Food influences moods

Does our mood affect the things we consume, or does what we consume determine our mood. NPR has a great article where there are research showing that when you see someone behaving that they are, it might be due to what they eat.

  • If you eat more refined carbs and sugars, which are usually high glycaemic, increases our stress level
  • Omega 3 foods which quieten down the inflammation responses
  • Pumpkin Seeds > Magnesium > Quieten down anxiety, Zinc > Immune System
  • Eggs > B vitamins and proteins

They gave teenage boys different types of breakfast meals. One included protein-rich eggs, while another meal included high-fiber, steel-cut oats. A third meal of instant oatmeal was highest on the glycemic index, a measure of how quickly sugar is absorbed and how soon a food is likely to make you hungry again.

“After the highly refined instant oatmeal, blood sugar soared but then crashed a few hours later,” Ludwig says. “And when that happened the [stress] hormone adrenaline, or epinephrine, surged to very high levels.”

[How you eat can amp up or tamp  down stress]

Personal Zero-Based Budgeting

You need some help to sort out some money stuff.

  • You just graduated college with a lot of debt. How are you going to clear it?
  • Your wife and yourself made a comfortable amount of money. Problem is, the two of you can’t seem to squeeze out much cash to save
  • You are basically an overachiever who wants us to recommend the best plan to make sense of what you earn

Whether you are in a money fix, or in a good situation but wants to get better, having a plan how to managed your money better enables you to successfully meet your wealth goals.

What is Zero-based Budgeting

Budgets are plans big and small companies used to plan out how to spend their money. For these companies, the success of their strategic projects or general projects hinges on good budget management after the monetary funding have been secured. Business projects live and die by it.

Zero-based budgeting is one such kind of budgeting. And it works really well on a personal finance level as well.

What it means is to make sure that you spend every single dollar of what you are given.

Joe earns $3,000 after tax per month as disposable income. When Joe allocates his money using zero-based budgeting, he will allocate all $3,000 down to $0.

Wait… Aren’t Zero-based Budgeting suppose to help me save money?

The misconception is that budgeting is going to help us save money. Budgeting will help us to eventually build up our wealth. We just have to frame it better.

Zero-based budgeting asks us to allocate all our money wisely. The difference here is to replace the word ‘spend’ with ‘allocate’.

Give every dollar a job

Money itself is worthless. What money is good for is to satisfy what your family and yourself desire. Certain stuff or service that you value.

Therefore its not that hard to frame your money as a hard worker to meet the different things you desire and value.

Suppose in Joe’s world, his life revolves around the following things (and only these things):

  • Gifts
  • Mortgage
  • Utilities
  • Groceries
  • Insurance
  • Gasoline
  • Credit Card Debt
  • Emergency Fund Saving
  • Education Saving
  • Retirement Saving

Joe’s $3,000 needs to put to work to satisfy ALL these wants:

  • Gifts: $100
  • Mortgage: $600
  • Utilities: $200
  • Groceries: $400
  • Insurance: $200
  • Gasoline: $200
  • Credit Card Debt: $300
  • Emergency Fund Saving: $200
  • Education Saving: $200
  • Retirement Saving: $600
  • Total: $3000

Framing it as ‘allocate’ instead of ‘spending’ changes how we look at Joe’s $3,000 as not always an outflow immediately, but 10 separate ‘bank accounts’ that Joe draws upon for specific purpose.

Here is how we do Zero-based Budgeting

Step 1. Use a piece of paper or a spreadsheet

You need a medium to work out your sums. To make things simple, and more hands on exercise, you can use a piece of paper and a pen. If you have rather bad handwriting, perhaps you can do it in a spreadsheet like Google Spreadsheet.

Step 2. List out all your Income and Existing Savings

List out all the income that you earn last month, that you will need to manage. They can be:

  • Your monthly income from your job
  • Any investment dividend, interest from your investments
  • Income from your side job
  • Gifts from your friends and family just for this month
  • Performance bonus from your job just for this month

Also tally your total networth in all the current savings, checking accounts. Remember to deduct the total income last month.

At the end of Step 2, you arrive at 2 amount:

  1. Your total income earned last month
  2. Your total savings and checking account amount less income last month

If Joe, has a total income of $3,000 last month and $8,000 in all his saving, checking accounts, then his

  • Total Income Last Month: $3,000
  • Total Savings and Checking Amount Less Income Last Month: $5,000

You may ask, why last month’s income? Why do you need to minus this off your existing total networth? I will explain later.

