The ideal is to have an income stream dedicated to each category of expense one has. Decentralize the risk of loss of income for the concerned expense. Control the stream as an independent passive investment, capable of generating the income necessary to handle the budgeted expense line item without assistance from any outside sources of cash nor your precious time.

Currently, a majority of households operate on a monolithic model, 1-2 earned salaried incomes with “well-diversified” employer-sponsored retirement accounts.

All expenses are run through a single account in which earned income is deposited. Depending on the number and types of expenses, the ability to track and categorize expenses grows exponentially unmanageable (try toggling the deposit / debit column in your bank’s online transaction statements and you will see how difficult it is to get a bigger picture). There are a myriad of products that attempt to address this issue by providing insights into your personal finances, but they all fail to address the underlying problem, mindset. Most people do not want to see the ugly truth of their finances. To voluntarily commit to using an app that will highlight the quantitatively ugly truth of their finances without providing immediately actionable feedback is more trolling than liberating.

Mindset begins with education and families are not teaching their kids. Personal finances is a topic that people fumble with. They think they are doing ok because they’re not broke yet, but many are incapable of telling you if they’re on track with any financial goals.

The hard part about budgeting, is that you are putting a limit on what you can spend. Budgets are financial guard rails, a way to shepherd your financial position. Similar to making fitness progress, your budget starts small relative to your initial needs and grows larger as you exercise and dedicate proper time and effort to afford larger goals. You lift small weights and cap your training intensity as you build your physical aptitude until you are ready to take on larger challenges. Financial health shares a lot with physical health.

The key to any financial success is being able to assess the quality and quantity of your expenses across the board. Weighting expenses and categorizing priorities will provide a clearer picture of one’s financial health, often surfacing interesting behavior. There is no need to feel ashamed when you discover the cold truth about your finances, as acknowledging the situation is the first step towards impacting a lasting positive change.

Finding out where you are is the only way to figure out how to get to where you want to go.