How to become a personal finance “black belt”

David Allen in “Getting Things Done” compares productivity to the martial arts. He gives instruction on how to become a black belt in your personal productivity with a “mind like water” that allows you to handle anything that comes your way with a balanced response. When a stone is thrown into a pond, the water reacts with perfect balance. It reacts just enough to disperse the energy, no more, and then returns to a calm state. It doesn’t over or under react.

Becoming a black belt and having a “mind like water” in your personal finances is very similar. It means you can take whatever is thrown at you without knocking your finances out of control. You can respond to any situation with perfect balance. Unexpected events or changes in your finances, good or bad, can be handled with optimum efficiency, and little or no stress. It means you can direct the flow of money where you need it almost effortlessly.

In an effort to help people gauge where they are in their personal finance development, I’ve defined what people at the various “belts” might look like. Where are you?

White Belt

You’ve recognized there is a problem with your finances and have committed to taking control. Recognition that there’s problem may come as a nagging doubt that you’re not meeting all your financial goals or a harsh reality check as you face mounting debt. You have a lot of stress concerning finances (even if you’re living within your means). You tend to fight with your spouse every time you discuss financial matters. You recognize your spending isn’t in line with your true values. You have no idea where all the money goes from month to month. You may be living paycheck to paycheck. If you saved $5 on your phone bill, it would just disappear somewhere but you don’t know where. Your idea of an emergency fund is a credit card or Home Equity Line of Credit. You frequently pay late fees on your bills and unnecessary bank fees. Net worth? What’s that?

Despite your lack of financial control, you have a strong resolve to take action even though the thought of facing the “deep mess” of your finances seems overwhelming. You and your spouse have agreed to work together. In an effort to get your spending under control, you’ve started using cash for your “out-of-control” budget categories. You’ve stopped using credit cards somewhat reluctantly and possibly out of the sheer pain of your dire financial straights. Despite some complaining, your family has agreed to use cash as well. You’ve taken initial steps to figure out what your basic monthly income and expenses are and have tried budgeting for at least one month even though it doesn’t match reality yet.

Most importantly, you’re no longer willing to BE IN DEBT!

You’re no longer willing to constantly WORRY ABOUT MONEY!

You’re no longer willing to FIGHT ABOUT MONEY!

You’re no longer willing to PAY LATE FEES!



White belts come in many shapes and sizes. Of course, those steeped in debt and on the verge of bankruptcy can be white belts, but so can those who are living within their means (see below). Being a white belt means you don’t have total control over where your money goes. Your spending doesn’t reflect your true values and is not conscious. The white belt is about recognition and commitment. You’ve recognized a need to change and are committed to doing what it takes to change.

Green Belt

You’re well under way implementing your financial-management plan. You’ve budgeted for at least 3 months in a row and have worked many of the kinks out. Your budget actually reflects reality.

You meet with your spouse about every two weeks to keep things on track. You often have to implement the 30-minute rule and meet several days in a row to prevent total melt-downs.

You’ve taken all credit cards out of your wallet and are using cash for all of your “in-person” spending. As a result, for the first time you feel like you have control over your spending. You’ve even started developing your own unique ways of managing your cash and have a tendency to give spontaneous testimonials about the virtues of cash whenever someone acknowledges your use of a cash envelope.

You’re well under way saving for a short-term emergency fund. You may not have it fully funded yet but you already notice feeling much less stressed having at least something in place. For the first time in your life, you may have even experienced an emergency and had the money to pay for it. You have created an initial net worth statement and have a general idea about your overall financial status.

If you saved $5 on your phone bill, you could probably redirect it rather than letting it disappear. You no longer pay late fees or bank fees. If necessary, you’ve made major changes in your lifestyle to ensure you can live well within your means.

Brown Belt

You’ve been on a zero-based budget for over 6 months and things are really humming. You may have occasional refinements, but things are mostly on cruise control. You’re able to manage your finances on one meeting a month and are able to get through most meetings without any arguments.

