Ditch the Conventional Budget: Here Are 5 Simple Ways to Unlock Smarter Spending Habits

Read time: 6 minutes

Read this if you want to build better money habits.

Ditch the conventional budget — it’s overcomplicated and misused. This post shows you how to plan and track spending in a simple, strategic way (and in less than 30 minutes per month).

Build wealth — don’t erode it.

If you want to get rich, grow your income.

If you want to get poor, ignore your spending habits.

I don't often discuss money here, but it has always been a part of my life.

• I've managed a $100,000,000+ budget

• I’ve shared financial strategies with multi-million dollar companies and organizations (and still do)

• I've been investing and building finance tools since childhood (and even won an investing tournament at 17)

Most people are uncomfortable to talk about money. Maybe it’s for fear of greed, or even judgment. But money is a part of life.

And it’s okay to desire wealth.

But before you fill the bucket with money, patch the holes first. Get smarter about your spending habits. And that starts with planning.

If the word “budget” popped into your head – good.

Before you roll your eyes, you should know that budgets are misunderstood. They are not scorecards to judge your financial worthiness. They are instruments designed to pre-plan spending decisions.

Pre-planning money decisions reduce decision fatigue, which will lead to better choices.

So, ditch the word “budget” if it means you'll actually use it (call it a spending plan).

Here are 5 ways to unlock smarter spending habits and prevent you from eroding your wealth.

#1 — Find your “bucks to dollars” threshold

No matter how wealthy you are – there is some dollar amount where your brain starts treating money differently.

I call it the "bucks to dollar" threshold.

It's that point where you stop using slang like "bucks" and switch to "dollars" to describe a purchase.

While my terminology is relevant for anyone using US dollars as their currency, the principle is the same if you substitute the terms.

Here’s an example:

• That ice cream cost costs $5 bucks to buy

• That pair of socks costs $10 bucks to buy

• That book costs $20 bucks to buy

• That subscription service costs $50 dollars to buy

Right there – somewhere near $50 is where bucks become dollars.

When you use slang for money, your brain downplays its importance.

• If you already have sound money habits, don't waste time optimizing spending for items in the bucks range

• If you’re improving your habits, train your brain to use dollars for lower amounts – you’ll prevent yourself from throwing money away

This shift can help you respect certain money thresholds and prevent you from wasting time or spending unnecessarily.

#2 — Plan based on time (not traditional categories)

Forget planning with categories like "home" or "groceries."

These categories are too in the weeds – and you don’t build a plan from the lens of ‘in the weeds.’ Strategy comes from a big-picture view.

Plan based on when the decision to spend the money happens.

• Past: Committed expenses from decisions you've already made, such as home-related expenses, student loans, and automobile costs.

• Present: Expenses for upcoming obligations in the next 30 days, such as food, kids, and discretionary spending.

• Future: Expenses to help you build a stronger future, such as healthcare costs and investments.

Ideally, you'd want to allocate your spending in this order: Future > Present > Past

But that’s hard to achieve since home, auto, and student loans carry hefty price tags. So, a more realistic (but still aggressive) target I use is:

• Future + Present = 50% or more

• Past = 50% or less

This balance evolves as you progress in life, reflecting your financial needs.

Money is the fuel to help you go where you want, so I plan to spend more on the “present” as I get older.

No matter how you structure it, the strategy is to prevent the past from limiting the present or future.

#3 — Track fewer categories to reduce friction

While I told you to plan using time-based categories, you should still track with traditional categories (for two reasons):

• Spending is tangible, and it’s easier for your brain to connect to traditional categories(e.g., “home” and “auto”)

• Most apps/tools use these categories

So plan big-picture, but track in the weeds.

But not too deep in the weeds, though — keep it simple and limit yourself to 10 categories max.

More categories = more friction. The more friction you add to the process, the less likely you will use it. Fewer categories will also make it easier to spot insights (and dive deeper if you wish).

I transitioned from 25 categories to 9 categories a few years ago.

Here they are (plus some examples of each and how they align with my time buckets):

• Home: Mortgage/rent and utilities (past)

• Auto: Loan payments, gas, and servicing (past)

• Education: Student loans (past)

• Health & Personal Care: Health savings account, personal care products, health memberships, and vitamins (future)

• Savings & Investing: Savings, retirement, brokerage accounts, and life insurance (future)

• Food & Beverage: Groceries, restaurant/dining, and beverages (present)

• Kids: Activities, necessities, and childcare (present)

• Everything Else: Everything else that doesn’t fit above (present)

There is also a tax category that's kept separate since it’s a bit outside my control. I have a different bank account that I transfer to each month based on my business income.

#4 — Prepare for income variations

Income can fluctuate.

This applies more to business owners, but it happens to employees, too. While I hope it’s to the upside, it’s not always the case (e.g., family and medical leaves, economic constraints).

The point is to prepare for some variation so you don’t waste energy in the moment figuring out what to do.

• If you pre-plan for the upside, you’re less likely to throw money away

• If you pre-plan for the downside, you’re less likely to panic

Plans never perfectly align with actuals. Reserve your mental energy to earn more, not having to decide at the moment what to do if the plan changes.

Decision fatigue is real – and it leads to poor decisions.

#5 — Use hand-drawn visuals to keep spending top of mind

You probably assumed you’d rely solely on a spreadsheet or some app — but don’t (at first).

Hiding it from view doesn’t help create the awareness you need. The point is not to be surprised. You don’t hide your fuel gauge in your car, do you?

The point is to be aware of your energy source.

Remember those progress or fundraising thermometers from your elementary school days?

Imitate that – but for your spending.

• Take out 3 pieces of paper (one for past, present, and future spending)

• Write the traditional spending categories at the bottom and draw a bar for each

• At the top of each bar, write the total amount you plan to spend for each in the month

• Then color in the progress as you go along during the month

It’s a simple visual graphic whose purpose is awareness and habit forming.

Hang them in non-obvious places like the front door, bathroom mirror, or kitchen cabinet. Don’t hang it on your refrigerator – it will get overlooked.

Treat your spending plan like a tool, not a chore.

I check my progress 3x a month: on the 10th, 20th, and 1st of the following month.

It takes 5-10 minutes.

On the 10th and the 20th:

• Review transactions

• Make a few tweaks to categories

• Assess progress (against expectations)

On the 1st:

• Review transactions

• Summarize monthly spending

• Plot your spending on a spreadsheet, comparing it to previous months for insights.

Trends become obvious, and decisions become easier.

If you keep up with it, you'll know what's happening before comparing it to previous months.

Eventually, switch to using a spreadsheet or app.

There are numerous tools available to help automate the process. I’ve built a custom dashboard using Mint to manage transactions and Microsoft Excel to analyze them.

It doesn’t matter which tool you use; pick one, build the habit, and switch later if needed.

History reveals trends; your plan maps habits

Remember, you can't alter your financial history, so don't obsess over it.

Instead, use your spending history to identify patterns and inform future habits. With three months of data, you can spot trends and make informed decisions for the fourth month.

Money is the fuel to power the engine to get where you want.

Small request…your thoughts, please (so I can make the next one better).

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Welcome to Impact Thinking.

Hi, I’m Peter. I quit my highly-regarded, 6-figure job at Harvard to build a strategy consulting company in 2019.

Hard work is a respectable characteristic, but it’s limiting. You need leverage and impact if you want to punch above your weight class. And I’ve seen first-hand that thinking is the greatest form of leverage.

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