How To Budget & Save WITHOUT Feeling Trapped

Hey there, real quick, before we jump into the episode, listen, if your earnings treadmill hasn't set you free yet, running faster won't either. Listen, hustle without principles just going to burn you out. So here's what I want for you. I want you to join me for my money machine experience live. It is three free trainings. Deep dive into how to escape the treadmill and build a money machine that actually works for you. All right, grab your spot here by going to moneymachinelive.com and I'll see you in the free training. Why do most people fail at budgeting? Even though it's actually one of the single most important tools to build wealth and have financial freedom? Now I get it. Budgeting is like dieting. No one really wants to do it. Let's frame it a different way. Why do most people fail at telling their money to do the right things so they can build wealth and have financial freedom? Because that's exactly what the budgeting is. But here's the deal. If you've ever felt like budgeting is restrictive or boring or something you can't stick to, you're not alone. That's the frustration. That is exactly what's holding you back and most people back from achieving the financial independence and freedom you deserve. And so, in today's episode, I'm going to show you why most budgets fail. More importantly, how do you create what I call a cash resource plan that allows you to manage your money, it doesn't manage you, but actually helps you build wealth and live a life of of choice?

Budgeting. Oh, no, he said the B word. Yeah, budgeting. Why is, why is it such a negative thing and why do people not like it when the fact is that it is essential for your wealth building journey and to make sure that you don't fail? So here's the deal. We're going to tackle the common mistakes here and how you can succeed at budgeting. Because I get it. People look at budgeting like dieting and no one really wants to diet. And this is a. We see budgeting through the eyes of deprivation. And deprivation never gets you to wealth or living a rich life. So by the end of this video, you'll not only understand how to build a, what I call a cash resource plan, but you'll also walk away with the practical steps on how to implement it successfully. So let's start off with why do most budgets fail? What is it? And the harsh truth is that most of them do fail, not because they're inherently bad. We start to Blame the budget itself. But because people don't build them to succeed, we're not taught to do that. The fact is that Parkinson's law says just like work expands to fill the time available, your spending is going to expand to fit the money you have. And when you start to look at that, if you don't have a plan, your money will find a way to spend itself. Okay? And so having a plan in place allows you to know that the money that you have is doing the job it was meant to do to give you the life you're meant to have. All right, so what are the common reasons that they fail? First off is I think that they're overly restrictive. When people think of budgeting, like I said, they think of deprivation. It isn't about deprivation. This becomes a mindset problem where you feel like, I can't, I can't, I can't. And you focus on what you can't do versus what it is allowing you to do. So the first thing is that if we make it overly restrictive, it doesn't allow you to breathe. The second thing is that we, and often we don't think about accounting for real life. Budgets aren't just about fixing the expenses. They need to account for the unpredictable nature of life, because life is going to happen. And any plan, and a budget is a plan, any plan isn't going to go as planned. It's just the nature of the plan. And so there is variable spending. And too often the budget itself is dogmatically restrictive and doesn't give that to you. And because of those two things of being overly restrictive and not accounting for real life, it creates this third element of why it fails, and that is guilt and shame. People often feel guilty about their spending because they're out of budget or they're out of alignment with it. And there's frustration. And ultimately they say, I don't. It's like having that. That cake. You're on a diet and you happen to have the cake and you go, and guilt and shame, you say, okay, and you throw it all out the door. And so what we need to do is first understand that when you build a budget, right, or a cash resource plan, as I call it in my. My book, building your money machine, it is not about telling you what you can't do, but it's about a. Creating a plan that gives you the permission to spend. It is not about restriction, but it's about permissiveness. It's really about having a plan for your money to work wisely for you so what does it mean? I think that in the end, at the core, a cash resource plan or a budget is about intention. It's about deliberately giving your money a job description so that every dollar has a purpose and that when that money knows what it's supposed to do, it will work for you and not against you. It's, it's part of the, the subtitle of the book. How do you get your money to work harder for you than you did for it? Well, in order to do that, we got to tell the money exactly what to do and follow a process and a plan. Here's the other side of this. When you create this right, and you take into consideration life, and I'm going to give you a process to do this, you actually create an environment of guilt free spending. When you decide and you have built in there what we call the three joy points, at least three joy points. We try to build in the sustainable things that bring you joy. Because if, if all you're doing is budget, budget, budget, not spending and, and restriction and restriction and judgment and angst and all that stuff, hell, no wonder it doesn't work, okay? No one wants to live that way. So if we don't enjoy the