Happy Day to you. This is Ken Kaufman CFO and I am thrilled you’re here for episode number 11: The most important priority of all.
Last episode we talked about why budgeting is not a bad word. As you’ll recall, we talked about the negative emotions and content text that a lot of people have around budgeting and that it’s bad and it’s restrictive. Yet when we swap the word, prioritizing for budgeting, all the sudden, everything can change. And our perspective can change. Because budgeting or prioritizing is about taking whatever resources we have. And we all have finite resources. And it’s making sure that they are prioritized according to what is most important to us.
I mentioned at the end of the last episode that I’d share with you a fun little story about my wife. And as you recall, in the last episode, I talked about how she’s somebody who had some of those negative reactions and emotions when the word budgeting came up. And then I started using the word priorities. And that shifted her mindset. And it helped shift my mindset as well so that we could be aligned around spending time and really trying to prioritize or budget. One thing that I found even once we started prioritizing is that my wife still felt limited by it all. And while I only have this much in this category in this much in this category, so we done a good job figuring out what our priority priorities were. But it still felt a little bit constrictive.
And so the last thing that I did that got this over the edge for her is we decided to create an account or a category in our budget called Angela fun money. My wife’s name is Angela. And we put $50 a month into it. And she can do whatever she wants with it, doesn’t have to answer for it, she can spend it however she wants. The amazing thing with this is the amount of pressure and noise that that reduced for her. And to feel this freedom of, hey, there’s something there and I can just do what I want with it. And it’s once we put that in place, that she really started to get into a flow with budgeting and understanding that this prioritization process was helpful and was going to benefit us in the short term. And in the long term.
Here’s the most amazing thing – she has never spent that money on herself. Every time she’s used it, she’s ended up using it for somebody in need, or somebody who needs help, or somebody that she’s concerned about, or someone she’s done something for. My wife’s amazing. And I appreciate that part about her. And there was this last part of her this emotional hurdle around the concept of prioritizing and budgeting. You just needed to have that freedom.
The other thing that we that I did, the budgeting software we use is You Need A Budget, or YNAB. And I’d recommend that for anybody who wants to really dive in and take this stuff seriously with building priorities. One of the reasons is because I was able to take that category from our budget, and move it all the way to the very top line. So anytime on her phone or on the computer that she pulls up the budget, the first line she sees is Angela fun money with the dollar amount that’s waiting for her to do whatever she wants with it. That has been huge to help her.
Now, today’s episode about this most important priority of all, it starts with this. The first thing you have to do is sit down and figure out – what are my priorities. At some point down the road, we’ll get into some more detail about this in future podcasts. And I’m not going to take a lot of time, I don’t know you well enough, I don’t know your situation. Specifically, we don’t have time to sit down and go through the details. And I don’t really we want to go through in this episode, the details of how my wife and I have gone through figuring out our priorities. Because the most important priority of all is really split between three activities.
The first one is that you figure out what your priorities are. Second, you take the time to allocate your current cash into those priorities. And then number three, you actually hold yourself accountable and track how you do in terms of how you actually spend that money, versus which priorities you put them toward. So there’s some accountability.
Let me start with just this part first, this first element, you want to figure out your top priorities. And I’ll throw this out there, the where and how of that. Maybe it’s a spreadsheet for you or a Google Sheet, which my wife and I have some financial things in a Google Sheet. I like that because we can share it and make changes concurrently and not mess versions up and those sorts of things. So you might want to use a Google Sheet or you might want to use a budgeting software to capture where all this goes we use, and as I mentioned, I’m a big fan of You Need A Budget, or YNAB. And this one reason is because we can move all these lines around so that our top priorities can be put up at the top of the budget. So when you open it, that’s the first thing those are the first things you see. And then you can work your way down from a priority standpoint, you can do it there, you can do it in a spreadsheet. But whatever is easiest or hand write it down. I think the medium is less important here as going through the activity to get yourself going and get yourself started.
The second step of this is once you say, All right, here’s my first and second third priority. Oh, and I need to back up to the reason why you need a budget as a phenomenal tool is because it only lets you budget money that you actually have money that’s available to you in your bank account. And that’s critical because budgeting or prioritizing fake money or future money that you’re going to earn sometime down the road. That’s just not the way to go. And it might be a little hard to do this at first. Because you need to build up to a place where you have money sitting there that doesn’t already have a job assigned to it or doesn’t have something that it’s got to do. By the way, that’s one of the key foundational elements of YNAB is they tell you to give every dollar a job or assignment – something to do.
It’s a similar concept here where you’re saying, Well, what are my biggest priorities. For most people they have some non-negotiable is where when money comes in, they have one or two or three or four things that they just do before anything else as a priority. Those are top priorities I mentioned before we believe in paying God. And so we put 10% aside as a tithing. And it doesn’t matter if we make $10 or $1,000. We put that 10% aside. We also believe in having money available to do things for other people and help them and so we have a percentage we set aside for that we have a percentage we set aside to pay ourselves mostly in in a mechanism where we’re paying ourselves in the future. And we’ll talk more about that in future episodes. And then we also need to set money aside for taxes. And so those are sort of the first four places where no matter what comes in, I have percentages and amounts that have to get allocated to those things. And then we build the rest of our priorities down from there. That’ll give you maybe a little bit of something to start with and get those top several priorities figured out.