You’ve gone through at least one set of envelopes. You find that you’re keeping the cash envelopes the bank gives you when you cash a check or make a withdrawal because they are a better size than regular envelopes.

You’re friends have started noticing that you pay cash all the time and have asked you about it. You find yourself preaching the cash gospel and sharing your success whenever you can.

You have a fully-funded short-term emergency fund and have started reducing consumer debt or increasing retirement savings. You have a strong sense of control over your finances and can see significant improvement every time you refresh your net worth report (which you do at least once a quarter). You and your spouse have reconciled your financial differences and have a new-found sense of unity when it comes to finances. You’ve created a list of rules concerning what you both consider to be an emergency as well as what you want to do with any unexpected windfall money. By making these decisions ahead of time while you’re calm, you avoid big arguments when these events occur.

Black Belt

You laugh in the face of emergencies (mua-ha-ha) and can easily and confidently deal with anything thrown at you. Seriously, for all practical purposes financial emergencies don’t really exist for you any more. If you save $5 on a phone bill, you’re financial system allows you to know about it and easily redirect it exactly where you want. You have complete financial control over every dollar.

You no longer worry about finances. Instead of worrying about how to pay the bills on time, you think about what investments to make or which debt to pay off next. You’re amazed and shocked that people even pay late fees (you obviously are having a bout of selective amnesia). You are aggressively on track to pay off all consumer debt and/or save for retirement. In fact, sometimes you find it hard to spend extra funds because you’re so excited to become debt-free that you want to reduce your debt instead.

You finally feel like where you spend your money is a reflection of your true values. You and your spouse see eye-to-eye concerning finances. You only have major financial discussions when your financial situation changes dramatically.

You not only calculate your net worth quarterly, but also have calculated when you’ll become financially independent.

You kind of wish you’d get fired so you could find a job you really like (you have a full emergency fund and could get by for 3 to 6 months without any income). You only have to spend about 30 minutes a month on average managing your finances. You’ve cut up all your credit cards because you just don’t need or want them anymore.

Your belt level isn’t about debt, savings, or your net worth.

Some of you may have noticed that my description of the belts didn’t include savings percentages or require you to be debt-free. Your belt level isn’t about debt, savings, or your net worth. It’s about your ability to control your money, ensuring that each dollar is directed where you want. I’m sure I’ll get a lot of flack for saying this. Of course, savings and debt elimination are cornerstones of a solid financial foundation. But to enable you to save and pay off debt, you first have to get a handle on your inflows and outflows. As you gain greater levels of financial control, you can easily reach your savings and debt-reduction goals at an ever-accelerated rate.

The good news is, you can become a financial black belt even if you still have debt or haven’t reached your long-term goals. Of course, if you are a black belt, it won’t be for long before you do. As you progress in your career and get raises, or as you receive windfalls, you will be able to direct those extra funds with great focus and power to eliminate debt and reach your long-term goals. That’s the power of a black belt.

Take your finances to an “11”

I can’t avoid referencing this segment from This Is Spinal Tap. If you haven’t seen it, you should take a look.

I know many people who live within their means, pay off their credit card bill every month, and think they have arrived in terms of financial management. But the fact is, you can do these things and still be a financial white belt. I know this for a fact because I’ve been there.

There was a time when our income greatly exceeded our expenses. We saved ten percent and gave to our church. We also lived large and bought just about anything we wanted and were still living within our means. For the most part, we just accumulated a bunch of “stuff” and made a lot of emotional, at-the-register purchases. As we look back we kick ourselves for not using that money in a more conscious way. Had we been financial black belts, we could have greatly accelerated our journey to financial independence. Today, even though we have downgraded to a single income and increased our expenses (mortgage, child), we are doing more with what we have now than we did with two incomes, no children, and low living expenses. As a result we have been able to reach financial goals with tremendous speed and ease.

