Look…it’s time for a budget.

I need everyone’s attention here, please. Is everyone here? Great. I’m going to tell you something for the 5000th time.


I need you to really understand this. Wealth means freedom. Wealth means spending time doing what you love with people you love instead of spending ⅓ or more of your life at a job producing passive income for someone else. Wealth does not mean high income. Wealth means that you can walk out of your job right now and survive. Earning a higher wage does not equal wealth. Moreover, when you do not have wealth building habits, you will always spend almost as much as you make or more. There will never be more money to put away “later” because you will always spend all or most of it.

We are trained from birth to be employees and consumers, not owners and creators of wealth. Your mindset has to change, or nothing I can teach you will bring you the financial freedom that I’m assuming you’re here for. The following exercise is something you must do if you want to be successful.

You have to create your budget. You absolutely must figure out what you’re currently spending, prioritize it, and cut the dead weight. Period. This is an in-depth and very important part of your wealth-building journey. This is an “a-ha” moment for people. By understanding which expenditures are actually needed for survival, which are important but not necessary, and which are 100% useless, you’re better able to prioritize your spending and cut the expenses that are weighing you down. I’m willing to bet you’ve got all kinds of money you didn’t even know you had being flushed down the toilet monthly. This is money you could be using to invest and build your fortune!

What is a Need?

Needs are what you need not only to survive, but what is needed to function to pay for what you need for survival. The obvious are food and shelter. At the top of your Needs list, place saving for yourself above everything else, but the amount will vary, depending on your progress with your emergency fund and debt.

For most people, a phone is a need. You need to be available for contact in case of an emergency with a family member, or need to be able to make calls if you’re looking for work. If you work in a professional setting, certain clothing or grooming could also be a need, because if you’re expected to look a certain way at the place that provides you the paycheck that puts food on the table, you have to fit it into your budget. A vehicle is also usually a need, but not always, and what you’re paying to own or lease that vehicle could very well be a Red Flag, discussed below. Actually, I’m a proponent of not having a car payment at all.

What Are Important Wants?

These are things that are not necessary to survive or function, but important to your well-being. Important Wants are subjective, and vary depending on your habits and preferences. These things help you to be the most productive version of yourself possible. Important Wants are expenses that usually have some regularity, as they’re important enough to you and your well being to keep up on.

If your daily trip to the gym makes you feel clear-headed and energized, by all means, do that if you can fit it into your Important Wants budget. It may even be a Need if your health is at risk and there’s no other cost-effective way for you to exercise (but I bet there is, somehow).

By the same token, if you’re putting every extra dollar towards your debt, eating food from home for every meal and not spending a cent on fun, but getting your nails filled just makes you feel like a lady worthy of praise and respect, then budget it in if there’s space. However, Important Wants should represent a much smaller fraction of your income than most people spend on them, usually because they’re just Wants being Posers. Important Wants could include:

  • Organic food
  • Personal grooming
  • Internet
  • Cable/movie subscriptions
  • Gym memberships

When determining Important Wants, you really need to reflect on who you are as a person and which activities and habits truly bring you the most satisfaction, because you probably can’t or shouldn’t keep them all, unless you’re already more frugal than your average American.

While some people really feel it’s necessary to veg out in front of Netflix to recharge after a long day, someone else may do this same type of “recharge” by reading their favorite books or going to the gym. Personally, I hate “stuff”. It causes clutter and loses value or breaks, and so on. I could also live without television, but I have a couple shows I enjoy, so I classify it as a Want rather than an Important Want.

I do have (compared to most people) an expensive vitamin habit, and trying new restaurants and taking trips are Important Wants to me, where many people only consider them Wants. Since all 3 of my Important Wants are expensive habits, I scaled back some on the vitamins and way back on trips, and cook the majority of meals at home. One day when our children are older we’ll budget in more of the other two!

How does an Important Want Differ From a Regular Want?

Wants are a common budget blower and are often uncontrolled impulse buys. They differ from Important Wants in that they do not lend to your productivity or overall wellness; you just want them. Wants are less likely than Important Wants to be a fixed expense because of their impulsive nature.

Examples of wants are:

  • New clothes when you don’t need clothes
  • The newly released iPhone
  • Starbucks
  • Eating on the go

There’s a very important reason Wants and Important Wants are separate categories: You really need to look closely at the money you’re spending on non-needs and decide whether or not they actually contribute to your overall productivity and well-being.

