You Will Never Get Rich on a Budget
Contrary to what many experts will tell you, budgeting isn’t the secret to saving money. While it’s absolutely necessary to understand how you spend money, a budget creates artificial choices that can leave you feeling deprived. It’s not uncommon for people on a budget to binge on extravagant purchases when the discipline of “staying on budget” becomes too much to handle. Budgets limit your ability to choose the best value. While putting aside money to cover fixed expenses like rent, car insurance, and utilities makes complete sense, variable expenses like groceries, investments, and entertainment are better suited to a strategy of value optimization.
Simply put, value optimization means buying stuff when it’s cheap. While this may seem obvious, it’s not all that easy in practice. It means turning off the part of your brain that buys on impulse and turning on the part that buys on value. For example, a can of soda from a vending machine is approximately as enjoyable as a can of soda from your refrigerator. The cost, on the other had, can be up to five times higher.
Consider the words of Warren Buffet, the world’s third richest man, who said, “Price is what you pay. Value is what you get.” While some people think Buffet made his money by buying low and selling high, the truth is that he understands value in a way that most people can’t even fanthom. Despite his wealth, he still lives in the same house he purchased in Omaha for $31,500 in 1957.
While saving money is key to maintaining weatlh, it doesn’t help you become rich in the first place. That takes both hard work and the ability to recognize opportunities when they come your way. Working for a living is just one of many ways to accumulate weath, and it’s generally not the best way. With only a certain number of hours in a day, it is virtually impossible to become wealthy without investing in something.
As luck would have it, a good strategy for making money is the same one you use when you are looking to save money. Don’t spend your time making lists of goals. Focus your attention on recognizing value and pursuing opportunities that interest you. Goals often limit your horizons by focusing you on a complex series of steps needed to realize your objective. If anything goes wrong along the way, you’re back to square one. Or worse, you may find yourself pursuing a goal that no longer interests you.
Since the world around us is constantly changing, you need a life-strategy that benefits from change. If you really need to feel like you are accomplishing the goals, then do what all successful people do: Rewrite your biography once you become successful.
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