- Budgets are one of the main reasons some people have difficulty managing their money, because they reinforce a scarcity mindset, according to self-made millionaire Grant Sabatier.
- He likens budgets to dieting – the more guilt you feel, the less you stick with it because it becomes a point of anxiety and stress.
- Controlling your biggest expenses – transportation, housing, and food – is a better strategy because it will increase your savings rate, he said.
Here we share Grant’s thoughts behind his seven-step strategy to achieving financial independence:
“While it’s important to track what you spend, it’s not where you should spend most of your time,” he wrote in his book, “Financial Freedom: A Proven Path to All the Money You Will Ever Need.” “Budgets actually reinforce a scarcity mindset and hold most people back from saving and making more money.”
This makes budgets one of the main reasons why some people have a hard time managing money, he said.
“Budgeting is a lot like dieting: the more guilt you feel, the less likely you are to stick with it,” Sabatier wrote. “You think, ‘Well I’ve blown it,’ or ‘This isn’t working,’ and give up. Or eventually you start to feel deprived, like you have to cut back on every indulgence in order to stick to your blasted budget, and you become frustrated or bitter.
“Instead of becoming a tool for empowerment by encouraging you to be smart about your money, the budget becomes a source of anxiety and stress,” he said.
Maintaining a budget becomes too much of a burden, Sabatier added, by putting “too granular a focus on small purchases, which in the grand scheme of things, don’t have that great an impact on how much money you have.”
Cutting back on small expenses won’t save you the most money, but controlling the biggest expenses – housing, transportation, and food – will increase your savings rate by at least 25%, he said.
This can be done without a formal budget and with a few changes, like moving to a smaller apartment, walking to work, and cooking at home. Together these changes could even double your savings rate, Sabatier said.
“The reasons millionaires don’t need a budget makes sense – they make a lot and have self-control,” he wrote in a blog post. “In other words, they make a ton, spend only a portion of it, and have plenty left over. Who needs a budget?”
What is your money saving rule? Budgeting or not budgeting?