The Prosperity Protocol

Systematic Steps to Financial Success

Investor's Handbook
May 19, 2025

Issue #7 – May 19, 2025

Editor’s Note: Todd here, and welcome to the seventh issue of The Prosperity Protocol!

I've been loving your responses to our recent issues on passive income and smart banking. Your enthusiasm for building strong financial foundations is exactly why I created this newsletter.

This week, we're tackling a topic that many people dread but everyone needs: Creating a Simple Budget That Actually Works. Whether the word "budget" makes you break out in a cold sweat, or you've tried and abandoned numerous budgeting methods, today's issue will give you practical, painless approaches to managing your money effectively.

Beyond Budgeting: The Money Management Mindset

Does the thought of tracking every dollar you spend make you want to run for the hills?

You're not alone. The word "budget" conjures images of restriction, deprivation, and tedious spreadsheet maintenance for many people. That's why most budgets fail within weeks—they feel like financial diets that aren't sustainable in real life.

I learned this through painful personal experience. In my 20s, I created meticulous budgets with dozens of categories, determined to account for every penny. I'd start strong, tracking diligently for a week or two. Then life would happen—an unexpected expense, a busy week—and I'd fall behind on tracking. Feeling like I'd failed, I'd abandon the entire system, only to restart the cycle a few months later.

The breakthrough came when I realized traditional budgeting wasn't working with my personality or lifestyle. Instead of forcing myself into a rigid system, I needed a flexible framework that worked with my natural tendencies while still guiding my money toward my goals.

Today, I use a simplified approach that takes me less than 15 minutes per week to maintain but still gives me complete control over my finances. The best part? It allows for real life to happen without derailing my entire financial plan.

Your Simple Budgeting Blueprint

Let's explore how to create a money management system that actually sticks, whether you're just starting out or looking to simplify an overly complex approach:

1. Choose a Budgeting Method That Fits Your Personality

The key to successful budgeting is finding a method that aligns with your natural tendencies:

For Visual Thinkers: The Envelope System

How it works: Divide your spending into broad categories (like groceries, entertainment, transportation) and allocate cash or digital "envelopes" for each.
Why it works: Provides clear visual cues when funds are running low.
Best for: People who need strong guardrails and visual feedback.
Digital versions: Goodbudget, YNAB (with envelope-style categories).

For Simplicity Seekers: The 50/30/20 Method

How it works: Allocate 50% of take-home pay to needs, 30% to wants, and 20% to savings/debt payoff.
Why it works: Requires minimal tracking while providing solid guidelines.
Best for: Beginners and those who dislike detailed tracking.
Tools: Basic spreadsheet or even just three separate bank accounts.

For Hands-Off Types: The Reverse Budget

How it works: Automatically route savings and bill payments first, then spend the remainder freely.
Why it works: Automates the important parts, eliminates daily tracking.
Best for: Those who value freedom and hate monitoring expenses.
Tools: Automatic transfers, bill pay services.

For Detail-Oriented Planners: Zero-Based Budgeting

How it works: Assign every dollar a specific job until income minus allocations equals zero.
Why it works: Provides complete control and awareness.
Best for: Financial enthusiasts who enjoy the process.
Tools: YNAB, detailed spreadsheets.

Emma, a reader who struggled with traditional budgeting, shared her success with the reverse budget: "After failing at detailed budgeting multiple times, I set up automatic transfers to my savings and investment accounts the day after payday, and automatic payments for all bills. What's left in my checking account is my 'no guilt' spending money. My savings rate has never been higher, and I don't spend any time tracking expenses."

For Beginners: If detailed budgeting feels overwhelming, start with the 50/30/20 method. It provides structure without requiring extensive tracking.

For Intermediates: Consider a hybrid approach that combines automation (for savings and fixed expenses) with selective tracking for areas where you tend to overspend.

2. Simplify Your Categories to Make Tracking Sustainable

One of the biggest budgeting mistakes is creating too many categories:

Essential Categories for Everyone:

Housing (rent/mortgage, utilities, maintenance)
Food (groceries and dining out)
Transportation (car payment, gas, maintenance, public transit)
Debt Payments (student loans, credit cards, personal loans)
Savings/Investments (emergency fund, retirement, other goals)
Insurance (health, auto, renter's/homeowner's)
Personal (clothing, grooming, fitness)
Entertainment/Discretionary (streaming services, hobbies, outings)

That's it—just eight categories to start. You can always add more later if needed, but beginning with fewer categories increases your chances of sticking with the system.