journey to financial freedom, we will never enjoy the destination of financial freedom, let alone even get there, okay? So I look at it and say, when you do this right, and you build in your sustainable, the real visceral things that bring you joy, like my wife and I, a lot of it is travel, okay? Sharing time, sharing travel experiences and all that stuff that brings us sustainable joy. So it's part of the plan, it's part of the budget. Because if there's no joy in the journey, why are we doing the journey anyways? And so what it allows us to do is because it's part of the plan, we can spell spend guilt free. It's part of the plan. Whether it's, hey, I'm gonna, I have a plan that I'm gonna spend 200 on dinner. It's part of the plan. You don't have to come home and go, I spent $200 dinner and I feel guilty, I feel ashamed. No, whether it's a vacation, a dinner out, technology, something clothes, a massage. If it is in your budget, if it's in your plan, you allow it to live and breathe without guilt, without shame, okay? There's a stat. There's a stat. Northwestern Mutual looked at and said people who actually use a plan and a budget. It was one of the reasons that I build what I Call Money Machine Master Plans, where I help my clients build a master plan of their finances, their investing. I have their assets, their income, their expenses. We build it all out. We know exactly what they're doing. We build. When does Social Security come in? If it is, what happens if the market goes up and down? We test it and stress it so they can see the probability of success. Northwestern Mutual says those that work with a budget or a plan are one and a half times more likely to feel financially secure and confident. This is about giving you permission to live intentionally into the vision of the life that you want. All right, so let's talk about the tactical side. Let's talk about how do you, how do you break down this idea of what I call a cash resource plan or budget? So here's how I do it. I break things, expenses down into five types of expenses, five categories. The first is this. I figure out what my fixed expenses are. These are the regular monthly expenses that are predictable. They're things like rent, utilities, insurance that most of the time they're set. I know utilities will go up and down. But rent, mortgage insurance, there's a lot of those expenses that are fixed now. They're also fixed because we can't change them in a short period of time. They're going to exist over a period of time. So we need to account for them because we have to be able to make sure that we're covering our fixed costs and then some and it gives us the floor of the income that we need. And so I'll start with those fixed expenses and understand that. The second thing that I'll look at, and this is something that a lot of times will throw budgets or plans for a loop because we don't think about it, is what are the non regular expenses that we know will happen. But they don't happen monthly, they happen once a year or twice a year. For instance, I just got our property tax bills. So in California, property taxes are due at the worst time of the year in December. So right before the holidays and in April, right before taxes. Okay? But they're non regular expenses that come up during the year. You might have an annual insurance premium. You might have property taxes like, like we do twice a year. You might have, I have a, our homeowners association has a once a year bill that comes in July. So these are non, non regular expenses and spending. But, but they're predictable. Okay. You might have a renewal of a subscription or things like that. So this is the thing that actually will throw many budgets into a world because they hadn't thought about it. So fixed expenses first, non regular expenses second. This will allow you to potentially build impounding. So if I know that in six months my property tax is due, and I have an idea of what the property tax is, if I can put money into a high yield Savings account at 1/6 every month, you know, then I'm going to be okay when the bill comes due. So those are the first two categories because I think these are the most critical that we have to get over first before we can look at the other ones. Okay, so, so fixed expenses, non regular expenses. Then I move to what I call variable expenses expenses. These are the monthly expenses that are not necessarily fixed. Groceries and gas and things will fluctuate.

On a monthly basis. So I look at the variable expenses. Those are the ones that we can typically have more control over in a short term. So now it doesn't mean that you can sit back and say, how, how do I, let's face it, groceries have gone up. Can I reduce my grocery bill? Yeah, but you're not going to reduce it to a point where you're not eating. Okay. Your variable expenses would include maybe eating out. You might reduce that if you need to reduce it. So variable expenses are those things that will move and fluctuate during the month. We want to then account for those. And then number four is what I call sinking funds. This is a savings account, typically a high yield savings account for some large future expense. This could be a wedding that you're going to do in two years, putting money aside for that wedding over that two year period. It could be an improvement on a home, it could be a down payment on a home. It could be a vacation. It's some. It could be a car. You're setting aside money each month in what I call a sinking fund, A, a separate high yield savings account to make sure that you have the money available to you when you need the money. So when I create the budget, I have all the fixed expenses, the irregular expenses I put in there, the variable expenses, and then I allocate my sinking fund expenses. So here's the thing. Tactically, let's say that you have a wedding just to make it easy in two years, and you want to have $24,000.

