Ep. 45 Why Cutting Everything Still Leaves You Broke — The Budget System Wealthy People Use

You've cut the subscriptions. You've stopped dining out. You're doing everything you were told to do... and it still doesn't feel like enough. That's not a you problem. That's the wrong budgeting system.

In this episode, Jim LeBoeuf walks through value-based budgeting, The framework that shifts the question from "how much can I eliminate?" to "how do I get the value I care about for less money?"

Here's what's covered:

• Why random cuts in an inflation environment don't move the needle, and what intentional reallocation actually looks like.
• How to sort every expense into three buckets (energizes, neutral, or deadweight) and make cuts that stick without the rebound.
• The right order to cut, and which two categories to protect no matter how tight things get.
• Why freed-up cash disappears even after a successful budget audit, and how to name a destination for it before it does.
• How $75 a month redirected the right way can become $900 a year and a real financial turning point.

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Transcript

Jim 0:00

This feeling that so many people have right now. I've cut on all the things I can possibly cut. I'm not spending on anything that's fun. Why does everything with my money just feel so tight? Random cuts in an inflation environment do not work. They just make you feel deprived without moving the needle. This is why value-based budgeting is so important, and honestly, why wealthy people do their budgets this way Welcome to the Net Wealth Nest podcast. I'm your host, Jim LeBoeuf. Thanks for joining today to learn about how to break out of that paycheck to paycheck cycle and build your net wealth. Most people believe that budgeting is just cutting everything enjoyable until you hit the number that you need to hit. But wealthy people, they think differently. They look at what they value and how to build wealth and how that every dollar actually has a vote or a job to do something, and that's how they allocate or budget their money. Value-based budgeting, it's not about sacrifice. It's about intentional reallocation of your money to the things that matter most to you Again, let me repeat that. It's not about restriction. It's about reassigning dollars to things that matter more to you. Intentional spending sticks. Deprivation-based spending does not, and you typically rebound in the other way. Let's focus on three buckets that we can talk about today to help you with your value-based budget. Audit by value, cut in the right order, and then redirect any freed cash flow So let's go over the first bucket, the value audit. As you pull together your budget, take a look at each and every line item, especially those in more of the discretionary style spending. But look at each item and say, "If this disappeared tomorrow, would I actually notice or would I actually care?" Things you would notice immediately, protect. Things you would shrug off or maybe not even notice for multiple weeks at a time, those are candidates and should go into the potential cut pile. You should sort every expense into three buckets: energizes, neutral, deadweight. energizes, this is the spending that actively improves your life, makes you happy, or moves you forward towards a goal. Neutral, it's habit spending, things you do automatically. Adds little meaning or value, but it also is something that might be a necessity depending on your lifestyle. Deadweight, this is something you're paying for that either doesn't serve you, has stopped serving you, or often has been forgotten about for months on end In this, one of the common offenders is reoccurring subscriptions, and so you should audit those. Pull the last three months of your transactions through your bank or your credit card, whatever you use to do your spending, and look at those. Filter for any reoccurring charges. Most people find that they have somewhere between 40 and $200 in subscriptions, and half of it they usually forgot they had. Run that 30-second test on every single one. Is this something that energizes you, is neutral, or is dead weight, and what can you cut? This audit alone almost always frees up somewhere between 15 and $75 immediately in just about everybody's budget. They're painless cuts Now, as you've identified all those line items and kind of assigned whether they're energizing, neutral, or dead weight, you should have a couple things in mind as you go through the list. Your non-negotiables, they go on a protect list. These are the items that you will not touch even when things are tight. The question marks, the ones that either fall in neutral or dead weight, are the first ones that are the opportunity for you to cut. But let's go through that in the right order. This is the second step of this. So a couple of things to think about as you're looking to cut items out of your budget. The touch frequency can be important and might necessitate not a holistic cut. So what I mean by that is l- sometimes eliminating a habit that you do leads to rebounding, and sometimes leads to rebounding so hard that you overspend after you have cut it out for a while. Let's use the example of dining out. Maybe you dine out four or five times a week between either lunches or dinners by yourself or with friends or family. Dining out and moving that from four or five times a week to only twice a week is not deprivation, it's optimization. W- again, we don't want that bounce back where you decide for an entire month you're not gonna dine out, and then the next month you go and you dine out every single day because you just can't keep the habit going. Convenience spending is also the first category to restructure when things are tight. These are typically high cost and low value by definition What I mean by this is delivery fees, impulse purchases, especially if you have something like an Amazon Prime account where you get something delivered the next day. last minute expenditures. Maybe instead of, cooking a meal, you're grabbing food at the gas station as you fill up, any subscription upgrades that are on your plan. Think like some of your entertainment streaming where you can pay extra for the ad-free versions. Are ads really that bad if they could save you $10 to $15 a month? Maybe not. These exist because of friction and more often not because of joy. So temporarily, you might have to increase a little bit of the friction or get used to some friction, but not necessarily have to cut the thing So the second thing to look at inside of this bucket as you're going through and deciding what to cut is what are things that might have overlap or are alternatives to each other, or things that you might be using less than twice a month? Again, we kind of pick on streaming services a lot, but this is a really, really common one where people might only use a streaming service to see a new release of a TV show series or are randomly looking at it, once every, you know, couple of weeks when they're bored and they don't- there's nothing on their TV or whatever they're used to doing. You should be asking yourself, "When did I last use this app or use this membership?" If you can't answer it quickly, it's probably a cut the last part of this bucket is having things in your never touch and making sure those align. Now, we've kind of skipped some big ones in the never touch section, like housing and transportation. Know that those are still things you should look at to see if there are ways to save money, whether it's either renegotiating or potentially if you're, in a situation where you could get a cheaper house or a cheaper, car. But that's not always the case, and it typically requires more effort than some of the things that we're al- we're already talking about when you're doing the value-based budgeting. So don't