Step 3. List out all your Expenses to work out your Spending Categories

Next, list out all your expenses. It might be a bit difficult to gather them for starters.

Don’t let it overwhelmed you. The trick is to start somewhere, and tweak along the way.

A couple of ways:

  1. Collect your receipts for 2 months plus note down in a note book every time you spend
  2. Use a trigger list of expenses common to most people. This will help for a few annual expenses that you may not have thought about like annual insurance premiums, annual vehicle road tax, general taxes

At the end of this step, you will probably come up with a category list like the one Joe has.

Note: Include a Buffer category amongst the spending categories you come up with. I will explain why you need this later.

Step 4. Allocate your Income to your Expenses

How much income you have accounted in step 2 for the month, divide them among your spending categories.

If Joe’s total income is $3,000, make sure they all have a job and went some where.

For the initial planning, channel the total savings and checking amount less income last month into your Buffer category.

In Joe’s case, all the $5,000 will go into his Buffer category.

Step 5. Spend, Review and Adjust

Step 1 to 4 you will review monthly, but step 5 is done every time you need to do something with your money.

  1. You want to purchase something or some service
  2. You review how much you have in each category, if you have enough left you purchase or spend
  3. If you don not have enough, think through if you can hold back the purchase. If you cannot, make an adjustment. Deduct from another category to fund this category

Step 6. Review your Budget and your result

At the end of every month, before the start of every month, or, at the day when your major paycheck is in, review your budget

  • Have you successfully reduce spending on certain categories you want to reduce?
  • Are there any categories missing from your spending categories?
  • Are you being over-optimistic or under for certain categories

Review and tweak accordingly. Budgets is a process and system not a create and forget thing.

Why use Last month’s total income and Your Current Networth

Every one starts budgeting from somewhere. Your question will be when should you start?

  • At the start or end of the month?
  • When you get your next pay?

In truth, you can start on any day you want, provided you have build up the following before budgeting:

  1. Saved an amount equivalent of your last month income
  2. A buffer amount

In zero-based budgeting, it makes sense that we plan with last month’s income and a little bit of buffer. In budgeting, you always always work with what you have, NOT what you THINK you are going to get.

Suppose Joe starts his planning on 30th April for the month of May. It doesn’t make sense for him to project forward how much he is going to earn and how how he should allocate to each category.

He doesn’t have the money in the first place.

It only make sense if he starts his planning on 15th of the month, which is the day he got his pay. This means that he is always dictated by his current month’s pay. As you can see, it makes more sense to plan with last month’s pay. This means that you can start on ANY day provided you meet the two criteria.

How do we explain the need for a little buffer?

Suppose Joe allocated $200 per month for a medical category and suddenly nine days into the planning, Joe is hit with $1,500 medical expense. He doesn’t have that much. What happens then?  This will throw Joe’s budget into disarray. If Joe does not know how to handle this, he will lose confidence in his budget and go off it.

We have said that, had Joe allocated his savings and checking net worth less last month’s income, which amounts to $5,000 into his Buffer Category, he can take care of un-foreseen emergency like this.

How would Joe Adjust and Input his spending?

He starts off with the following at 9th May:

  • Medical: $200
  • Buffer: $5000

As the medical expense of $1,500 is more than his current medical allocation, Joe has to “borrow” from the Buffer category. Since there is $200 left in the account, Joe will have to borrow $1,300 from Buffer category.

Joe will

  1. Transfer $1,300 from Buffer to Medical
  2. Record $1,500 medical expense from Medical

His spending categories after this will be:

  • Medical: $0
  • Buffer: $3,700

As a learning point, Joe needs a way to remember that he just blew up his buffer, and that he needs to replenish it. If he doesn’t replenish it, another emergency like such comes a long, and he might not have the Buffer to save him next time.

In his next budgeting, Joe can choose to add $200 to the Buffer category instead of Medical category. His two category next month will look like this:

  • Medical: $0
  • Buffer: $3,900

What if you are just starting off and do no have that amount for buffer?

