February 22, 2024

Budgeting Is Dead—Do This Instead and Watch Your Wealth Grow

In a recent CNBC article, it was revealed that more than half of Americans earning over $100,000 a year live paycheck to paycheck. This eye-opening statistic highlights a fundamental truth: The road to wealth isn’t solely about income but depends significantly on transforming financial habits. 

In this guide, we’ll debunk the oppressive notion of budgeting, offering a transformative process to fix money leaks, cultivate strategic spending habits, and execute consistently for financial improvement.

Budgeting Is Dead—What to Do Instead

If the word “budget” sends a shiver down your spine, you’re not alone. According to a recent Lending Club report dated September 2023, over 60% of Americans steer clear of financial planning because, well, the “B-word” is just too daunting. 

But fear not because I want to introduce you to the revolutionary concept of “budgeting is dead.” Here are the steps to follow instead.

Step 1: Tracking your income and expenses

So, you want financial mastery without the stifling confines of a traditional budget? Well, it’s all about tracking, not budgeting. As the wise ones say, “What gets measured, gets done.” Committing to regular income and expense tracking is the foundational step for the “budgeting is dead” process—a process that will help you master your financial landscape without feeling like you’re straitjacketed by an old-school budget.

Step 2: Getting leverage

If you’re not a spreadsheet wizard or time is your most precious commodity, let technology do the heavy lifting. Platforms like Simplifi.com, Empower.com, or You Need a Budget (YNAB.com) turn financial tracking into a breeze. Say goodbye to complexity that could kill your momentum.

Step 3: Uncover where your money is really going

Picture your finances as a boat sailing toward your goals. Now that you are regularly tracking your income and expenses, you now know how your boat is constructed. Maybe it’s made of the finest metal and is impenetrable. Maybe it’s more like a leaking life raft that is quickly taking on water. 

No matter which boat you think you have, commit to doing this step at least once a year to eliminate any “holes” that could cause your boat to leak. In this step, you need to categorize each expense as Destructive, Lifestyle, Protective, and Productive. 

  • Destructive expenses lead to debt and poverty: think of addictive habits, compulsive spending (eating out, shopping, etc.), and unnecessary fees (credit card fees, late fees).
  • Lifestyle expenses don’t contribute to building assets: think of nonessential spending that doesn’t enhance your life, like subscriptions (magazines, wine club, razor club, movies) and other excessive spending.
  • Protective expenses help maintain wealth: think of expenses that help you optimize and/or protect your wealth.
  • Productive expenses enhance both current and future life: think of career building, business building, and investment activities that yield more income than you spend.

Step 4: Taking decisive action

With a clear understanding of your spending habits, now it’s time to take a proactive approach to wealth creation. Here’s how:

  • Eliminate destructive expenses like a bad habit (because they are). Get professional help if needed.
  • Reduce lifestyle expenses by identifying low-hanging fruit and eliminating nonessential spending.
  • Negotiate/renegotiate protective expenses to get the most value for your money.
  • Monitor productive expenses, ensuring spending aligns with income during different wealth creation phases.
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