Budgeting Sucks. That’s why most people struggle with it.
The good news? You don’t have to feel guilty about not being able to stick to a budget.
We’re going to show you a much better alternative. We call it Value-Based Spending (you can get the full details about this in our book Budgeting Sucks).
It’s better because it allows you to live wealthy now without cutting back. And Value-Based Spending is just one small piece of the entire wealth-building system we teach our clients here at Wealth Factory.
What’s Going On?
According to a Gallup poll, two-thirds of Americans don’t have a household budget.
It’s not for lack of trying. Nearly everyone has tried to set up a household budget at some point.
It’s sticking to a budget that’s hard.
There are many reasons why. This mainstream financial writer pinpoints 5 reasons why people struggle to keep to a budget.
The main reason is a budget forces you to think about cutting back.
This sets your financial game plan up for shrinking your wealth rather than expanding.
So if you want to expand your wealth (you do, don’t you?), you need a different game plan.
Key Details
The key is to think of your household money management as a business.
Business owners do not get wealthy by cutting back. They need to feed their business while it is growing. That often means spending more.
Does that mean they just spend willy-nilly?
Not at all. It means properly classifying your expenses.
You expand your productive expenses, eliminate destructive expenses, and manage lifestyle expenses.
This actually simplifies money management so you don’t have to count every penny.
Because scrooge-like budgeting and counting every last penny just leads to loss of productivity, stress, and a miserly attitude.
By only focusing on cutting back, penny-pinching, and budgeting, you are just building yourself a financial prison.
Instead, you want to keep an eye on a few key figures to manage your cash flow.
Then give yourself permission to spend money on productive expenses.
That way you can expand your financial education, learn a new, higher-paying skill, or buy a tool that helps you do your job better or faster (and thus make more money).
How to Avoid Building a Financial Prison
Think of it this way. Why do most people start a business? Or why do most people seek promotions?
To make more money? Sure.
But why?
Isn’t it to have more freedom?
Financial freedom is actually what most people want (at least that’s what our clients tell us). They want the freedom to buy what they want … to work when they want… and to not have to worry about money.
Yet, to “get there,” all most people do is worry about money. They refrain from buying what they want. And they end up working more than they really want.
It’s all backward.
And that’s not just our “guess.”
By the Numbers
There are 2.8 million self-made millionaires in the U.S according to the Small Business Administration. These are people who made their money by starting a business and working hard instead of inheriting it.
Research shows that to reach a million-dollar net worth, most of these people have made huge sacrifices, and the picture it paints is ugly:
- They scrimp and save their entire working lives.
- They work 60 to 80 hours a week.
- They deny themselves “the finer things in life.” They never travel. They wear bargain clothing.
- Most of them have never spent more than $30,000 on a car, and never buy “new.”
- They spend thousands of hours doing penny-pinching financial planning and they spend even more time budgeting down to the last dime.
- A majority are proud to call themselves “tightwads.” Some have even lived like hermits to achieve their wealth.
Sure, this is one way to become a millionaire.
It’s NOT the way we teach or recommend.
For one thing, being a miserable millionaire just doesn’t sound very appealing.
But mainly we don’t recommend this way because it’s so unnecessary.
Economic Independence Without Budgeting…
Our “end game” at Wealth Factory is to help people reach Economic Independence.
And even though we do that in a real, tangible way, it actually starts as a state of mind more than a measure of having a certain number of dollars.
You see, Economic Independence is when money no longer becomes the reason you do everything.
Budgeting forces you to focus too much on the money and the numbers.
In fact, budgeting can easily produce feelings of stinginess, envy, distrust and jealousy (more on that in a future installment).
No wonder so many people get stressed out about money and budgeting.
On the flip side, the Value-Based Spending approach we propose promotes generosity, gratitude, and trust.
But rest assured, this is not just about mindset. It’s about results.
In Budgeting Sucks, we give all of the nuts-and-bolts processes and procedures along with the underlying philosophy so you can easily adapt it to your own life.
Value-Based Spending In a Nutshell
For now, here’s a snapshot of Value-Based Spending and how you can start using it.
In economics, there’s a concept called the Subjective Theory of Value. It says “value” is derived from the importance an individual places on a good or service.
And since importance varies from individual to individual, value is completely subjective.
If you value a Rolex watch more than you value $7,500, then anyone who tells you it’s a waste of money is simply wrong.
If you couldn’t care less about luxury brands, you won’t buy them. For you, they’re a waste of your money.
But luxury brands exist because some people value the exclusivity of luxury. The watches or purses aren’t necessarily made with materials that cost thousands of extra dollars.
Sure, they may use the best available materials. And they may hire the most skilled artisans. But in the end, it’s about how their product makes people feel. Some people like the prestige of wearing a Rolex or driving a Bentley.
Others find that ridiculous — yet they’ll pay a premium price for courtside basketball tickets because that’s what they value.
Still others don’t care about front row seats at a sporting event — but may like to stay at 5-star hotels when they travel, even if they cost 10 times more than a regular nice hotel.
The only measure worth considering is if the value you place on a purchase is greater than the cost.
So to decide what value a purchase has to you, go beyond the numbers and ask yourself these questions:
- How does this benefit me now and in the future?
- How does it make me feel? Does it give me a sense of satisfaction, peace of mind and enjoyment?
- Does it give me a sense of confidence?
- Do I want this more than other purchases I could make instead?
- Considering that I’m my greatest asset, does this add to my energy and overall well-being?
- Is this a reward for meeting a milestone or doing something great?
If these questions help you determine that the value is worth the price and cost of the purchase, then it’s perfectly fine to live wealthy today and buy what you value.
Especially if it gives you energy and drive to be more productive, create more value, or increase your cash flow along the way.
Don’t let anyone tell you something is a waste of money. If it adds value to your life, and contributes to your clarity, peace of mind and thinking abundantly, then it’s worth it to you.
What To Do Next
There’s more to all this. Action item #1 is to check out the book:
Budgeting Sucks: Live Free, Retire Wealthy
Otherwise, you can start implementing the ideas from this article right now.
Until next time.
Build the life you love,
The Builders at Wealth Factory
What is Living Wealthy Weekly?
Each week we share timely trends, news stories, and current events that affect your life. We help you see the impact, personally and socially, and give you possible solutions to avoid any negative effects. We also give you additional links and resources if you want to investigate further. The purpose is not to be the last word on any topic. Rather it’s to help us all stay informed of what’s going on in the world without letting those events negatively impact your lifestyle. Our goal is to help us all live richer, fuller lives from a position of financial strength. This allows you to weather economic hard times, and seize whatever new opportunities arise in our changing world.
