John Crane: Episode 976

Transcript

[0:00:37] FG: In theory, traditional budgeting is an ideal solution for household financial management. It buys you control, peace of mind and a retirement you can depend on, except when it doesn’t. When the number don’t add up at the end of the month, you can feel like you’re back at square one with nothing except shame and frustration to show for your effort. It's a problem that’s easy to ignore, until ignoring it becomes impossible. No matter where you are in the savings journey, there’s a way to simplify both your budget and your life to achieve your financial goals. In the One Number Budget, retirement income planner, John W. Crane reveals a new approach to budgeting that will forever impact how you look at retirement and financial management. He describes the current state of financial services, discusses the psychological aspect spending and explains why and how one number is all you need to help ensure that you’re meeting your goals. With professional insight and customizable exercises, the one number budget is a philosophy you can grow with and a plan you can stick to for clarity and confidence in all the financial aspects of your life. This is the Author Hour Podcast, and I’m your host, Frank Garza. Today, I’m joined by John W. Crane, author of a brand-new book, One Number Budget: Why Traditional Budgets Fail and What to Do about It. John, welcome to the show.

[0:02:07] John Crane: Thank you very much, Frank. I appreciate it.

[0:02:09] FG: So to start, I just love to hear a little bit about your background and how that led to you writing this book.

[0:02:14] John Crane: Sure. I have been in the financial services industry now for 20 years. It’s actually 20 years this month in July, actually and prior to that, I had a 10-year career in the telecommunications industry selling data networks and I had a kind of a coming to a moment of clarity, realized I didn’t want to do that for the rest of my life. I spent about two years researching different careers and financial services is just the one that kind of led up the scoreboard in so many different ways. It’s just who I am as a person and made that transition into financial services in 2002. As far as writing the book is concerned, I’ve been helping families for 20 years and looking at all the advice, all the conversations I’ve had with all these different families. It really all boils back down to one main topic which is cash flow and that if the client is managing their cash flow well, then good things tend to happen financially. If someone’s not managing your cash flow for whatever reason, then, they struggle and so of all the things that I could put out into the world that I felt would have the biggest impact, the biggest positive impact, it was a book on cashflow management and budgeting.

[0:03:26] FG: As you were writing this book, who was the target audience you had in mind?

[0:03:31] John Crane: Nice families. That’s my ideal client, is I just love working with nice families but young families. Families that have you know, children probably and just starting to get into kindergarten age, you know, elementary school age and the reason I say that is that means that typically, not always, but typically the parents have a good 30 years before retirement. So you got to have 20 to 30 years really of the timeline of good cashflow management, good savings in order to build a nest egg that is going to help you retire, and short of that, it’s a challenge. So the ideal client for me is or the, I shouldn’t say, ideal client but the ideal reader person that’s going to get the most out of this is young families that have a timeline that they’re working towards.

[0:04:22] FG: Okay, we’re going to get into your one number budget here in a second but at the beginning of the book, you spend some time talking about why traditional budgeting methods don’t always work. Can you go over some of the ways or some of the reasons why they don’t?

[0:04:37] John Crane: Sure. Budgeting in it of itself is something that most people just don’t like to do and I would say that’s for a whole host of reasons but the biggest reason that I see is, that budgeting in it itself is somewhat parental and you’ve got basically whether it’s a talking head on TV or financial advisor like me doing budgeting traditional method, it’s somebody’s pointing of finger at you and just saying, “The way that you are spending money on going out to eat, it’s too much and you are bad and wrong” and anytime you talk to someone like that, they shut down. The traditional budgeting method of trying to track expenses and everything and you end up missing a target as you know, continue with my example, going out to dinner too much and after a while, makes you feel bad, and you just don’t want to do it anymore, so you stop. That’s what I witnessed with a lot of people. Another thing along the same lines is I see this a lot, unfortunately with my financial advisors and also with the talking heads on TV is that lack of a better term, budget shaming, you know? Just like making people feel bad about the choices that they’re making. Another reason is complexity. Sitting down and tracking every single expense, categorizing it, making sure that you got them all, and adding everything up every single month and then things change. Like right now, we’re in a period of inflation, right? So, if you set aside $100 a month for a particular item, now, it might not be a $100. It might be $110, and you got to be up on that when you’re working on your budget. So, multiply that times 30 to 40 different line items and it’s a big task for someone to keep track of, especially in a household where there might be two full-time jobs that work on that every month. Lastly, I would say, the other reason why traditional budgeting doesn’t work or doesn’t serve the American people is, it places savings last and most people are just trying to make it through the month and as long as there’s more money than month, we declare it a success and we move on and there’s this whole next act that’s coming called retirement and we got to give that its due every month and a lot of times with traditional budgeting, it just kind of gets left out.

[0:06:50] FG: So you have a chapter called lifetime cashflow management and you review, you basically break your financial life into three acts here. There’s the first 30 years, the middle 30 years and the final 30 years. What’s important to know or understand about these three different acts?

