Can You Budget Your Way to Wealth?
Budgeting is good, budgeting is great. But if you’re building wealth, it will only get you part of the way.
Budgeting is usually the first move for anyone getting their finances in order. It’s basically just tracking your expenses against your income, and then slashing spending.
Consider that 64% of Americans live paycheck-to-paycheck.¹ Low income isn’t to blame—48% of families earning over $100,000 also live paycheck-to-paycheck!² So for many, budgeting is an absolute necessity.
But will budgeting alone put you on the fast-track to wealth? Probably not.
Let’s say you earn $45,000 per year (after taxes), but you spend $45,000 every year. Congratulations! You’re living paycheck-to-paycheck. When you decide to get serious about building wealth, you’ll face a stark reality—you have no money left over to save!
So you start budgeting. You move from your apartment in midtown to a hovel in the suburbs. You stop going out. You cook at home. You walk to work. You swap lightbulbs for candles. You scrap Netflix, Spotify, and cable—and you start whittling random sticks you find in the yard to pass the time.
By the end of the year, you’ve spent only $30,000. Good for you! You have $15,000 to devote towards building wealth.
But what if you’re still short of your savings goals? You’ve cut spending to the core. Unless you’re willing to scavenge for food and live in a tent, cutting your spending further is going to be tough.
You only have one option—boost your income.
What does that look like? It could look like scoring a promotion. Or getting a new job. It could also look like starting a side hustle or becoming a part-time entrepreneur. You actually may be surprised at how many of your talents and hobbies have income-boosting potential!
That’s why for the 7 Money Milestones in the book How Money Works: Stop Being a Sucker, budgeting and boosting income are rolled together into a single Milestone—Milestone 5: Increase Cash Flow. Budgeting will get you started, but to truly supercharge your savings, you’ll need to increase your income stream, or create a multiple income streams.
Think about it like this—Jeff Bezos drove a Honda Accord for decades, but that’s not what made him a billionaire. Rather, he began with frugality and then built an income-generating empire.
So if you’re just beginning to build wealth, start with budgeting. Clean up your spending as much as possible before boosting your paycheck.
If you’re already frugal, good for you! You’ve made a great stride towards building wealth. Now, it’s time to consider boosting your income further.
¹ “As inflation heats up, 64% of Americans are now living paycheck to paycheck,” Jessica Dickler, CNBC, Mar 8, 2022, https://www.cnbc.com/2022/03/08/as-prices-rise-64-percent-of-americans-live-paycheck-to-paycheck.html
² “48% of Americans making over $100,000 live paycheck to paycheck, report says,” Andrew McMunn, Action 5 News, Mar. 8, 2022, https://www.actionnews5.com/2022/03/08/48-americans-making-over-100000-live-paycheck-paycheck-report-says/