I think there are still two different topics, although with some overlap: how to budget and how to get rich. Good budgeting is good, whether you are poor or rich. If you are poor, it can help avoid losing everything. If you are rich, it can help avoid wasting all your money and becoming non-rich.
But the (implied) idea that budgeting can make poor people rich, or that it is the main force that keeps poor and rich apart… that does not automatically follow, and actually many people doubt it. Hypothetically they may be wrong, but this needs to be checked separately.
Basically, budgeting can never save more money than “your income, minus the minimum necessary expenses”. If your income is e.g. $300 a month, there is no way you could save more than $300 a month. Realistically, you probably can’t even save $50 a month.
Even if you every month put $50 into passively managed index funds (which already seems like an unrealistic best case scenario for someone who makes $300 a month), this will not make you rich. It will help you save $600 a year, $6000 a decade, so maybe $300 000 during a lifetime, generating a passive income of $12000 a year, that is $1000 a month by the time you are old and retired, under the most optimistic scenario. And I am sure that most rich people spend more than $1000 a month.
So what you need is a combination of decent income + good budgeting + good investing, and then keep doing that for decades. Which means that even assuming that it can make you rich, it will only make you rich in a distant future, not now. In other words, if you started poor, even if you are doing everything right, you can still be poor, because the expected wealth is still a few decades in the future, not here and now.
EDIT: And meanwhile, a rich person has inherited a trust fund from their parents, spends as much money as the fund gives them every month, and doesn’t have to worry about anything. The only budgeting skill needed is something like “make sure your monthly expenses do not exceed $20000 this month”.
I mostly agree with you… but: 1. You created a false dichotomy where budgeting excludes investing, then said you can’t ever make money with budgeting, because by definition anything that is in your budget cannot make money—but spending on a house instead of rent, for example, clearly violates that assumption. 2. Budgeting can include time, in addition to money, and among other things, that matters because income isn’t a fixed quantity over time. Things that people can do to use time to drastically change income include starting businesses, or taking night classes to get a more lucrative job. 3. The last point is conflating questions, because yes, inheriting or a trust fund is already being rich (but inheritances and trust funds are not the same thing!) However, most second and third generation nouveau riche folks do, in fact, spend down and waste the inherited fortune, once they are old enough to actually inherit instead of living on a managed trust fund.
Good point.
I think there are still two different topics, although with some overlap: how to budget and how to get rich. Good budgeting is good, whether you are poor or rich. If you are poor, it can help avoid losing everything. If you are rich, it can help avoid wasting all your money and becoming non-rich.
But the (implied) idea that budgeting can make poor people rich, or that it is the main force that keeps poor and rich apart… that does not automatically follow, and actually many people doubt it. Hypothetically they may be wrong, but this needs to be checked separately.
Basically, budgeting can never save more money than “your income, minus the minimum necessary expenses”. If your income is e.g. $300 a month, there is no way you could save more than $300 a month. Realistically, you probably can’t even save $50 a month.
Even if you every month put $50 into passively managed index funds (which already seems like an unrealistic best case scenario for someone who makes $300 a month), this will not make you rich. It will help you save $600 a year, $6000 a decade, so maybe $300 000 during a lifetime, generating a passive income of $12000 a year, that is $1000 a month by the time you are old and retired, under the most optimistic scenario. And I am sure that most rich people spend more than $1000 a month.
So what you need is a combination of decent income + good budgeting + good investing, and then keep doing that for decades. Which means that even assuming that it can make you rich, it will only make you rich in a distant future, not now. In other words, if you started poor, even if you are doing everything right, you can still be poor, because the expected wealth is still a few decades in the future, not here and now.
EDIT: And meanwhile, a rich person has inherited a trust fund from their parents, spends as much money as the fund gives them every month, and doesn’t have to worry about anything. The only budgeting skill needed is something like “make sure your monthly expenses do not exceed $20000 this month”.
I mostly agree with you… but:
1. You created a false dichotomy where budgeting excludes investing, then said you can’t ever make money with budgeting, because by definition anything that is in your budget cannot make money—but spending on a house instead of rent, for example, clearly violates that assumption.
2. Budgeting can include time, in addition to money, and among other things, that matters because income isn’t a fixed quantity over time. Things that people can do to use time to drastically change income include starting businesses, or taking night classes to get a more lucrative job.
3. The last point is conflating questions, because yes, inheriting or a trust fund is already being rich (but inheritances and trust funds are not the same thing!) However, most second and third generation nouveau riche folks do, in fact, spend down and waste the inherited fortune, once they are old enough to actually inherit instead of living on a managed trust fund.