We originally published this article on Entrepreneur.com.
When most people think of a plan for spending their money, they think of the word “budget.”
But a budget is a plan for restricting your spending, and that doesn’t mix with a philosophy of living wealthy today.
By spending your money in a mindful, deliberate way, you can live wealthy now while at the same time be contributing towards a wealthy future.
At Wealth Factory, we call it a mindful cash management plan. To create your own, you’ll want to think about expenses differently.
The first step is to stop thinking of “expenses” as a negative word. The truth is, there are four types of expenses, and only one of them is worth avoiding. Those four types of expenses are destructive, rainmaking (productive), protective and lifestyle.
Let’s start with the first, and worst, expense.
In my opinion, the only type of expense that’s worthy of a negative feeling is the destructive expense.
Overdraft fees, using credit to consume, spending on vices, or products or services you don’t use or that don’t add value to your life are all are expenses that you most likely want to cut out entirely.
If they’re wasteful and don’t add to your life, get rid of them.
Rainmaking (productive) expenses.
Productive or rainmaking expenses, however, are how you make money. Spending more money on the right employee, the right equipment, the right marketing campaign or the right mastermind group can pay for itself over and over again.
If spending $1 on a rainmaking expense makes you $2, then I wouldn’t stop spending until that well runs dry.
Other rainmaking expenses are those that keep you functioning at peak performance. For example, the food that you eat, your gym membership, etc.
Education can be one of the greatest rainmaking expenses, too. But be careful, if you don’t use the education, then it was wasteful and destructive rather than productive.
Protective expenses are how you safeguard your family, your productivity and your way of life. A good example is putting money away into a separate account until you have at least six months of savings.
More examples are life insurance, disability insurance, medical insurance, plus auto and home insurance, too. Then there’s emergency preparedness, like having an extra food supply, or paying for someone to develop a fire evacuation plan for your home.
These are all expenses I wouldn’t skimp on.
For example, many people get the minimum amount of auto insurance legally allowed so that it’s cheaper. But if they injure someone in a car accident, they may not have enough liability coverage to protect them in case of a lawsuit.
That means, with one expensive judgment against them, all their years of hard work saving and growing wealth are gone in an instant.
One last thought: a hidden feature of protective expenses is that they help you to be more productive. When your mind is free from the worry and stress that comes with uncertainty, there is more room for productive thoughts.
And over time, those extra productive thoughts will increase your cash flow and your wealth exponentially.
Lastly, lifestyle expenses are important, too, and not something to avoid. Vacations, dining out, the latest iPhone or gadget, special experiences with your family, these have the power to rejuvenate your spirit and help you to enjoy life along the way. They’re also the reason you work so hard in the first place.
The only caveat is that a lifestyle expense must be managed well, which means it’s best to pay in cash, and do all you can to avoid using credit.
Your mindful cash management plan.
They say it’s easier to change your diet and lose weight when you concentrate on the foods you can eat, rather than the foods you can’t. Likewise, if you focus on the three out of four types of expenses that add to your productivity and peace of mind, it’s easier to cut out destructive expenses.
And the result is your own Mindful Cash Management Plan.