neglect those. They should be looked at. But we're really focusing on quick moves today in this video. A couple of things in your never touch that you should try to keep in there at all costs: any retirement contributions that you're already doing. This, if you cut this, is robbing from yourself in the future to pay yourself now, especially if you have other things that are really less important. And again, we're talking about all those wants, the eating out, the subscriptions, the buying stuff on Amazon or buying extra want items. Those got to be the first to go You should not be touching any retirement contributions that you are making. This is to protect yourself in the future. Compound interest and time cannot be gotten back. If you stop for two or three years contributing to your retirement account, it could have tens to hundreds of thousands of dollars of impact, depending on how much you're contributing and how long it sits in there, to your future self. Stay away from this at all costs. Insurance premiums. If you have a monthly bill for your car insurance, you need to make sure you continue to pay that. You should not let that lapse. What happens is some people let that lapse, and then something happens. They get in a car accident or somebody hits them and now they're out thousands of dollars because they decided to skip the $75 or $100 monthly payment here. Don't fall into that trap. there are other ways you can factor your budget to make sure that you protect yourself. And then high-value reoccurring investments. So think something like a subscription that you use frequently, and we could talk about entertainment, but one that often comes up is a gym subscription. This could fall on the cut or keep list. It actually depends on how much you're using it. If you're paying for a gym subscription and you're going three, four, five days a week to keep your health up, this is something you should protect and that you're using and that you should keep. Look at somewhere else to cut if necessary. The other thing could be professional things that you're paying for to help you drive income. So if you own your own business or you're an entrepreneur or you have a small business and you're doing things that are helping you get better at that business to drive more revenue, this should fall into your keep bucket even when things are tight. The goal is to not only work one side of the equation. You can't cut expenses forever. And if you get to a point where you've cut everything you can and you're still tight, the goal is to increase your income then. And having sometimes these services, especially when you're a small business owner or when you are, trying to do a side hustle or you're paying for coaching to get better at whatever you do, you should work to keep those things so that you could have the potential to increase your income on the side. That also goes for coaching and things like, health and fitness if necessary, and you need that, or even money, like we offer at Net Wealth Nest. If those things have the potential to free you up in the future, those should be looked at as protecting versus something like a Disney Plus subscription that you use a couple times a week. It's the value based on what's gonna protect you most in the future and what's gonna drive your future that you should be protecting in these never-touch buckets this is really a wealthy person move. They restructure how they spend. They don't just cut. So a lot of times it has the same outcome, but it's a lower cost structure. They're finding a way to keep what matters, and they're ruthlessly eliminating what does not. The question is always: how do I get the value I care about for less money? Not how much can I eliminate? Okay, so for the last bucket here, this is about redirecting your cash. And this typically happens to about 50% of the people that are stuck in the paycheck to paycheck cycle. cutting is only half the equation. Where the cash goes is the other is the other half. Most people cut, and when they cut, that money silently disappears into other expenses. Now, if you are living paycheck to paycheck and you're finding that you're struggling to pay for your absolute necessities, things like your housing, your food, and your transportation, then you just need to cut and make sure that you're paying those at full. But referring back to what I just said a moment ago, most people when they go through this exercise, they actually find a little bit extra. And then it's about deciding where that goes versus just letting it sit there and giving it the opportunity to be sucked up by something else. This is where people fall into the trap. They go through the value-based budgeting, they get their budget in order, they're feeling good about themselves and they're like, "Oh, I'm gonna have an extra 75 or 100 or $200 at the end of the month, and then I'm just gonna let it kind of sit there and grow and it'll be a cushion for next month." except what happens with most people is they get towards the start of the month and they realize, "Oh, I'm gonna get paid again. I still have a couple hundred bucks. Oh, let me go out. You know, I've really been wanting this," or, "I've really been wanting that," or, "You know, I canceled that one subscription that I wasn't using very much. But man, there's a new show that's coming out. I'd love to watch that show. Maybe I'll just renew it and let it go. I have the extra." That's what you should refrain from. That's what got you into that position in the first place. Do not backslide. What you should do is once you find out that there's freed-up cash, you should assign that money to do something for you. And it can be a multitude of different things. Maybe there's something you're saving for in the future. Maybe you're looking to buy a new car or save for a house, or just have a really solid three to six-month emergency savings account. Those are all great areas where you can assign those dollars and move them into whatever that account is. It's a separate savings account for one of those large purchases, or it's a separate saving account for an emergency fund. Or maybe you're feeling good on all of those fronts and you're like, "I can invest more now." Then you should do that. And maybe that extra money goes into your retirement account or some sort of, investment account that you're doing. That redirect first principle, you're naming where that money is going in advance, and you're not giving yourself the opportunity to get to a position where you're feeling, "Oh, I have this extra money, I'm just gonna go blow it." You just were in the paycheck to paycheck cycle crunch. Don't put yourself back in that. Use that money as leverage to continue to fuel yourself out of there and build even a bigger gap between where you were and where you wanna be And for people who are like, "Oh, 50 or $75, it's not that much money to really redirect or have to assign," zoom out. $75 a month is $900 a year. $900 could be one third of somebody's emergency fund it could be meaningful debt reduction if you have credit card debt. It could be, a significant portion of money that you're putting into a retirement account or an investment account that has the ability to grow over years and years and years and could turn into tens or hundreds of thousands of dollars. You have to get past that mindset shift once you've done this value-based budgeting, where you are not sacrificing your spending, you are reassigning it to do bigger and better things for you. This is about progress and not perfection. So make sure that you don't get discouraged if you slip up or under or over-allocate in one way or in the other. It's about continuously reviewing it and putting yourself in a better position month over month over month. One thing redirected in this situation beats a perfect budget you can't maintain