Maybe for you personally, shopping for clothing that isn’t a Need brings you the feeling of well-being that is more like an Important Want. If that’s the case, put it in that category and create a fixed amount for it, but you’ll need to trim back elsewhere. Wants should be a very small part of your budget. They are something to be paid for from the allocated Splurge Fund you give yourself monthly, which we will discuss in Bank Baskets.

The Dreaded Red Flags

Let me tell you something: Red Flags are the devil and the financial downfall of too many people. They were for me, for most of my 20s. Red flags are any money you pay that has no purpose, no benefit, brings you no joy, and leaves you with nothing to show for it. While an occasional Red Flag happens to the best of us, they should be actively avoided at all costs. Red flags can crop up when you are being lazy, careless, or disorganized. I’m not judging; I say this from first-hand experience.

Examples of Red Flags are:

  • Overdraft fees
  • Late payment fees
  • Excessive finance charges
  • Traffic tickets
  • Having to buy anything you have at home but didn’t bring
  • Wasted food
  • Excessive utility bills
  • Memberships or subscriptions you aren’t using
  • Paying full price for things when they’re available for less

Many Needs, Important Wants, and Wants have the potential to become Red Flags if you aren’t careful.

An important note: these categories can vary from person to person. One person’s Need could be an Important Want for another person. One person’s Important Want could be a Red Flag for someone else.

If you work from home, internet is a Need (one you had better be deducting on your taxes). If you don’t work from home and your internet is only for your personal enjoyment but not something you’re willing to part with, it’s an Important Want. If you are dating someone and are spending 6 nights a week at your girlfriend/boyfriend’s house and rarely go to your own house, your home internet has become a Red Flag. Don’t worry, I’m not encouraging you to officially move in. That’s beyond my scope of expertise. You should, however, get rid of it and just use your phone that one night a week.

Expenses In Disguise

Everyone knows people spend too much on Wants. Less people realize they’re spending far too much on things they consider a Need, but are really a Want, Important Want, or even a Red Flag! The basic version of what you’re paying for may be a Need, but you’re spending far too much on the bells and whistles.

Let me explain.

Everyone needs a place to live, yes? What they don’t need is that huge mortgage or rent payment for the biggest house they’re approved for or the luxury apartment. This is an example of a Need with a huge dose of Want. There’s nothing wrong with luxury, but you need to be able to afford it first.

Vehicles are also misleading. You may need a car, (and surprise: not everyone does) but a brand new vehicle is a need wrapped up in a whole lotta want. Along with a higher car payment, you’re possibly paying more in insurance, finance charges, and maintenance.

Other Wants masquerading as Needs:

  • Food vs Gourmet groceries
  • A phone vs the newest phone
  • Phone service vs a $200/month cell package
  • A reliable used vehicle vs a brand new vehicle
  • Electricity & gas for your home vs excessively high energy bills from keeping your home on Arctic in summer or Zimbabwe in the winter
  • Bleach vs Fancy smelling cleaning products
  • Shampoo vs Salon grade products
  • Gas vs Gas for places you don’t need to go

Beware the phony needs!

Wants wearing an Important Want costume:

  • Internet vs The highest speed Internet available
  • Netflix vs a huge cable package
  • Simple gym membership vs personal training/tanning package

They’re trying to play you.

Red Flags posing as Needs:

  • Energy bill vs high energy bill due to leaving lights on, devices plugged in, or heating/cooling when no one is home
  • Cell bill vs cell bill+data overage charges
  • Any bill payment vs bill payment+overdraft fee/late fee
  • A vehicle vs a vehicle+high insurance premiums+high finance charges due to poor credit
  • Food vs food that went bad before you ate it


Now, get some highlighters. Print your bank statement from last month. Yes, I’m really making you do this. Every line. Thaaaat’s it. Then we’ll add up each separate priority group.

Now that we’ve quantified and qualified our cash outputs, we can turn our focus to making them smaller next in Elimination. This is where you’re going to come up with the money to save, invest and build wealth. It rarely comes from making more at your job. It comes from using the money you already have, efficiently!

Are you surprised at where the bulk of your expenses fall? Let me know in the comments, and share with your friends

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