How to Build Wealth from Nothing - Step 4

Discipline Your Spending

There’s no doubt about it, budgeting can be a real pain.  As if our lives weren’t already busy enough, taking the time to stop and categorize every one of your transactions for a budget can be extremely time-consuming and maybe better spent developing a new skill or spending time with family.  And then once a budget is made, adhering to it can be even more challenging.  In a recent customer survey we polled over 3,000 customers and the only thing more fickle than budgeting was actually sticking to the budget for 80% of respondents.  We get it, budgeting should not be so complicated.  In Step IV of “How to Build Wealth from Nothing” we’ll talk a little less about budgeting tactics and a little bit more broadly about spending discipline and tools you can use to help automate your monthly budget.

Keep it Simple

    Discipline is often touted as the bridge between goals and accomplishments.  And like many things in this series, the concepts are simple but not easy.  When it comes to spending discipline, you could go line by line through your monthly statements and figure out exactly what you can keep and cut and then make the corresponding budget for the next month as well line-by-line.  But this takes time and is often difficult to adhere to.  We recommend making setting a simple spend reduction goal (%) each month and keeping track of it using simplified budget adherence tools.

Set a Spending Goal Instead of a Savings Goal

    For example, say that you spend on average $3000 per month on all your expenses.  You’ve done a quick expense audit and realized that there are probably some things you can cut out of your monthly spending.  Instead of tracking each and every individual expense to get there, simply make a goal that you want to spend X% less for the following month.  In this case, let’s say 10%.  So you are making the pledge at the beginning of the month to spend 10% less, or $300.  As soon as you make that pledge, set aside that $300 into a savings account or another checking account where it is ideally out of sight.  Then, you are telling yourself that you have $2700 to spend in that month and it helps to break this down into weekly and daily amounts as well which in this case are approximately $630 weekly and $90 daily.  You can then reference some very simple illustrations and graphs from our automated savings tools to show you how much you are over or under your spending goals at any given time.  No manual calculations, no line item budgeting, just a simple decision each month and periodic check-ins with yourself and your goals.  You can be as aggressive as you want in these goals but you will generally find a comfortable medium after a few months where you are saving a lot more money but also not straining your life from things that you want to do.  If you do not meet a spend reduction goal in a particular month, DO NOT beat yourself up over it.  You set aside the money at the beginning of the month to keep it out of your spending budget, but it’s also there for you should you need the backup if you missed your spend goals.  And in the next month, you can simply reduce the % amount that you want to try to set aside for the next month until you find the right amount.  

Everyone's Situation is Different

There is no right or wrong amount to set % goal each month as it varies drastically from person to person depending on their circumstances.  There are some widely held beliefs that 20% is a good goal to shoot for, but again, your pace is the only pace that matters.  For reference sake, keep in mind that a $35K salaried worker who is able to reduce expenses by 20% each month (and put that away into savings) will increase their net worth by $70,000 over the course of 10 years and potentially a lot more when combined with the other steps in this series.  In Step V of the series “How to Build Wealth from Nothing,” we’ll address a commonly overlooked aspect of increasing net worth and how to tackle debt head on.

Harvest helps increase the net worth of the 99% through artificial intelligence and financial automation. To date, Harvest has refunded over $2M in bank fees and interest charges to its members with the ultimate goal of increasing the net worth of everyday Americans by $1 trillion by 2030. Our platform starts with providing immediate relief through bank fee and interest charge refunds, orients a member's financial health with our proprietary PRO Index, and keeps track of net worth over time aided by our suite of financial tools. Check out our 8-step guide on "How to Build Wealth from Nothing" to get started on increasing your net worth.