Please don’t flee at the mention of reducing expenses. It is one of the 3 pillars for building wealth in this newsletter: grow income, reduce expenses, and save more.

Reducing expenses must mean the following, right?

• Sacrifices must be made.

• Life will be less enjoyable.

• A budget must be implemented.

• Shame will be felt for how money’s been spent.

• Value judgements must be made, sometimes by others.

In 20 years of my experience, professionals and the media alike have been very effective at making people feel bad about their financial decisions. That doesn’t motivate anyone. 

If you thrive as wealthy or struggle living paycheck to paycheck, you can’t escape cash flow planning.

You have to create a savings margin, just like companies must create profit margin in their operations.

• To create savings margin, you need to widen the gap between your income and your expenses.

• You can’t do that without awareness of your situation. You have to be cash flow positive.

We don’t need a budget as much as we need a spending awareness system.

A streamlined approach is what most Americans are looking for. Why?

• Budgeting sucks and it’s hard for many to consistently follow through tracking and categorizing expenses monthly.

• Streamlining is more about making spending choices based on a given monthly amount and less about what is purchased with it.

• Spending that money is 100% a values-based decision.

You can see here I did not create this system. I just think it’s a great alternative to the traditional budgeting, completing Excel sheets, and the analysis paralysis over what is a good or bad amount to spend on X purchase. Here’s how it works in a simple visual.

In the above example, you’re free to spend that $375 weekly/$750 per pay period/$1,500 per month, according to your values.

Each month you’ll review and confirm you didn’t spend more than the One Number. You now have a spending awareness system.

1. If your spending is above the One Number, look at your expenses. You choose what to reduce to get back on track.

2. If spending is below the One Number, look at what amount you can redirect to your wealth building.

How does this look in reality?

Below is how this simple system looks for clients using my professional software Right Capital. You can do this yourself and I’ll share how at bottom.

• This client earns $4,400 monthly take home and has some self employment income but that’s not included because they save that.

• They have (-$1,700) in bills

• They save (-$400) monthly for emergency savings or other near term goals

• They average $2,400 per year in non-monthly expenses, so that’s accounted for as (-$200) per month, maybe held in savings until used.

• The difference is their One Number, $2,100. They can spend this freely each month, according to their values.

• Monthly you review transactions and categorize them into 3 categories: Bills, Savings, and Non-Monthly Bills. This takes far less time than you might think.

• Uncategorized Spending requires no categorizing.

• You can see in the above example, the One Number amount is at upper right, $2,100. If Uncategorized Spending exceeds the One Number, you know you’ve over spent. If spending is below the One Number, you know you have room to save.

• Uncategorized is currently $336 at this point in the month in the above example.

1. Use a software to implement this simple system. I like Monarch Money as a low cost consumer app. SOFI is a fintech app and is also capable of this too.

2. Link up your bank accounts.

3. Create the simple categories of the One Number Budget System mentioned above.

4. Determine your One Number.

5. Each month review your spending.

6. If spending is above the One Number, look at expenses you choose to reduce to stay on track.

7. If spending is below the One Number, look at what amount you can redirect to your savings for wealth building.