Available for the wedding and you have two years to do it. So you have 24 months. That means the sinking fund should be funded to the tune of a thousand dollars a month. And by the time you get to the wedding, you'll have $24,000. That's what you're trying to do as is to put money aside so you don't get walloped with some big bill. And then the last category is discretionary spending. So once we make sure that we have funded all of those things, discretionary spending is the stuff like you can spend it any way you want. And I typically, in many cases with my clients, there's a his and hers account. The his don't act the ask the hers and the hers don't act the his. It's theirs to do. There's no friction. There's no discussion. It's personalized funds to do the way you want. Okay. And, and we do that now in here. I want to make sure that part of it is also investing. We follow the wealth priority ladder, and it's in chapter 12 of my book. So part of the priority is your investing. And I actually look at it as a fixed expense. I want a certain amount of money. 20. We say 20 to 25%. If you can't get there right away, you will get there over time, but you got to get in the game. So part of your, your process, your cash resource plan and your budgeting is. Includes investing as, as part of it. It's not quote, unquote spending, but it is, it is creating the financial future you want. All right, so that leads me to kind of this other element of budgeting, and that is friction. Why friction matters. And what is friction? Friction, because this is what gets us in trouble, and this is what. What. What marketers are doing with us. Friction refers to anything that makes spending harder or, or slower. And, and what happened is, you know, we have credit cards and they gave us back, back in the day. They don't do this anymore. Back when I was in college, they would literally have credit card companies on campus giving us credit cards and doing applications. We get our T shirt or our, you know, our, our coffee mug or whatever it is, and in, in the process, they got us a credit card. So the reason they gave us credit cards was not because they were being nice and saying, oh, we want you to develop a credit score and we want you to have credit. No, what they wanted to do is remove the friction from our buying decisions. And they were successful at it because we had this credit card. We didn't understand, Really, I was 18 years old, that there's a bill that comes along when you spend it. You go, hey, you got $500? We go to the store and we spend $500. And then all of a sudden we get the bill. And go, oh, I can't pay the $500. See, the credit cards and the payments actually remove the friction from the buying decision which gets us to spend more. Marketers are genius in an evil way sometimes. All right, so what we want to do is in our spending, we want to add friction to the spending to eliminate the ease of buying and make it a little more difficult. So what that means is that, that I want to separate my accounts, in fact. So if I have money set aside for the wedding or for a vacation, put it out of sight, out of mind, remove temptation, remove anticipation, remove comparison, remove all of that. So discretionary funds, all that stuff, put it in a separate account. Out of sight, out of mind. It reduces the temptation to overspend. If you see it in the account, there's a chance to spend it. So we're not borrowing from another account. We take it out of sight, out of mind. Okay. Now if you're going to have separate accounts though, you got to be mindful that some I now most of my banking, I did a whole episode on this is done with credit unions. So there is, there are no account fees there. You have to beware of fees. If all of a sudden you're going to create, you know, a car sinking fund account, the wedding account, the vacation account, and, and you know, the tax account and you have all these accounts and they want to charge you fees that can eat away at your savings. And there are plenty of financial institutions, credit unions and other, other entities that will create accounts for you without fees. And even some like, I think Ally does it and Capital One does it where it's one account, but they'll create buckets within the account for you. And you can do that. But what it's doing is it's removing the temptation and building friction in the spending of it. And so setting up those accounts in a cost effective way will help. So how do you make the budget itself.

Successful? So first things first, I think we gotta be realistic. Start with numbers that actually reflect your real life. And there isn't an ideal life. I know that there's percentages that people will give you, but I want you to be realistic about your life. Get aware of it. Not in judgment, not in criticism, but rather be aware of it so we can adjust it to make sense. Because we're going to start, you're going to start with the vision. If I was doing your money machine master plan or even in the first part of the book, we're going to start with the vision of your life. What you Want it to look like the kind of travel, the kind of family. What does that look like? Then? What's the price tag of that?