[0:07:09] John Crane: Sure, great question. The first 30, I always just kind of toss aside because most of the first 30 these days is paid for by our parents, right? You know, maybe not all the way to age 30 but pretty darn close for a lot of folks and you know, that’s just kind of the way we do life these days. So the first 30, I just kind of set aside for that reason, this is now the middle 30. The middle 30 is hugely important for the American household and it’s really the financial engine for all of the money that you’re going to get for your entire financial life. Those are your main working years. So you think, age 30 to age 60, you know, it might go to age 65 or you know, it might slide back and forth or be a little bit longer but you know, for more or less, it’s that middle 30 that’s really going to be where you're going to get the majority of your money over your lifetime. Then, the final 30 is retirement because whether you want to or not, at some point, you will receive your last paycheck and once you received your last paycheck, it will be up to the money you’ve accumulated for yourself to sustain you during those final 30. So the way that I try to get my client’s attention or get the audience attention if I’m speaking live is that the middle 30 has to pay for both the middle 30 and the final 30. So that middle 30 is really funding 60 years of life. That’s a lot, that’s a lot of pressure on those 30 years. So we got to do the right things with it.

[0:08:43] FG: Okay, so you talked about some of the challenges with traditional budgeting earlier. Now, let’s move on to your one number budget. What is the one number or can you just give us a big picture summary of what that one number budget looks like?

[0:08:59] John Crane: Sure, just as a quick matter of background, where that originated was, I had been doing traditional budgeting for the first 15 years of my career and it was not serving my clients well and, I had this fancy spreadsheet that I built that had all the different spending categories on it and sadly, it took me 15 years to realize that people hated that sheet. They would fill it out usually in the beginning and then I’d never see it again. So I had to come up with something that would have utility. And make things simple and easy for folks and one day, I was watching the movie, Moneyball, I don’t know if you’ve ever seen it.

[0:09:32] FG: Yeah, I have.

[0:09:32] John Crane: But there’s this – you have? I love that movie, I’ve seen it more times than I wanted to admit but there’s this great scene where the smart guy, Jonah, it was played by Jonah Hill and he’s speaking to the general manager of the Oakland Ace and he was looking at these reams of data about all the different baseball players, it’s more than any one person could comprehend, much less make decisions on. He said to Billy Bean who is played by Brad Pitt, he said to him, “Hey, you know, this is all about getting things down to one number. Taking all the statistics and boiling it down to one number so we can choose which player that we should bring on to the team” and one of them, I don’t know, 10, 20, 30 times I saw the movie, I had a moment where I was like, “Wow, I wonder if I could get budgeting down to one number where it was easy for a client to manage their money?” and nothing in the financial services industry is new. There are all these different calculations and ways to help people with their money but I adapted to one of them and basically, sat down and said, “Okay, if I’ve gotten gross income and the first thing I want to do is back out for wealth building specifically from my client’s retirement and the savings rate for folks that I work with” again, 20 to 30 years of savings towards leading up to retirement, “The savings rate that I tell people to work towards is 20%.” 20% of your gross income, we take that right off the top, right after that is taxes. So we pull taxes out, you may have noticed, that the IRS is going to take it anyway, so we pull out for taxes and then we pull out for your next two largest fixed expenses. So for most people, that’s housing and then the next category might be childcare, it might be student loans. You know, I’ve got a lot of physician clients, they’ve got big student loans, so whatever that next two largest fixed expenses we back out, and then that gets us down to our one number. So I was playing around with some numbers before we got on today and I was looking at a $150,000 household earner by backing out those different amounts for wealth-building taxes, 15% of the budget going towards housing. The one number comes to roughly $4,400 on a monthly basis. So, when I am working with a client, I’ll say and I’ll look at them and I’ll say, “You know, can you get through four weeks on 4,400?” You know, if they say yes then that means that the savings that I am prescribing is possible and then we go back and look to see how can we get as close to or meet that goal but that one number as you asked, that one number is what’s available for lifestyle, you know? Going out to dinner, going on vacation, paying your electric bill, all the other bills. Does that make sense?

[0:12:22] FG: Yeah, so there’s no subcategories, there’s not this much on food, this much on going out. It’s for the case that you just looked at, that 4,400, as long as you stay below that you’re good to go. Am I understanding?

[0:12:38] John Crane: You’re good, yep, you’re good.

[0:12:39] FG: Okay, cool. Yeah, I really like that. That is simple.

[0:12:42] John Crane: That’s exactly why that spreadsheet was designed the way that it was that let me put it this way, the way that I was raised and the way I’m out to track and use money every single month, that would be 30 years ago and the way that money is used and tracked today has changed. When I was coming up through high school and college, we were taught to balance our checkbooks every month. Nobody does that anymore really. I mean, there are responsible people I guess that do that but most people don’t do that anymore. They’re just constantly kind of looking at their online checking account balance in their phone. They’ve got this online feed, so they always know basically where they stand like cash is available, they know generally when the next paycheck is coming and that’s how people more or less use money today. That was my goal with the one number budget was, if we can make a number that we can all agree on for the lifestyle available for the client and they just have to say, “Okay, within four weeks, if I can keep my spending at or below this number then everything else works.” My retirement goals are working, everything else works and that was really the impetus and ongoing practice in the design of the one number budget.

