whatever the thing is, you can be very intentional about planning ahead, set aside a little bit each month in order to have that total amount ready to go when it’s time to pay for it. And then you can pay for it in cash. And for a lot of our clients, being able to pay for things in cash is a huge weight off, especially when working with couples. 

Daniel Wrenne: Yeah. And with couples, so budgeting can also be, well, my mind was going the direction of couples and budgets. 

Heather Lovallo: That’s a whole different topic. 

Daniel Wrenne: That’s another episode we can get into like a lot of common disputes that occur when you start to talk about budgets, but there’s many and there’s wrong, there’s right and wrong ways for how to.

Heather Lovallo: Yes,  to have the conversation that can go sideways very quickly. 

Daniel Wrenne: If you want us to cover that, let me know. I think we’ll cover that either way. ‘Cause that seems to come up all the time. We’ll definitely put that on the docket for another day. But I mean, I think the takeaway is it doesn’t, you can do your own flavor of budgeting.

The main thing is having some spending awareness. And over time, maybe adjusting that to your situation, but you don’t want to be like completely unaware is the thing I would advocate for is have some level of awareness and it’s going to, you’re going to feel a little better about it.

It seems like it might be a little, you know, that’s not going to be any fun or whatever, but people that know where they’re spending overall, that’s a less stressful situation. You at least know, you know where you stand. And the other thing too, is you really, especially if you have kids, they see you budgeting, which is kind of a big deal.

Heather Lovallo: Yes. You’re modeling what you want to teach. 

Daniel Wrenne: Right. 

Heather Lovallo: Yeah. And there’s a lot of opportunities for conversations to happen surrounding that.

Daniel Wrenne: That’s another podcast episode.

Heather Lovallo: That is another podcast. 

Daniel Wrenne: Like that one on the docket. We need to talk about teaching your kids how to budget. Yes. But yeah, I mean, that’s just further reason to have some spending awareness. So I think that’s the takeaway. Other parting thoughts on your end, Heather, for takeaway? 

Heather Lovallo: Yeah. I mean, I totally agree. I think for so many people, when they feel stressed about their money, it often has to do with just not having clarity about what’s coming in and what’s going out. And same thing for couple dynamics.

A lot of it has to do with just that awareness of what is going on. And then once you know that, that’s when you are in such a better position to ratchet back in areas, ratchet up in areas, and just really take a look and say, “Does this align with where I want to be spending my dollars? Am I being a good steward of what’s coming in?” And also again, modeling for your family.

Daniel Wrenne: Awesome. If y’all have topics that we’ve–related topics you want us to cover, let us know or questions, feel free to reach out with questions. And we definitely need to catch back up and get into some of the marital dispute one that we need to put that on the docket for sure, and teaching kids about money. I think those are good ones for the future. 

Heather Lovallo: Absolutely. 

Daniel Wrenne: I appreciate you sitting down with me, Heather. 

Heather Lovallo: Absolutely, Daniel. Good to be back.

No guests or clients appearing on the podcast received any form of compensation for their appearance and obtained no other benefit from us. It should not be assumed that every client has had the same experience.

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