I describe the method I’ve used for over a decade on how to take control of your financial life so that you have the money you need.
Anyone who’s spent time around here will have eventually seen me talk about something called “I.B.E.” or just “IBE”.
I’ve talked about it in various formats (and you can get a sneak peek at it for free when you sign up for my free 5-Day Money Reset course) but I’ve never up until now gone into full detail hereon my blog as to what exactly the IBE Method is.
It’s nothing short of my system for taking control of your income and spending, so that you have the money you need to spend on what you want.
I wanted to give a deeper dive into this system here, so check it out below.
Table of Contents
What is IBE?
IBE stands for “Income, Bills, Expenses”.
“But what’s the difference between Bills and Expenses?”
Glad you asked! Bills are the regular (or semi-regular) payments that happen in your life each month. These are things like rent/mortgage, car insurance, the phone bill, Netflix, etc.
Expenses is everything else: all those purchases that you make throughout the month. Gas, groceries, all your random purchases on Amazon, you name it.
The distinction is rarely used, but to me it’s critical.
Income is any kind of money that comes into your possession, from paychecks, to the Venmo that your friend sent you.
With these three put together, you have a complete picture of your regular cashflow, as described by this simple equation:
Income = Bills + Expenses
or, perhaps more importantly:
Income – Bills = Expenses
The importance of the equation
Why is this an equation? Why does it work? And why is this equation so important to get right?
Because making it true will ensure that you will never spend more than you earn.
What this is saying is that, for a given period (say a month), any money that goes out must be equal to the amount that comes in.
If you do this, you never have to go in to credit card debt for your monthly spending, because you never need to use credit cards!
If you master this equation, you’re going to be ahead of virtually everyone around you. You are well on your way to getting out of debt and building serious wealth.
How to know what you spend
This only works if you know what your Income, Bills, and Expenses are.
Income is usually pretty easy. Most of us only have a few paychecks each month.
Bills are also pretty simple too. We only have maybe 1-2 dozen payments we make each month, and those are easy to sum up, even if they vary a bit each month.
It’s the Expenses that get people. Most have zero idea what their Expenses are.
So this is the most important place to start.
You need to track your spending. Whenever you spend money, you need to write it down.
More than that, I think it’s important to divide Expenses into categories, like:
That way, you have a bit more of an insight into what you’re spending money on, and not just in aggregate. Also, if you “feel” like you’re spending “too much” money on something, like restaurants, this can help you check that feeling out.
Your first month
With all of the above in mind, there is a process to building to taking control of your money. You can’t just say, “I’m going to spend less!” First of all, I hate restrictive spending, and second of all, that doesn’t work.
So first, you need to go on a fact-finding mission. You need to spend a month just looking at—and recording—your spending.
The important thing here is to not try to change anything. And for now, don’t worry about that equation yet. The goal is just to find a baseline of spending, and understand where you are.
(That’s what people get so wrong when they try to change their financial habits: they don’t know where they’re starting from, so they just download someone else’s plan and try to use it, with terrible results.)
After your first month
After you’ve finished a month of tracking, you can look at your data and ask yourself some questions:
- Did you spend more than you made? By how much?
- Did you spend less than you made? Where did that extra money go?
- When you look at your categories and how much you spent on each of them, how do they make you feel?
- What, if anything, are you most motivated to change?
Now you’re learning what you do, and what you might wish to change. The next step is to get proactive.
Your second month
For the second month, now you want to try to make that equation above work.
So you subtract your Bills from your Income, and the rest is your Expenses. Divide that number up between all of your categories and create “targets” for each Expense category.
You goal for this month is to try and spend only up to those targets.
Continue on through the month, spending freely up to those targets, but not beyond.
Remember: You don’t want to spend less, you want to hit your targets.
After your second month
Let’s be honest: you’ll probably get things wrong. Your numbers will be off, your spending will be off, something won’t go as planned.
And that’s okay. The important part here is to learn what happened, and regroup and adjust for the next month.
Because you’re not done yet.
For the third month and beyond, you continue to adjust your categories, and try to get them right. You then try to spend only up to those targets.
And from here, you can start to be more forward-thinking too. Because I haven’t talked at all about things like savings and paying off debt, or anything like that.
If you set targets appropriately, which leave a little wiggle room, then you can have money to put away for all of those purposes.
(You still have to make the equation work, though. And I count savings or debt payoff as Bills, though you can put them anywhere.)
This is how the IBE Method allows you to build wealth: because you’ve taken control of your spending, you will now have a much better ability to put money away through savings and investment.
Savings will help you avoid problems when a month has a particularly large Bill or Expense. And investment will help you become wealthy.
Each month going forward, you’ll get better and better at accurately predicting what will happen in a given month. No month will be perfect (and even I mess up my predictions from time to time), but this will give you so much more clarity than you had before.
What you’ve done is that you’ve gone from be reactive (looking at or wondering what you spent) to being proactive (determining what you want to spend, and what on).
And you’ll have more money to devote to building wealth.
Through the IBE Method, you’ll be doing something all these other online budgets can’t do: you’re starting with what’s important to you, and building from there. You’ll be harnessing the power of your income and directing it intentionally. You’ll be able to build wealth. You’ll be taking control.
Hopefully this will give you enough information to get started. If you want more help taking control of your income and spending, just reach out to me and we can develop a personalized plan for you.