The second step is to keep track of how you actually spend your money against each priority. And this is where budgeting software is nice like a You Need A Budget downloads transactions from your bank automatically. You have to go in and categorize it. This takes some work.
But let me explain to you why this is so important. This is the magic of it all when you go through the effort of prioritizing or budgeting your money and where you want to go. Most people lose steam from there and they don’t track where it goes. And that is losing all the traction of all the effort that you put into it. I cannot stress this enough. Tracking is so powerful, not because you want to beat yourself up because you spend too much money in one area or not enough money in another area. It’s because you will learn a ton if you hold yourself to a discipline of evaluating what did I say I was going to do. And then what did I actually do?
Now let me just take this personal finance hat off and go to what I do professionally. I’m a Chief Financial Officer for businesses. I have built hundreds, I have built thousands of budgets for companies that are big to small, from service businesses, to software businesses to manufacturing and construction, all kinds of businesses. And when we we go through this exercise, we do the very best we can to look ahead at what’s going to happen and try to project and predict exactly how things are going to go. But I can tell you this one thing I’ve never been right, the minute I’ve hit save on that budget. I knew that it was wrong. Nobody can perfectly predict the future, you can’t forecast what might happen in a week or two or a few years. Life is just kind of messy and that happens.
So the power of the budget is not to beat yourself up. If you do something different than it, the power is you make assumptions about what’s going to happen, or where you want to put your money based on your priorities and how you want to spend it. And then by coming back, you then are going to validate the assumptions that you made that were right, and you’re going to invalidate the others. And in that process, you learn so much about how you think and how you process things and your emotional reaction to things. And why you did this versus why you did that. And why you wanted to put some money over here, but you never ended up getting to it. It forces you through this discipline of tracking how you’re doing relative to how you said you were going to do, it forces you to hold yourself accountable and to be honest with yourself.
And I’m giving you permission right now to be wrong, to make mistakes to not guess the future perfectly because nobody can. Like I said, I do this professionally for a living for big complex companies and organizations. And if I can be within a half a percent or 1% at the end of 12 months, I did amazing. And so be prepared to make mistakes and realize they’re not mistakes. It’s a learning opportunity. Which assumptions did you make that were valid and which ones are invalid.
And then you get into iterate, as you remember, in the impact your net worth model “I” stands for iterate your mindset, every month, every week, every quarter, whatever your time interval is here, I’d recommend at least monthly. But whatever you need to do to get started, the learning that will go on is so valuable. And then to step back and say okay, now what are we going to do? And now what are we going to do? iteration is empowered, when you make a stab at something, you go out into the dark and you make a guess about the future. And then you watch and see what actually happens. And then you learn from it and you iterate you then implement in your next month budget and then your next month budget, you keep making those steps of progress.
Now, I’ll tell you this, I am in a massive phase of iteration right now because I’ve got some life changes going on, and I’m going to save that for another episode as well. But if you’ve got these significant life changes happening, if there’s a marriage or a divorce, addition of a dependent, subtraction of a dependent, deletion of a job, addition of a job, deletion of a hobby, adding a really expensive hobby, change in your physical or emotional health, or a change in your overall life perspective and what your priorities are. All of that is life and all of that, okay. That’s why we iterate, we have to keep evaluating, and keep saying, oh, man, I thought that was my top priority. But it’s not. Now I realized that this is actually my top priority. And that drops down to number five or six on the list in terms of where I want to allocate my resources.
So again, just really quickly, first, you need to sit down and line this stuff out a spreadsheet or wherever, second, keep track. And then the third step is hold yourself accountable not to be perfectly right, but just to have a discipline where you validate and invalidate whatever you assumed in the past, and then keep iterating and keep getting better and keep getting better. This is a learning process. And like I said, I’ve been doing this personal for 25 years. And for large businesses since the year 2004, thousands and thousands of these things that I’ve done and none of them have ever been perfectly right.
So take it from me, I’m giving you permission to be wrong. What I’m not giving you permission to do is to avoid a discipline where you learn and you get better and better, iterating yourself through the process.
So that’s it. The title of this podcast was the most important priority of all and you want to know what it is. It’s holding yourself accountable to the discipline of tracking what you do versus what you said you were going to do or what your priorities were, and then iterating and learning – that is the most important priority. And if you do that, you will expose what your real priorities are, you will get alignment in how you actually spend your money with those priorities. And you will drive alignment with your spouse as you talk through these things. And as you work on these things together and as you regularly hold yourself accountable, not to be right, but to have the discipline to see where were you right where you were wrong, and then make improvements in the future. That’s it the most important priority of all – prioritize it, track it, make those assumptions, validate and invalidate them, learn, iterate, keep improving, keep moving forward, keep getting better.
Make sure to subscribe to the podcast so you don’t miss future episodes. Also, if you wouldn’t mind, feel free to leave me a review. Give me some feedback, send me an email Ken at net worth hacks dot com just reach out and I’d be happy to hear and receive any feedback you have so that I can figure out how I can iterate and improve this podcast for you.
Many, many thanks to you for joining today. This is a wrap for Episode 11. Happy day.
Transcribed by https://otter.ai