I see no need for detailed budgets or tracking expenses. In my world there are basically two categories
- Money I spend
- Money I keep
There is to me no discernible difference in terms of how I spend the money, whether I pay by credit card or whether I pay by cash. Spending is by and large a rational process so I have and offer no tricks or tips in the sense of whether using credit, debit, notes, or coins only, changes spending behavior.
If all other sources and possibilities to solve my problem have been exhausted and I absolutely have to buy something to solve it (failure!), I look on the price and calculate what my depreciation cost is. For example, I will look at the cost of buying and try to estimate the return from selling and divide the difference by the amount of use I intend to get out of it. This process will yield different numbers for different products. Then I pick the lowest number. Note that sometimes this is not a strictly economical calculation.
These numbers for all my expenses should be seen in relation to category 2, the money I keep. The money I keep quickly turns into investments, that is, productive factors that pay me.
In other words, when I see $100,000 in category 2 money, I don’t see it the same way as category 1 money. $100,000 in savings/investments means an income of $4,000/year, hence translated mentally, $100k means $4k/year.
Conversely, $4k/year means $100k. Alternative, $4k/month means $1200k. Having that amount translates into a money stream and this money stream is equivalent to a salary in the sense of a job: except I don’t have to work for it.
All category 1 expenses are therefore seen in terms of how large a principal I must accumulate to have them paid by interest from the money I keep.
Money I keep, therefore, represents freedom. I value this very highly. To compare this to the spending category, I estimate the monthly cost of spending on some item, and then multiply it by 300.
It is quite possibly that it is this enormous multiplier, the factor 300, that discourages people from saving for passive income. Saving $30000, after all, “only” results in 100 bucks a month and saving $30000 can take years or even decades when one is not aggressive about it. In that sense not-saving creates a double-whammy. Conversely, being fanatical about saving also works the other way, e.g. I’m paid a little over $30 an hour for freelancing. This means that if I can save $9000, it means I don’t have to work for an hour each month. Once that is cleared, I start saving for the next hour of liberty.
Hence, if I want to purchase something that will cost me $5 a month, I do not see a $5 price tag. I see that category 2 needs to be boosted by $1500. Suddenly $5 does not seem so trivial anymore. On the other hand, paying $4000 for something that I can sell for $3500 and that will last for 15 years … that is only $2.7 a month.
This means that price tags become irrelevant. All that matters is monthly expenses and the size of the principal. I always try to decrease the former and increase the latter. When they meet, you have arrived.