The millionaire's approach to budgeting
If you’ve spent years trying to “budget” and failed every time, you aren’t alone. Sticking to a strict budget is difficult — not only does it take a lot of attention, but it can also make you feel completely restricted — something we humans strongly dislike. So it makes sense that you’d give up on something you hate doing that makes you feel trapped.
But most people don’t fail at budgeting because it’s restricting — they end up giving up because they go into it with the wrong mindset.
Think about how you approach change in general. If you don’t see the point in being forced into decisions you don’t like, then why would you try at all? This is why you need to rethink how you’re approaching the concept of budgeting.
The real purpose behind budgeting
Most people get so distracted by the idea that budgeting limits their spending that they overlook the real purpose of it. Sure, sticking to a budget requires you to limit how much you spend on certain things and it takes a level of attention you aren’t used to — but not just for the hell of it, and not forever.
The purpose of budgeting is to learn how to change your patterns, and in order to learn how to do something new — and continue doing it — it takes practice. A budget limits your spending in order for you to develop new patterns that are more sustainable over time. It’s meant to help you pay closer attention to how you make certain choices, so you can recognize how those choices impact your life.
I don’t teach people how to budget and expect them to track every expense in a spreadsheet for the rest of their lives. The idea is to “force” you into making tough choices, so that over time, that practice begins to become the norm. The point of getting you to make new choices is to show you how those better decisions can improve your situation. Then once you begin to see the results, you will start making better choices without it feeling like a chore.
You don’t want to choose between Spotify and Amazon Prime Music, but when you do, you save money. Over time, those savings add up and allow you to take a vacation without having to put it on a credit card. So that choice you made to cut a streaming service allowed you an ever better choice — the ability to spend money on something you really value in life. Once you see how saving money gives you more freedom, you’ll continue to do it without it feeling like it’s ruining your life — you will know that it is actually improving your life.
The reason I was successful at taking control of my money and overall financial situation is because I always kept in mind the reason why I was doing it. Did I like feeling restricted? Of course not. I hated having to pay such close attention to everything, but for it to work, I had to. I knew that in order to change my patterns, I had to practice.
When I was 11 years old, my soccer coach said if I couldn’t juggle the ball 100 times in a row without dropping it by the end of the summer, he was going to cut me from the team. He couldn’t force me to do it, it was my choice. Well, I wanted to be on that team — so badly that to me, it wasn’t a choice at all. I spent weeks and weeks practicing — complaining that it was too hard and no one else had to do what he was “making” me do. But I kept practicing, because I knew how much it meant to be to be on that team. So what happened? I did it. And turns out, I got so good that it became second nature for me — and it gave me an incredible amount of ball control without even having to think about the technical aspects of what I was doing. Once I learned, and excelled, it became the norm for me. It no longer felt like a chore. And in order to make it happen, I had to be uncomfortable for a while until I could see the positive impact it had on me as a player. It was “too difficult” until I actually did it — until I saw change. And at that point, it wasn’t difficult at all. It was just part of my life.
At the time, I had no idea how much that summer would teach me about life — that if you want to do something, it’s up to you to make it happen — no one can force you to change. If something means enough to you, you must practice in order to be successful.
The actual practice of budgeting — setting limits, tracking your expenses, cutting costs etc. — gives you a framework to make the decisions that will give you the outcomes you want. And once you begin to see how making different choices can impact your life for the better, alarm bells will go off upstairs, and you’ll keep doing it.
When you’re trying to lose weight, saying “I’ll just eat healthier” will not work. People who are successful at reaching their weight goals stick to a very strict diet, or a dietary guideline, that forces them to make choices they otherwise wouldn’t have made for themselves. Then over time, as they begin to see positive results, the practice of dieting has taught them how to make those “better” choices on their own — because they now know that it works.
Budgeting works the same way. Once you reach the point where you are no longer living paycheck to paycheck and you have savings in the bank, you’ll have more choices and freedom in life. That freedom will then give you a reason to continue with your new habits and spending patterns — because you’ll see for yourself that they work. You’ll see the bigger, positive impact those changes have made on your life.
Read more: Easy ways to make extra cash each month
Budgeting builds a framework for success
John of personal finance blog ESI Money, a millionaire himself, spent the past few years learning from 100 different other self-made millionaires. And through his research, John found that there’s one very interesting quality that most of these people share — they don’t budget.
These people made the money themselves, so it’s not because they’ve always had so much money they could spend whatever they want. Each of them, somewhere along the way, learned that by making smarter choices with their money, they would keep — and continue to build — more of it. And once they learned how these choices would positively impact their life, they could continue doing it without being “forced” to.
In these interviews, many of these millionaires told John that they started out with a budget as a way to learn how to control their spending, and then over time, the positive results gave them the momentum to continue to make smarter choices. They don’t have to follow a strict budget anymore because they developed successful money habits that they continue to implement to this day.
John interviewed one guy who spends $90,000 a year — he buys necessities and only books vacations with a deal.
"I track our accounts using Mint and Personal Capital, and use cash back credit cards exclusively for every possible expense,” he told John. “But, we have never made a formal budget.”
He also added that “every few months I look to see if my cash balance is bigger than it was a year ago. If it has grown, I invest the money. If it dropped, I try to hold off on discretionary expenses. Last year according to Mint, we spent $90,000, including $13,000 on home improvement projects."
The guy learned habits that would be sustainable over time. He learned that if he didn’t continue to give every dollar he made a specific purpose, it would begin to disappear.
Budgeting is a requirement to become a millionaire, not to be one
A budget teaches you how to develop patterns that will be sustainable over time. Millionaires who stay millionaires have learned how to drop patterns that don’t work and keep ones that do.
So many people who make good money end up living paycheck to paycheck because they’re stuck in one simple pattern: earn more, spend more. That’s not the lifestyle that self-made millionaires live. They learn how to save and continue to do it throughout their lives. They don’t waste money simply because they have it. They don’t set specific spending limits, but they do track how much they spend to ensure they stay on the right track. They value the lifestyle that money has given them enough to continue doing the things that got them that money in the first place.
If you can “budget” long enough to see for yourself how it will give you more freedom in life, you will be able to develop sustainable habits that become second nature. Once you make the decision to start taking control, keep practicing — I promise you will get there.