10/22/2024
When you hear "live within your means," what is your first thought?
To cut back? Eliminate? Reduce? Don’t spend? BUDGET?
Is budgeting really the road to wealth?
And how compliant do you have to be with your budget?
Is it like being on a diet?
Counting dollars as if they were calories?
Or is there a financial gym where you can gain strength and grow without the focus being on cutting back?
If you are a financial trainwreck, budgeting can help you get on track. But that is more about surviving than thriving.
If you spend more than you make, budgeting can be very helpful, but it is only one solution. One that emphasizes reducing expenses.
When you hear the word “expense,” how does it make you feel?
Say it out loud.
Does it create a sinking feeling in your gut? Does it elicit fear? Anxiety? Worry?
Expense sounds like a bad word.
Something negative.
Something to be avoided.
Something to minimize.
But your expense is someone else’s income.
And your income is someone else’s expense.
So, what good would money be without expenses?
Expense is how you utilize money.
Expense creates exchange, and exchange creates wealth.
An expense allows you to tap into other people’s gifts and abilities.
Expense can create efficiency, leverage, and even enjoyment.
It all depends on the context.
Not all expenses are created equal.
The Four Types of Expenses
I write more in-depth about the four types of expenses in my book "What Would the Rockefellers Do?". These include:
Destructive Expenses: Borrowing to consume, recurring charges with no benefit, out-of-control vices. Eliminate these.
Lifestyle Expenses: Food, shelter, clothing, utilities. Pay cash whenever you can or make sure the asset is worth more than the loan (car or home). Manage these.
Protective Expenses: Liquidity, asset protection, trusts, insurance, and education. Address these.
Productive Expenses: The liability required to acquire an asset (marketing, mentoring, systems, tools, developing skills, etc.). Increase these.
Differentiating expenses can change the relationship one has with budgeting and even the emotional baggage around the word “expense.” If you get a sinking feeling in your gut, or think expenses are to be avoided, reconsider the type of expense.
My suggestion is to keep adding money to a productive expense until it is no longer productive, or you do not have the capacity to handle the growth. In business, this can mean it goes beyond capacity for customer service.
Are expenses bad or good?
Depends on the type.
Three Ways to “Live Within Your Means”
This can add new color and context to the saying "live within your means."
Through productive expenses, you may increase your means. There is more than one way to live within your means.
Budget (cut back)
Efficiency (keep more of what you make)
Expansion (grow your value, reach, and impact)
Budgeting focuses primarily on cutting back and can be suffocating and onerous.
What else can your energy and effort go towards?
What is of greater impact: sticking to a budget, or being more efficient with your money?
You can’t shrink your way to wealth.
Wealth is not a game of reduction as much as it is production, impact, and value.
Instead of cutting back to live within your means, why not just increase your means?
To your Prosperity,
Garrett Gunderson
Co-Author of "What Would the Rockefellers Do?"
