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5 Steps to Grow Rich Without a Budget

Have you been putting off creating a budget or tried it with no success? Breathe a sigh of relief because you can still achieve your financial goals without one. Laura gives you 5 steps to grow rich even if budgeting isn't your thing. 

By
Laura Adams, MBA,
Episode #516
5 Steps to Grow Rich Without a Budget

4. Create a spending plan.

Now that you have a clear picture of where your personal finances stand today by creating or updating your Personal Financial Statement, and where you’d like them to be by setting short-, medium-, and long-term goals, the next step is to close the gap between them.

Instead of budgeting, I recommend creating a spending plan. This is a simple plan for how you intend to manage your money. The idea is to account for your financial goals in addition to all your living expenses. The total of all your expenses must balance with your take-home income, so you never spend more than you earn.

I’ll give you some guidelines to follow for what percentage of your income to allocate to broad types of expenses. But there’s no right or wrong way to set up your spending plan. Everyone has different goals and priorities.

My spending plan starts at the top with how much I want to set aside for my long-term goal, which is a comfortable retirement. I invest no less than 10% of my gross income by making contributions to different retirement accounts. I also make sure to maintain a minimum of six months’ worth of living expenses in my bank savings account. Then I live off the rest.

So, my strategy is to pay for my financial goals first, and then never spend more than what’s left. It’s not difficult now, but there were many years when I cut back ruthlessly on big expenses, like housing and cars, and eliminated just about every unnecessary cost, such as dining out, entertainment, and new clothes.

If you feel like you can’t afford to fund your goals, especially investing for retirement, it’s time to tighten up your spending.

If you feel like you can’t afford to fund your goals, especially investing for retirement, it’s time to tighten up your spending. Eliminate items you really wouldn’t miss, like a gym membership you’re not using and online impulse buys.

Make changes that are less expensive and better for you, such as cooking at home and bringing your lunch to work. Shop your utilities and insurance to see if there are less expensive options for your situation.

One popular planning approach is called the 50/30/20 rule. It’s a basic guideline for setting limits on your living expenses, variable expenses, and savings.

With the 50/30/20 rule, you spend no more than 50% of your take-home income on fixed expenses and true necessities, such as housing, insurance, utilities, food, transportation, and debt payments.

You limit variable expenses, such as dining out, clothes, cable TV, travel, and gifts to 30%. And the remaining 20% is for financial goals like building an emergency fund and making retirement contributions.

These are rules of thumb that you can tailor to your situation and priorities. For instance, if you can spend 40% on fixed expenses, you could increase your variable costs to 40% or boost your savings to 30%.

Related: Checklist to Measure Your Personal Finance Success

5. Create an earning plan.

As much as creating a spending plan can improve your financial life, creating an earning plan can be even more powerful. There’s a limit to how much spending you can cut, but the amount of additional income you can earn is unlimited.

Consider all the ways you could earn more over the short- or long-term. Maybe you could get more overtime, do freelance work on the side, or get a second job. Once I began earning more, I kept my expenses low and had enough freeboard to save and invest more and more each year.

Always start small and increase your savings a percentage point or two every year so you build it over time, especially when you get a pay raise, windfall, or bonus. The trick to building wealth is not to spend more when you make more.

Having more income and cash flow is fantastic! But if you spend it carelessly, it won’t help you achieve your financial goals or build more security.

Having more income and cash flow is fantastic! But if you spend it carelessly, it won’t help you achieve your financial goals or build more security.

Best Money Management Tools

One way to protect yourself from making bad financial moves is to put your goals on auto-pilot. Easy access to money makes it easier to spend on unnecessary items and to make impulse purchases.

Use tools such as an online bank account or app to set up automatic transfers to your IRA. If you have a 401k at work, contributions must come from automatic payroll deductions. Also request that your employer send a portion of your paycheck by direct deposit to your savings account.

For ongoing money management, I’m a big fan of Quicken software, which is the gold standard. It’s an all-in-one solution that aggregates transactions from all your financial institutions, allows you to create customized categories, reports, budgets, pay bills, sync up multiple devices, and more.

You might also try out free money apps that aggregate and categorize financial transactions in a dashboard, such as Mint and Personal Capital. If you prefer using spreadsheets to manage money, check out all the great templates at Simple Planning.

Growing rich is about much more than budgeting. Abraham Lincoln said, “The best way to predict your future is to create it.” So, it’s time to decide what you want your future to be and how to use money as a tool to create it. Then develop a spending plan to get there by setting aside the right amounts in the right places so to make it happen as soon as possible.

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