Michael, who previously tried tracking 25+ categories, found success with this simplified approach: "I was drowning in details before. Consolidating into eight main categories made budgeting actually doable. I realized I didn't need to track every subcategory to make good decisions—I just needed the big picture."

For Beginners: Start with these eight basic categories and resist the urge to create more until you've successfully maintained this system for at least three months.

For Intermediates: Consider adding 2-3 subcategories only for areas where you need more visibility (like breaking "Entertainment" into "Subscriptions" and "Social Activities" if that's helpful).

3. Implement Systems That Reduce Tracking Burden

The most sustainable budget is one that requires minimal ongoing maintenance:

Automate the Foundation:

Set up automatic transfers to savings/investment accounts immediately after payday.
Enable automatic payments for regular bills.
Use separate accounts for different purposes (bills, discretionary spending, savings).

Leverage Technology Wisely:

Use apps that automatically categorize transactions (like YNAB or Simplifi).
Set up spending alerts for categories you tend to overspend in.
Schedule regular (but infrequent) money review sessions.

Create Simple Decision Rules:

Implement personal spending guidelines that don't require tracking (like "no impulse purchases over $50" or "24-hour rule for non-essential purchases").
Use a dedicated "guilt-free" spending account with clear limits.
Develop routines for regular expenses (like a set grocery day with a general target amount).

Jennifer transformed her budgeting approach with these systems: "I used to track every purchase daily. Now, I have automatic savings, a separate 'bills' account, and a spending account that resets each payday. I check my spending account balance before purchases instead of logging everything. My weekly money date takes 15 minutes instead of hours, and I'm actually saving more."

For Beginners: Focus first on automating savings and bill payments, then use a simple app to categorize remaining expenses once or twice a week.

For Intermediates: Create a more comprehensive automation system with multiple accounts for different purposes and add targeted tracking only for problem spending areas.

Beyond the Basics: Making Your Budget Actually Work

The Check-In System The key to sustainable budgeting is regular but reasonable check-ins:

Daily (1 minute): Quick balance check on accounts.
Weekly (15 minutes): Review new transactions, adjust upcoming spending if needed.
Monthly (30 minutes): Assess overall performance, make system adjustments.
Quarterly (1 hour): Review goals progress, update automations, adjust allocations.

This tiered approach prevents the "all or nothing" mindset that derails many budgeting attempts.

Creating a Guilt-Free Spending Category One of the most powerful additions to any budget is a truly guilt-free spending category:

Determine a reasonable amount you can spend without impacting your essential needs or financial goals.
Set up a separate account, cash envelope, or prepaid card for this money.
When it's gone, it's gone—but while it's there, spend it however you want with zero guilt.

This creates a pressure release valve that prevents budgeting burnout.

The Anti-Budget: A Radical Alternative For those who truly hate traditional budgeting, consider this minimal approach:

Calculate your essential monthly expenses and financial goals.
Set up automatic transfers for these amounts immediately after payday.
Spend the remainder however you want without tracking.
Check account balances before making large purchases.

This "pay yourself first" method ensures the important bases are covered while eliminating the need for detailed expense tracking.

Money Term Made Simple: Discretionary Spending

Discretionary Spending refers to money spent on wants rather than needs—the expenses you could technically live without if necessary. This includes entertainment, dining out, hobbies, vacations, and non-essential shopping.

Understanding the difference between discretionary and non-discretionary (essential) spending is crucial for building an effective budget. When financial challenges arise, discretionary spending provides the flexibility to adjust quickly without impacting your basic needs.

Many successful budgeters recommend starting by tracking only your discretionary spending, since these are the expenses you have the most control over day-to-day.

What's Happening in Markets This Week (May 19-23, 2025)

Based on the most recent Labor Department report, CPI in April came in 2.3% above April last year and slightly above the March 2025 reading. It’s worth noting that Food prices came down slightly compared to last month while coming in 2.8% above this time last year. On the flip side, the cost for shelter rose slightly versus last month and was elevated ~4.0% vs April last year.

