First step to growing your wealth in 2021: BUDGETING
When it comes to building wealth, everyone is interested in investing, and nobody is interested in budgeting. I believe this is because many personal finance “experts” always talk about how you need to cut spending through budgeting.
“Don’t buy coffee.”
“Don’t eat out".”
“Don’t travel.”
“Don’t buy new cars.”
Budgeting has become synonymous with less spending, and nobody wants that!
I don’t want financial experts to tell me I can’t, I can’t, I can’t…. I want you to tell me HOW I can!
I’m going to go against the grain and say that I do not want you to cut costs. My job as a wealth manager is to find ways for my clients to afford the lifestyle they want. I want that for all my readers here as well, and budgeting is the most important part of growing wealth to achieve your financial goals.
Imagine that you were running a company but you didn’t keep track of your income and expenses. That would seem absurd to most people. Growing your personal wealth is no different from growing a business, yet most people don’t keep track of their personal income and expenses.
Budgeting is the most important part of growing your wealth because it is the very first step.
1. Budgeting is learning the chords on a piano
You need to understand the basics before you can play the masterpiece. Budgeting is not about the plus and minus, I expect you to know how to do math. It’s about understanding the basics of YOUR money. Most people know how much income is coming in per month, but where is it all going? From my own experience, 80% of people have no idea how much they save and spend on a monthly or annual basis. If you can figure out how much you spend per month, you’re already doing better than most.
2. Budgeting is the practice of mise en place
Mise en place is a French culinary phrase that means "putting in place" or "everything in its place". I worked as a chef at a Thai restaurant in college and was able to cook a delicious Pad Thai, or just about any other dish, in about 3 minutes. That was because hours of preparation was done prior to opening the restaurant for the day. Budgeting is like having all the right ingredients in place. With a good understanding of your savings and expenses, you will know exactly where to put your next dollar to work, whether that is in a savings account or a luxury purchase.
3. Budgeting is stretching before exercising
You might get away without stretching in your 20’s, but as you get older, not stretching before a workout is asking to get hurt. Saving 5 - 10 minutes by not stretching can easily turn into an injury that can knock me out for a few months. Investing without an understanding of your budget can do the same. I have seen unexpected disturbances to an investment portfolio knock off years of investment growth with a single trade.
As a summary, budgeting is the very first step to growing your wealth. It draws a picture of how much money is coming in and going out, and that can guide you to understand exactly where to put your next dollar, and that can prevent disturbing your investment portfolio so that it can generate wealth over the long-term.
If you want to grow your wealth, find financial freedom, and liberate yourself from spending guilt (more on this on the next blog), start with a budget.
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