So I remember my first real job, I remember a really important financial lesson that I learned shortly after I started this job. So I had been working about 9 or 10 months and then had an annual review with my boss and I was called into her office. She ends up telling me, “Bob, you’ve done a pretty good job. We’re going to give you a 6% raise.”
And I was just like, thrilled, this is going to be amazing. It was probably going to be like an extra couple hundred dollars every single month. I think it’s safe to say we’ve all had this type of experience.
I realized I’m going to have all this money and my raise was going to kick in in like two or three pay periods. So probably like a month and a half or so. So I went out and celebrated, went out with my friends, spent a whole bunch of money and I think I got a new wardrobe because I was basically like an executive now. Not at all.
Still An Entry Level Job
It was still like one notch above entry-level job for sure. But, I bought a whole bunch of clothes because I wanted to look better. I think I even upgraded my car. I just had all this stuff going on because I wasn’t budgeting, I really had no idea. I wasn’t tracking my money. I just figured- there’s more money! A 6% raise, I’m going to have a TON of money and I’m just going to spend all of this.
So I’m celebrating for days. I mean maybe even weeks about this raise telling everybody. So tickled, spending money like it’s going out of style. Fast forward about a month, a month and a half or so and I get my new paycheck and I go look at it and then I kind of go through my bills for the next couple of weeks and like, man it’s really tight and this is kind of weird and maybe they didn’t actually put my raise on that paycheck.
Then another pay period goes by and I realized that, yeah they actually did increase the amount but I actually feel worse than I did before I got that raise. Upon running the numbers, I actually realize I have overspent the raise that I got and actually did it even before I got the raise. Have you done this before?
I think a lot of us have, but you know, this is the power of a budget. I don’t know if you’ve ever heard of Parkinson’s law, but it says that:
Work expands so as to fill the time available for its completion.”
It’s kind of like when your boss tells you you can go home as soon as your job’s done for that day. Your boss will say “Yeah, as soon as you get your work done you can leave.” And in your mind you’re thinking “I want to get this done in 15 minutes!”
At my old job, we had that happen all the time. We worked an eight hour a day normally, but on those Fridays we were done by noon or 12:30 and like how is that possible? You know? And that’s the gist of Parkinson’s law. And this law applies to our money, just the same. Without deliberate action on our part, our expenses are going to rise to meet our income.
Expenses Rise To Meet Our Income
In order to keep that from happening, we have to do something deliberate. And the best way to do this is to set a budget. I remember right after we got married, I think one of or both of us got a raise and my wife Linda was like, “All right, where are we going to spend this money?” She was going to do what I had, and I learned my lesson from my money mistake the hard way. I told her ” No, we’re not spending that money!”
A raise typically isn’t as much money as you think it is. You always overestimate how much it is and you know that’s why this law is there. That’s why someone really smart wrote this down and probably was awarded many awards because of it.
So the key with the budget is that it allows you to stay consistent with your expenses rather than having them automatically rise up or over to whatever your income is at that point. You can kind of lock in on that and then incrementally increase those expenses – as the money because available. In proportion, and not going over and above!
Having A Budget
In our case, having a budget has just saved our butts so many times with this. Once I learned that lesson, I tried not to learn it again. And we run our own business and we’re online entrepreneurs and it’s a roller coaster. It’s a roller coaster of inconsistent income. One month it could be super high, the next month it could be super low and in the middle the next month. You just never really know what’s going to happen month to month with our income.
We’ve been doing this for full-time, for about 11 or 12 years or so. Basically, being full-time bloggers and YouTubers and any kind of digital media, this is our business. And so we’ve seen some really high highs and some really low lows and everything in between with our income. And the truth is, is that had we not had a budget to help us kind of lock in our expenses, we would have been devastated financially.
Because the way most people do things, they just spend money based on what they think their future is going to look like. And so you’re like, “I’m making this much now. I’m going to spend a ton of money on a new car or house or all new clothes (even a whole new wardrobe).”
And then reality sets in and it’s not as great as you thought. And then you have to pull yourself back so much and you’re also left with debt and just money you don’t really have and can’t really spend. And, money can also be lost. It can be really scary.
Just to be clear, I’m not saying that there’s anything wrong with having something nicer. I think what I’m saying is you need to actually have enough money to buy something that’s nice.
Buy your super nice new car with cash. Don’t just think you’re going to have the money and then spend it all before you actually even have it and know what’s really coming in.
Because the thing that I think so many of us forget is that things change and they are never the same way that they are now. And this isn’t like a doom and gloom thing, it’s just that it’s very rare that you see any career, any business just go up like forever.
It just doesn’t work like that. Most of the times the things go up and down and hopefully they continue to go up, but even still they don’t always. And so having some margin in your budget and not allowing your expenses to go all the way up to your income, it’s going to give you more freedom, more flexibility. It can help you not get into as much in debt. It’s going to help you be able to give more. It’s going to help you be able to save more and just overall have more financial peace.
And if you’re not budgeting, just be on guard because this could sneak up and bite you. Having a budget is something that can definitely help. Now we are partial to our budgeting method in which we have a course. You can check out our method, Real Money Budgeting, for how we do this. Being the money nerd I am, I’ve tried a lot of budgeting methods and I really like our system a lot. It really doesn’t matter whatever budget you use, you need to be budgeting! Just budget.
More Freedom
Budgeting is such an important component of living a financially peaceful life. It is not at all the shackles that we’re often led to believe. It’s really kind of liberating in the opposite. I thought getting on a budget was going to make me feel suffocated. But I feel the exact opposite. A budget allows me to go where the wind blows, so to speak.
Having financial organization that a budget allows, just gives us so much more freedom.
All right that’s all for now. And, so just so I don’t feel like I’m alone in spending way beyond my raise, let me know down in the comments, if you have ever done that before. Or, are you currently doing so? Did you just get a raise? Are you spending more than you’re earning?
Check out the full video below:
