Everyone in the personal finance world is obsessed with creating a budget. Millions of videos show you how to create a budget, why budgeting is awesome. The weird thing is, all the wealthy people I know never have budgeted. I got my networth over 7 figures without budgeting. So is it really as important as everyone keeps saying it is?
And if budgeting is (mostly) useless, what should you actually do instead?
This week I’ll explain why I don’t bother with budgets, and why I think people invest way too much time into perfecting their budget, when their effort should be focussed elsewhere.
I don’t think budgeting is a bad thing – lots of people can benefit from a budget – but I think people are really putting way too much energy into them where you have bigger fish to fry, like increasing your income.
I’ll explain what I personally do instead of budgeting, and maybe this will help you grow your wealth faster, rather than having a miserably strict budget to stick to.
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The problem with a budget is a lot of people go into creating a budget with the mindset that they can’t increase their income. And for me personally, as you’ll notice on this channel, the focus should mainly be on increasing your income and playing offence instead of playing defence.
Good day there, Ray Corcoran here. In this week’s video, I’m going to be talking about budgeting and why I have never really done budgets. I did them once in the past, and I just really didn’t find it useful. And I find it interesting that so many personal finance pages and YouTube channels always talk about budgeting and people seem to be very hungry to find out information on how to budget and all that sort of stuff. I’ve never really found that to be very, very useful, and I don’t really believe personally that you should be doing it. And my goal on this channel is to help you build your wealth and be useful.
I kind of feel like the whole premise of a budget is I don’t make that much money and I need to figure out how to make my money stretch as far as possible. Logically that does make sense and budgets are technically a good thing. However, the problem with a budget is a lot of people go into creating a budget with a mindset that they can’t increase their income. And for me personally, as you’ll notice on this channel, the focus should mainly be on increasing your income and playing offence instead of playing defence. After you’ve sort of learnt how to not spend too much, you need to make the shift to focusing on making more money. A lot of people seem to be so obsessed with budgets and counting every cent, and for me personally, I think it’s quite depressing.
If you’re making a small salary or your business makes a little bit of money and you’re dividing every little penny into all these different buckets, while that may be useful, I think that you’re investing too much of your energy into something that doesn’t really need that much attention, in my opinion. I would rather you spend 80% or 90% of your effort on how can I make more money? I’m going to talk about that later in the video. A lot of people end up saying, well, if you can’t manage a small amount of money, you can’t manage a big amount of money. That is true, but the goal isn’t to just become an expert at frugality.
And you may have seen my other video on why I think 99% of frugality is ridiculous. The reason I say that is all these people are trying to make their life work on a tiny income or a tiny salary. It’s not fixed. I don’t know why everyone thinks their salary is so fixed. Sure, it’s not easy. It might not be as simple as I’ll just go get a higher paying job, for sure. However, it is possible and people do it all the time. I’ve done it numerous times in my career and people do it all around the world all the time. Now it might take you a little bit of effort to build up to that, but that should be the main focus for you.
And I remember one of the first times I did a budget, because I heard everyone talks about doing it, I actually got a small pay rise at the time and that small pay rise, it wasn’t heaps, but it made a massive difference every single week, or relatively. And I went, well, that was really, really useful. That made a big impact than any budgeting crap that I did, to be honest.
If you’re someone that’s looking at videos online about how to create a budget and all that sort of stuff, one of the things I would say to you first is just go through all your expenses one by one and cut out anything that doesn’t need to be there or you could really do without. Once you’ve done that, that’s like the majority of you saving money. And then the goal is ongoing that you don’t let new expenses creep in. So socially you don’t go do things that you would have done in the past. If you want to catch up with friends, catch up with them for coffee or something cheap. Come around for a drink or something like that.
I think so many people spend all this time trying to save a dollar here and there. The way I approached it and what helped me build my net worth over seven figures was majority earning more money and focusing on that hard, and the other side of it was a smaller part, but it was being, I guess, sensible with my money. But that wasn’t the main part.
If you’re someone that’s looking to build your wealth, what I would first look at is, so as I said, make a list of all your expenses, one by one. Cut out everything that you can, I guess in a sustainable way. Don’t cut out things that you’re going to probably need to reintroduce later. From there, what we want to do is make sure that we keep our sort of spending watertight. So we’re only spending on stuff we absolutely need. And then from there, the money going out the door side of things is going to be pretty good. We don’t really need to spend much more time on that. Just get into the habit of trying to stay like that. Live below your means, lie low for a bit and just accept that while you’re building your wealth, it’s not going to be a particularly fun. It might not be exciting or probably won’t be exciting, but you will be getting closer to your goal, which will be very exciting [inaudible 00:04:37].
By this point, we’ve kind of got our expenses relatively under control. Money isn’t going out the door too fast, which is good. So we’ve sort of ticked that box. The next thing we need to do is get all your effort and focus on how can I make more money. Now, obviously you’ve got a job or a business, it depends on what your set up is. We’ll start with a job and how you can make more money in your job. Some of it’s quite simple, some of it may take longer, but you know your own situation. Start to think about, what options are the easiest path of least resistance for you? And you start taking action towards that because that will change a lot much faster than skipping another coffee or whatever stupid stuff people recommend online.
So in terms of increasing your income in a job, there’re a few different things you can do. A lot of them are quite common sense, but I’ll just kind of go over them. First one is up-skilling. So typically if you’re in this tonne of a paying job and you want to move to a higher paying job, the things that will get you there are relationships with key people, your skills. So this could be technical skills, like how good you actually are at your job. And third, typically with high paying jobs, there’s usually, not always, but usually, some element of people management and leadership.
One mistake that I made in, I guess, my corporate career, I have a business now and I have had for many years, but when I was working in jobs, one thing that I would do is focus heaps on being really good at my job, but I actually didn’t spend much time learning about leading people and managing and stuff like that at the time. And that kind of cost me a lot. I still got promotions, but I probably could’ve gotten better roles or higher paying roles earlier if I had realised that.
So you need to understand that, say if you’re in a job, either A, get better at your job and aim to become the best in your team, department, the state, whatever is applicable, but try to be the absolute best. The highest paid people are always the best talent or the people in that sort of top realm in terms of talent. Second is develop leadership skills in tandem with the technical skills. If you can start to work on your people skills and be able to manage people and be able to lead certain projects or start leading small projects, I’ve said in other videos, start by even organising the coffee order, start proving your leadership skills and ability to get stuff done on a small scale, and then gradually increase it to more important projects. And you’ll start to establish your reputation within the organisation as someone that can be trusted to get stuff done, whether it’s big or small.
Now depending on your job, you might have a job where there is not much upward movement possible or you’re below the boss, so it’s like unless you own the company, there’s not really many places for you to go. If that’s the case, you’re probably going to need to start looking at either a second job or a third job, or alternatively potentially working more hours, if that’s available to you. It depends on if you’re on a fixed salary or not. I would also say that if you’re struggling for options here that you speak to your boss or speak to people around you and see what kind of other earning opportunities there are.
So I had a role where I was doing sort of my main role, but I also did some stuff to help out the sales team. So I would get paid what I got paid, but then after hours, in that same company, I still had my normal role, but I also said that, hey, if I can help close some of these deals over here, can I get paid a commission for whatever I sell? And they said, yes, and that allowed me to make what I was making plus some on top, plus I was making some from my business as well. So there was money coming in from multiple ways. So get creative. Ask your boss, ask your managers, is there any other earning opportunities outside of the normal hours or any other things I can do to increase my income here? It’s not always available, but ask the question because you never know. Some of these things won’t be available to everybody, but if you don’t ask the question, how are you going to find out?
Another thing to do in terms of increasing your income in a job is if you need to move from a job to a more leveraged job like sales, a lot of those jobs can take years of experience to get up to the level where you can deserve and command that higher pay. Now, if that is the case, then you should really consider something like sales or some sort of role where it’s commission-based and outcome-based. Because if you’re in a job where you get paid per hour or you get paid a fixed salary, the problem with that is that you’ll get paid what you get paid no matter if you have a great week or a crap week or whatever, it’s going to stay the same and you won’t get much leverage there.
Whereas with certain sales roles, if you do a really, really good job and do above average, you get paid above average. And that’s really, really crucial because you can start making more than a typical single salary. You can go from 1X to maybe 1.5X or 2X what you could normally make. If you need to move to another industry, have a think about that. A lot of people go, well, in my industry people don’t get paid much. And this is something that keeps coming up a lot, and what I would say to people as well is if you can’t get paid a lot in your industry and you want to get rich, then [inaudible 00:09:20] start making some decisions around, well, what are you going to do? Because if a typical person in your industry only gets paid a small amount, you’re destined to get paid that forever, potentially, if you don’t broaden your horizons and start looking at other roles.
And if you really like that job, great, but you need to understand that it’s going to be holding you back financially. There’s nothing wrong with that, but you just need to understand that there is going to be an impact there. And maybe you need to start thinking about, well, what are some other ways that I can sort of meet my goals and also be happy in my job?
The next one is, if you have a business, so we’ve covered the job. Now, if you’re in a business, and obviously this whole conversation is around, don’t worry about budgeting, focus on increasing your income instead because that will do way more for your life and finances than [inaudible 00:10:04] a little spreadsheet or some of those really fancy design spreadsheets will ever do for you.
I have a marketing agency so we do a lot of stuff around growing companies and helping them get more customers. At a simple level, there’s a bunch of things you can do. One is add more products. Say if you’ve got this many products, you can double the amount of products that you sell. Generally, the more products you have, the more that you will sell. Now that’s a big generalisation, but generally that is true. Second is sell more to existing customers. So if you had someone buy something from you before, how can we get them to buy that again? The next one is selling complimentary products. So if they bought X, can we sell them Y? So we would contact everybody that’s bought X and be like, hey, we’ve got this deal to buy Y as well. It goes really nicely with what you’ve already bought and here’s how you get it and here’s how much it costs. That can be a free zero cost marketing strategy that you can use to get more sales without having to spend on marketing.
The next one is you can also sell other people’s products, so affiliate marketing. If you have a particular, it might be a certain software that you use or certain products that other people sell, you can start selling them to your customers and collect a commission on that. So you don’t even have to create new products necessarily. You can find other people’s products, and you’ve got a client base in your existing business, and you can sort of sell that onto them.
Another simple way to make more money is simply increasing your prices. So if you have a business, one of the easiest things you can do is just start increasing your prices. And the good thing about increasing your price is that it’s a straight increase in profit. So you can just increase your prices, and if you have a product that is commoditized and it’s identical to other stores, this is a good opportunity for you to realise that if you sell commoditized products, there’s only so much you’ll ever make.
And sure you can sell a lot of product, but you’re always going to be at the mercy of what everyone else sells that commoditized product for. So that’s why you see a lot of brands these days offering their own in-house brand. You might go to the supermarket and you might see that that supermarket has their own brand. It’s because they make a lot more profit. They see what sells in their store and they make their own home brand version of it and they make good profit and they know it’s going to sell because they’ve already established it’s profitable. And obviously increasing your prices comes with a caveat. It has to be obviously delivering value. So you can’t just increase your prices willy-nilly. You have to make sure that whatever you’re delivering is still a multiple of value to the customer. So as long as the customer is getting great value, we can increase our price, but we need to make sure that they’re getting more out of it than we are.
And the final part in terms of increasing your income within a business is simply to do more marketing. So this could take the form of paid marketing or free and organic marketing. You might do twice as many social posts each week. You might send out more emails. You might send out better quality emails. You might start calling up old customers and seeing if they want to buy certain things or introducing them to new products. You may do stuff like paid marketing, like Facebook ads and Google ads, it’s what our agency does. There’s lots of different options available to you so that you can sort of, I guess, buy customers. You might spend $30 to acquire a customer that might spend $60 or more, and you can really scale that quite quickly.
I’ve done other videos on this, but they’re just a few ways where you can start to think about how can I increase my income? Because for me, I think that’s a much better option for you than budgeting. I think budgeting, it’s not a bad thing, but I think the problem is the emphasis people put onto budgeting. I think people are looking for these apps and tools and all this sort of stuff. Realistically, I think the thing that changed my life was learning how to make more money and deliver better services to customers in my business. And I do have investments off the back of that and they do make a lot of money, but that all started with the business making money. So something for you to think about before you start out this whole new budgeting thing.
I hope you found that useful. If you liked it, give it a like. Consider subscribing. We do videos on making money, investing money and saving money every single week, and I’d love to have you on board. And other than that, I’ll see you in the next video. Cheers.