Key events to monitor this week:

Thursday: Initial Jobless Claims and Existing Home Sales figures
Friday: New home Sales figures

For those managing their household budgets, the moderating inflation rate is positive news, though many everyday expenses remain elevated compared to pre-pandemic levels.

Your Questions, Answered

Question from Sam L.: "I've tried budgeting apps like Mint and YNAB but always abandon them after a few weeks. Are there any truly simple approaches for someone who hates tracking expenses but still wants to be financially responsible?"

My take: Great question, Sam! Many people struggle with traditional budgeting apps because they require constant maintenance and create a feeling of restriction.

For someone who hates expense tracking but wants financial responsibility, I'd recommend what I call the "80/20 Budget System," which focuses on automating the important 20% of actions that drive 80% of financial success:

Calculate your essential monthly expenses (housing, utilities, insurance, minimum debt payments, basic food) and add 10% buffer.
Determine a reasonable monthly savings amount based on your goals (aim for at least 10-15% of income if possible).
Set up three bank accounts:
- A "bills" account for those essential expenses
- A "goals" account for savings/investments
- A "spending" account for everything else
Create automatic transfers on payday that immediately move the appropriate amounts to your bills and goals accounts.
Spend freely from your spending account without tracking or guilt. When it's running low, you naturally slow spending without needing a complex system.
Check account balances before making larger purchases instead of logging every transaction.

This system ensures your necessities and future goals are covered automatically while giving you freedom within reasonable guardrails. It requires about 30 minutes to set up initially and then just occasional balance checks rather than constant tracking.

The best part? This approach aligns with behavioral psychology—it works with your natural tendencies rather than fighting against them. Several readers using this method report it's the first "budget" they've maintained for more than a year.

Tools That Make Budgeting Easier

Just so you know: The links below are affiliate links, which means I earn a small commission if you decide to purchase. I only recommend tools I personally use and believe in. Thanks for supporting this newsletter!

Finding the right budgeting tools can transform the experience from tedious to (almost) enjoyable:

1. Simplifi by Quicken – For Flexible, Low-Maintenance Budgeting
Unlike more rigid budgeting apps, Simplifi focuses on a spending plan that adapts to your life rather than forcing you into strict categories. Their watchlists help you monitor specific types of spending without requiring you to categorize every transaction. At $2.99/month, it's more affordable than many alternatives while providing a clean, modern interface.

2. Monarch Money – For Comprehensive Financial Tracking
Monarch provides a complete financial dashboard that combines budgeting, net worth tracking, and investment monitoring in one sleek interface. Unlike many budgeting apps, it offers robust customization options while maintaining an intuitive, user-friendly design. The platform excels at giving you a holistic view of your finances while still allowing focused budget management. Their service costs $8.33/month or $99.99/year and includes a 7-day free trial.

3. One Finance – For Account-Based Budgeters
For those who prefer the "separate accounts" approach to budgeting, One Finance offers checking and savings with unlimited "pockets" (sub-accounts) for different purposes—bills, vacation, emergency fund, etc. Their basic account has no monthly fee and currently offers up to 3.75% APY on savings features.

All three options offer mobile apps and desktop interfaces, making it easy to manage your budget however you prefer.

Three Things to Do This Week

Calculate your current savings rate (monthly savings and investments divided by monthly take-home pay) to establish your baseline before implementing a new budgeting system.
Identify your top three discretionary spending categories from the past few months. These areas will likely provide the most opportunity for adjustment in your new budget.
Set up one automation that moves money toward your goals before you can spend it—even if it's just $25 per paycheck to start. This small step implements the most important budgeting principle immediately.

Let's Keep the Conversation Going

Want more detailed strategies for painless budgeting? Check out my Medium publication "Investor's Handbook" where we explore these topics in greater detail.

Visit My Medium Publication → Here

What budgeting methods have actually worked for you? Reply to this email with your approach—I'd love to feature reader experiences in our next issue.

Found this helpful? Share it with a friend who might benefit from a simpler approach to budgeting. New to the newsletter? Subscribe below to join our growing community.

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Remember – the best budget isn't the most detailed one. It's the one you'll actually stick with consistently.

Until next week,
Todd

This newsletter is for educational purposes only and doesn't constitute financial advice. Always do your own research and talk to a qualified professional before making financial decisions.