There will be many in that situation. In this case you are left with:

  • Building up the buffer slowly
  • When you overspend, adjust and transfer from other categories to this
  • Watch your spending carefully so that you don’t overspend!
  • A combination of all the above

The Magic is in the System

I see a lot of people asking whether we should use paper, this spreadsheet is better or that software is better.

The paper/spreadsheet or software is just a medium or facilitator. It is definitely important to use one that is good.

However, the most important thing is the system or process.

You can get the best running shoes, but if you struggle to get out of the house to run, or that if you have the best pots and pans but you can’t find the time to use it to cook, what good is it to have the best things around?

The key here is to understand Step 1 to 6, struggle with them, get comfortable with them and do them over and over again.

Zero-based Budgeting & Wealth Building

Zero-based budgeting is an allocation of money rather than framing it as spending. As such, you can compartmentalize your money, and not spend it. You can have all of them reside in one savings account, yet not worry that you are going to touch it.

In Joe’s example, he has Retirement Saving and Emergency Saving.

Every month he will allocate a certain amount to them. As he is not spending them, they just get accumulate every month.

Joe can then think of how to best allocate these amount built up into higher yielding instruments. He might not want them to expense out of this category, or he might want to track them. Its all up to him.

Adjust! A red figure does not mean you are a Failure

When you start out budgeting, you will not be able to know everything

  1. You over-estimate or under-estimate your sensible spending
  2. You overspend a few categories
  3. Your bank account have less money than the budget. They do not tally

And you get worked up over it, or demoralize or both. You have to learn to understand that all these are part of the process.

You have to be a clairvoyant to be able to predict how much you will spend in all categories. No one can be that accurate, unless you have done some form of data collection previously.

Even then, life changes.New events happen. A new baby. You bought a new house. You need more medical help.

Your budget is a system not an end result. That is why Step 6 is important. You learn to adjust with it.

You are not perfect and you don’t have to be. Every step takes you closer to somewhere nearer to that.

Aligning your Spending to your Value System

Your evaluation of how much to allocate, whether you should spend it, depends largely on your value system.

Giving every dollar a job needs to match to a particular value

A lot of overspending is due to a person not understanding there is a value gauge to everyone, and always wanting the best for all.

When your spending does not match your value, you don’t feel satisfied even though you spend so much on it. That can be such a waste.

The Benefits of Zero-based Budgeting

The main benefit of the full Zero-based budgeting is that you as the planner and implementer are very hands on. Because of that, you confront the way you save and spend in its entirely.

You do not escape from the reality that your spending is in chaos. If you stick long enough to make this process a habit, you develop a level of self awareness of how much things cost, that money is scarce and you have to allocate it well.

You shift from being a casual spender to a deliberate spender. Instead of waiting for the problem to appear, you anticipate, match your values to your money, and maximize fully what you get out of it.

The Problems with Zero-based Budgeting

There are many who cannot see the benefit of such a budgeting system. And a lot of it centers on that budgeting itself is such a chore.

Before they get to know it more, they already detest it. They visualize that a budget will stop them from visiting their favorite food or use their favorite service. They visualize that they would have to sort through mountains of receipts.

Because zero-based budgeting makes a family confront how they spend their money, it may result in a real hard to hard talk about money with your spouse. And that might not always be a good thing if it is not handled well.

Most of all, majority of the folks find that its not worth it to spend ‘so much’ of their time doing budgeting. Why not use a personal finance platform that automatically downloads the transaction from the bank? Saves you a lot of the trouble.

To all the problems, they are not really problems. They are in fact some of its strengths.

  1. A budget doesn’t stop you from spending what you like, it merely helps you to focus on what you value the most. If you value Ice-cream a lot, having a category for it focus your love for it. It merely tells you the reality is that you have X amount to work with, and if you want a lot of ice-cream, you have to have less of those things you value less
  2. Budgeting can be really boring. That is when you learn the ropes. Your monthly review takes at most 1.5 hours in 1 month. Once you get into the habit of recording down daily transactions, you wouldn’t even notice it
  3. Family usually crumble because of money problems, and a budget brings all these things to light, instead of avoiding it. It would be best if budgeting is discussed before marriage, as a fruitful relationship starts with open communication
  4. Your money problems don’t magically disappear. You have to learn where the problems are. Most of the time the problems is due to your habits and addiction. Merely making money tracking automated doesn’t help, it distance you away from making the hard actions that improves your situation and postpone the inevitable collapse