[0:13:54] FG: Let’s talk about that 15% for the housing costs because you spent a lot of time on this in the book and this seemed to be pretty important that sticking to this 15% is key. Can you talk about why that is, and what your experience has been with that 15%?

[0:14:13] John Crane: Sure, this is something that I get a lot of push back on as you could well imagine, and the 15%, ties back to your ability to save the 20%. When you go out and speak to realtors or to mortgage professionals, they’re really looking at from a cashflow standpoint what can this household sustain on a monthly basis. They are not thinking about what’s going on in terms of childcare expenses. Is this person able to save for retirement? That’s not on their radar screen, they’re just looking at it from their vantage point. That doesn’t make them bad, it’s just that that’s how they make their calculation and my perspective and the way I am looking at the calculations is from my client’s perspective in that during those 30 years, they have to accumulate and have enough money to sustain life during those middle 30 years when they’re raising their family and then they have to also have money for the final 30. If I didn’t have to worry about the final 30 then yeah, then 30% for housing works great but I have to worry about those final 30. I have to worry about those final 30.

[0:15:24] FG: Okay, so after discussing this one number budget, you start to talk about what some of the I guess pitfalls can be or some of the obstacles are that can get in your way and then there’s a chapter called beware of financial vampires. What’s an example of a financial vampire people need to avoid?

[0:15:43] John Crane: Sure. Well first of all, the one I always think about is Madison Avenue in the form of Target and Amazon and these are companies that are absolute experts at the impulse purchase and the one when I am physically in a store, usually Target that I always look for is the mini deep fryer. I don’t know if anybody else has ever seen this but it is usually $19,95, it is usually sitting on an aisle cap and it’s got a picture of just absolutely delicious-looking fries, right on the side of it and people buy it. Whenever I am in Target, I always look around to see if anybody has got it in their cart and I always think to myself. I’m like, there is no way anybody woke up that day and was putting together their list of things to do that day, which is like, “Yeah, I’ve got to get to Target so I can pick up my mini deep fryer.” It is a perfect impulse purchase and sadly, you know it gets bought and then they might use it once, it is hard to clean and then it ends up at the yard sale or thrown up. So Madison Avenue and the advertising world, that’s a big one in terms of financial vampires. It can kind of latch onto your available money that you have to spend each month.

[0:16:56] FG: Okay and then in the next chapter, you talk about beware of spending for love and I found this one really, really interesting. What are some ways you see people spend for love that get themselves in trouble financially?

[0:17:09] John Crane: Oh sure, this is tough, really, really tough. The one that I see a lot is education funding and a lot of times, education funding is positioned as an economic discussion but it’s not. It is a discussion about love because we all love our kids and love will overpower your brain and I will constantly work with a client to reframe the college discussion in the context of their own retirement because I have seen folks, who’ll take two, $300,000 out of their retirement accounts to send their kid to the college that the child wants to go to the most. I understand why they’re doing it but they’re putting their own retirement at risk and ultimately, if their own retirement is put at significant risk, what will end up happening to them is the very thing that they want for their kids, I am guessing long-term. That is why they are sending them to a great college is they want, their child to go on and have a great and successful life but if they put themselves in financial risk, they ultimately put themselves in a position where they have to then later come to their kid and say, “Hey, I’m broke” and now, you’re becoming a line item on your child’s budget, does that make sense?

[0:18:26] FG: Yes, that does. Well, writing a book is such a feat. So, congratulations on putting this out into the world. Before we wrap up, is there anything else about you or the book that you want to make sure our listeners know?

[0:18:41] John Crane: I think the biggest thing that I want folks to take away is find something that works for you. I would like to say that I am sitting here and I’ve developed this book that’s going to be the silver bullet and the ultimate solution for every single reader but it really depends on how you think and process information and some folks really enjoy collecting data and sorting through all the numbers and the line items. If that is working for you, then great, do that. Keep doing that but if the traditional way is not working for you, then I would highly recommend just give my approach a try. At the end of the book, there is a 120-day challenge and just give it a shot and see if it helps make your finances better because at the end of the day, what I am really trying to do is I am trying to help families, trying to save families. I’m sure we’ve all heard the statistic that families under stress that affects marriages and in some small way through my one number budget, my goal here is just to try to make the world a little bit better place and so hopefully, it will do that.

[0:19:51] FG: Thank you John, this has been such a pleasure. The book is called, The One Number Budget. Besides checking out the book, where can people find you?

[0:19:59] John Crane: People can find me on website, onenumberbudget.com, I’d encourage folks to go there. There is downloadable for free as a copy of the actual one number budget worksheet, and you can start tinkering and playing around with it today.

[0:20:14] FG: Thank you John.

[0:20:15] John Crane: Thank you, I appreciate it Frank.

[0:20:18] FG: Thanks for joining us for this episode of Author Hour. You can find, The One Number Budget, on Amazon. A transcript of this episode as well as all of our previous episodes is available at authorhour.co. For more Author Hour, subscribe to this podcast on your favorite subscription service. Thanks for joining us, we’ll see you next time, same place, different author.