And that's the destination we're coming to. And so we want to be realistic to build a budget that's going to make that the reality. And so first, be realistic. If you spend $200 on dining out a month, then make sure it's in the budget. Don't kid yourself. Don't pretend that it's going to all of a sudden magically be 50 bucks, because it's not. Okay? Now, you might get it there by being intentionally aware of your choices. But. But let's start with being realistic. Okay? Number two in here is adjust regularly. The budget isn't a set it and forget it. Put it in stone and set it aside. But review it every month. You sit back and say, I thought I could do this. And after the last three months, I seem to have been spending more on groceries than I budgeted for. Oh, okay. What's causing it? Can I change it? If I can't change it, then we have to adjust our budget. And also, life changes, they happen. Things happen. So we don't create a plan. A plan is this, this malleable thing that allows us to move towards a destination on a specific journey, but not this dogmatic.

Boundary ball and chain that is going to saddle you with guilt and shame if you violate it. Okay? Now, if we continue to not fall within budget, then we're never going to get to the destination. So we've got. We've got to be real with ourselves in the process. Also, that also means that you have to track your progress. That means, like, all of my spending, personal and business are in programs. Like, every dollar is tracked. I know where it goes. I know you know what I'm spending on different things. I need it for the business, obviously, for tax filing, but I also do it on the personal side. Track all my investments, all my spending, all my income, all that. You have to track your process. Otherwise.

We don't know where we're at. Now, it could be done in a spreadsheet. If you're one of those spreadsheet nerds, like I can be, or it can be done in an app, like a budgeting app, or those that have my are part of the money machine master plan. They can put budgeting in there or. Or it can be in something like a Quicken or QuickBooks. The more knowledge you have, the more power you have over your money versus it having power over you. And so, And I think that this bears out in statistics. So Bankrate, for instance, found that 42% of people who budget feel more in control of their finances, while only 18% who don't budget said that. So literally twice, more than twice as many people feel more in control, more secure with doing that. But tracking it and, and planning for it or budgeting it isn't enough without checking in on it. Now, I'm not talking about, you know, this interrogation as you're sitting there as a couple. I'm talking about, y' all spending 30 minutes in a conversation. First, about the vision for your life, second, about celebrating the wins, and third, about making some necessary adjustments. If you're doing a money date and that money date feels like judgment and criticism, you're doing it wrong. It can't be. Don't overcomplicate this. Attach to the vision, attach to your dreams attached to you guys moving in that direction. Look at where, where you are, celebrate the wins, figure out what adjustments need to be made, and then move on. It doesn't need to be long. Okay. It doesn't need to be long. So why is this so important? I think let's just talk about the couple of things. How this really contributes to building financial freedom and building wealth. The biggest thing is to realize that budgeting isn't about.

Managing your money and your day to day spending. It's about laying the groundwork for wealth, building financial freedom, and having the money do the right job for for you so you can have the life that you want. A strong plan. A strong budget will allow you to save more because you know where every dollar is going. It will allow you to know that the dollar's doing the job that it's meant to do. Two, it'll allow you to invest wisely because you're allocating more money to the right places, to assets and wealth building because it's a line item in there. And three, it'll put you in a place where you're going to have a plan that is helping you eliminate debt, eliminate destructive debt, pay off debt faster to get out of debt. Because here's the thing, Financial freedom isn't about having millions. It's about having control over your time, your money and your choices in life. And it starts with a plan. So whether you've been avoiding building some sort of budget or some plan because you think it's restricted, it's time to change that perspective. It's time to spend the time to create a cash resource plan. If you're not sure how to do it Spend a bit of time in my book, building your money machine. It gives you control. It gives you freedom. It allows you to build wealth. It puts you in the driver's seat. Start with just some small actions today, they'll become big actions tomorrow, and they'll put you well on the way to your path to financial freedom. So I'd love to hear from you. You let me know what you think, what you're going to do, what your next step is. If you're not subscribed to this channel, do me a favor, make sure you're on this channel. I want to give you the tools, the tactics, the strategies that work. I got nothing to sell you. I'm not selling you investments. I'm not selling you insurance. I. I'm not selling you apps. I am selling you on your dreams because I truly believe that financial freedom is your birthright. I want to give you the pathway to claim it. That's a crusade I'm on, and I want you on it with me. All right? So until I get a chance to see another episode or on the road, always thank you for listening to the Affluent Entrepreneurship with me, your host, Mel Abraham. If you want to achieve financial liberation to create a new affluent lifestyle, join me in the Affluent Entrepreneur Facebook group now by going to melabraham.com group and I'll see you there.

And that's it for this episode of Building youg Money Machine, where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you do me a favor, go to Apple, Apple Podcasts, or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people. Because I truly believe that financial freedom is your birthright, and I want to help each and every one of you claim it. Thanks so much.