How much difference will budgeting make? You’ll be amazed.

This is an extract from The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual to Building Liberating Wealth on a Low to Medium Income.

Even some people with very high incomes are unable to stay out of debt or to save anything for the future because of their inability to live within their means, i.e. to budget.  On the surface they appear rich: a beautiful house, a luxury car, expensive clothes.  Scratch the surface and you’ll often find a household in extreme financial distress, taking out more and more loans in order to keep up appearances.  Things are not always as they appear.  Remember: if you have an income of $200,000 and expenses of $210,000, you are a slave to debt.  If you have an income of $30,000 and expenses of $25,000, you are much closer to financial freedom.

A high income is not the key to financial security.  Living within your means is.

Lowly folk like us on low to middle incomes are sometimes able to better manage our affairs and plan ahead than some apparently wealthy people, thereby suffering fewer financial woes in the long run.  That’s how much difference a budget can make.

Properly fulfilling this step could directly lead to:

– Getting out of debt months or years earlier, thus saving you hundreds or thousands of dollars.

– Paying off your home several years sooner, thus saving you tens of thousands of dollars.

 – Retiring years or DECADES earlier.  You might only be 25 now, but trust me, one day having the option to retire at 50 instead of 65 will be huge.

Let’s look at a concrete example to see how much of a difference budgeting can potentially make: Trevor is hopeless at saving because he does not keep a budget.  He only manages to save $200 a month.  Let’s say he consistently invests this $200 in the stock market.  If he started doing this in 1999, and if we assume the monthly contribution will increase with inflation, then twenty years later, in 2019, he would have total savings of $115,000.

But what if Trevor somehow read this book back in 1999, gradually sorted out a reasonable budget, and managed to put away $1,000 a month instead?  Making all the same assumptions, by 2019 he would have $440,000.  Quite a difference, and such improvements in savings are feasible for many people.  Follow the link at the endnote to see the online calculator I used to figure out this hypothetical case.[i] 

[Edit: Yes, Trevor’s example ends just before the 2020 stock market crash, because that’s when this book was written.  Nevertheless, the period 1999-2019 includes two previous crashes and is therefore reasonable.  Much more about shares and crashes coming up in Step 8: Invest Wisely.]

By sorting out his expenses, Trevor ends up with an extra $325,000 in his pocket.  That is the power of budgeting.

Have I got your attention yet?

This is a time-consuming step.  You might like to put this book aside for a month or so, get your budgeting app, diligently fill it with data, then come back here to see what’s next.  I’ll be right here when you’re ready to continue.

Don’t try too hard to modify your spending yet.  We’ll demonstrate how to do that in the following section.

And by the way, I know that some of you are strongly averse to doing this because you know that you overspend at the pub or on whatever your weakness is, and you fear seeing the actual figure.  You don’t want to look.  You don’t want to know the awful truth.  This is common and natural.

However, reaching financial freedom means using facts and figures to help you, and you must find out precisely what is going on, however painful it may be.  The exact numbers matter.  Would you go to a doctor who was too squeamish to look at your gaping wound?  If you’re not prepared to look at the mangled limb or flesh-eating bacteria that is your spending, you are going to be just as unable to cure what ails you.


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  1. Kentucky Gent · December 18, 2020

    Great post! I’ve been budgeting for well over a decade and that’s how I gained financial independence.

    Liked by 2 people

  2. Hesse Kassel · December 20, 2020

    I don’t mean to pick holes in what seems pretty sensible advice but….

    If saving 200 per month ends with 115,000, why doesn’t saving 1000 per month end up 440,000 rather than with 5 times as much or 575,000?

    Liked by 1 person

    • Nikolai Vladivostok · December 20, 2020

      That’s a good question.
      I ran the calculation again and got a result closer to what you suggested, about five times larger. Must have made a mistake.


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