Speaker 2 15:38

Before we wrap, here's what I want you to do. Everything I share on this podcast is meant to help you understand the game of money, but knowing where you stand in that game is actually what changes the next 30 days. That's why I built the financial pulse check at netwealthnest.com/pulse. It's two minutes, a handful of questions. It'll show you whether the biggest leak in your financial life right now is your spending, your income, or your follow through, because the fix is different for each one, and most people are working on the wrong one. I've been on the other side of this. I know what it feels like to be doing all the right things and still feel stuck. The pulse check is the same diagnostic I start every coaching conversation with. Take it. It's free. Netwealthnest.com/pulse. All right, let's wrap it up

Jim 16:24

Okay, so three point recap here. First, run your value-based audit on your budget. Sort the expenses by energize, neutral, or dead weight using the 30-second test. Then cut in the right order. Frequency first, forgotten subscription second, and keeping your retirement and your insurance out of that mix to protect you now and into the future. And then step three, redirecting any freed up cash flow that you happen to cut. As long as you've covered all your bases with your housing, your transportation, your food, your retirement accounts, emergency savings, all of that, if you find that you have freed up cash, which many, many people do, make sure you name where that cash is gonna go. How is it going to protect you in the future? How is it going to advance y- you towards your goals? Do not let it get sucked up by the whirlwind and for the last time, just remember this is not about depriving yourself or cutting so that you live a miserable life day in and day out. This is about using the value-based system to assess your budget in the appropriate way that is sustainable. This is what every paycheck to paycheck household needs, and you were never taught. I hope this was helpful for you. If it was, please make sure you like and subscribe to our podcast, leave us a review, and of course, we always have questions in our comment section that we'd love to hear from you so that we can help you break out of that paycheck to paycheck cycle and build your net wealth nest. Thanks for joining. My name's Jim. Bye everybody. Net Wealth Nest LLC and Podcast is an educational platform committed to providing resources and information to empower individuals on their financial journey. Please note, we do not provide financial, tax, or investment advice. All financial decisions should be made in consultation with a qualified professional who understands your unique circumstances. Seeking personalized advice is a smart and necessary step before making any major financial commitments. Thanks so much for joining us today. If you found value in this episode, please like and subscribe to our YouTube channel, Net Wealth Nest, and leave us a review on your favorite podcast platform. We read every comment, and they help us improve and guide what topics we dive into next. And hey, if you-- something you heard today resonated with you, don't keep it to yourself. Share it with a friend, a family member, a coworker, your barber, your barista, even a stranger in line. You never know who might need this message. Remember, building net wealth is a journey, but you don't have to do it alone. Stick with us, and together, let's grow your net wealth nest.