I’m not saying you have to choose between having fun with your money and saving it for later. As a black belt, you can set aside funds for frivolous spending and still aggressively meet your financial goals. The key is to spend consciously, making decisions as they relate to your values and your finances as a whole. If you plan wisely, you can have the best of both worlds.

Posted in Budget, Budgeting, Budgets, Cash, Couples, Credit Cards, Emergencies, Finance, Finances, Money, Personal Finance, Relationship, Relationships, Saving, Spending | 20 Comments »

20 Comments to “How to become a personal finance “black belt””

  1. I’m a Financial White Belt… « Outta Debt Says:

    […] But I’m well on my way to my green belt . Check out this great article at Getting Finances Done. I really like this statement: […]

  2. NLG Says:

    I really enjoyed this post, thanks.

    It seems that no matter how much you think you know, or how well you’re doing, there’s still more work to be done to reach the Nirvana of black belt financial know-how.

  3. Hal Says:

    I agree in general, but I’m not completely sold on the need for a budget.

    Suppose I have 3-6 months savings put away in case I loose my job; and I have paid off my credit cards; and I automate monthly withdrawals for college, retirement, and investment.

    At the end of the month I have $xxx. Why is it so important to figure exactly where each penny goes? As long as I have something left over at the end of the month, that’s good enough for me.

    In my case, I think watching a budget would be overkill. Anybody else feel like this?

  4. sjpeer Says:

    Thanks for your comment. I certainly understand your point and used to be of the same opinion. But as you can read in this post, we were in the exact situation as you for several years and in the end regretted not focusing our “extra” funds to reflect what we really valued.

    If you really value just spending all your extra funds frivolously, by all means do so, just make the decision consciously and set aside those funds for just that! However, I’m guessing if you were to really sit down and look at what you value and your overall life objectives and goals, you’d find other ways you’d rather redirect those funds.

    Your statement is the perfect example of white belt thinking and shows how someone living within their means can still be a white belt:
    “As long as I have something left over at the end of the month, that’s good enough for me”

    SHUN THIS TYPE OF THINKING. Why would you essentially throw money away? Sure, a budget will help those in a tight situation make the most out of every dollar. It can also do the exact same thing for those not in a tight situation. Why wouldn’t you make the most out of every dollar regardless of your financial situation?

    One answer might be because it’s hard to maintain a budget. I hope to show you that’s not the case. A black belt can manage his/her finances in 30 minutes a month. It might be some work on the front end, but once your budget is on cruise control, you’re set. I hope to continue to display how to simplify your budget and finances for maximum control with minimal effort.

  5. Rebecca Beltran Says:

    Well, it looks like I’m a green belt whose 50% of the way to brown.

    Here’s a tip that I use instead which might be useful to some of the rest of you.

    Have you ever noticed that poor people ‘budget’ and millionaires ‘forecast’?

    I don’t have a ‘budget’ but I do forecast my spending. It’s less stress for almost the same return.

    I estimate what my regular bills and expenses are (and I’m generous – ie, $350 a month for food just for me, and 10% into a retirement account) and then see how much I’ll have left over at the end of the month.

    Then I’ll start window shopping for what I want to do with that extra money. Once I’ve got my eye of something, everytime I spend money I remember that I have a choice. I can buy whatever I want right now, or I can buy my ‘big prize’ at the end of the month with the leftovers.

    A better twist to this that I’ve been doing for about 6 months now is instead of spending the entire leftover amount on something that depreciates right away, I spend a percentage of the leftovers on something that will give me a return on investment. Maybe a piece of nifty software that makes me more productive, a shiny palm that I’ll actually use, education seminars for me or invest it wisely.

    It’s all about knowing your choices.


  6. sjpeer Says:

    Excellent point. I totally agree with your approach. There is an issue of semantics when it comes to budgeting. Some people don’t like to call it a budget. Instead, you can think of it as a spending plan or forecast. The bottom line is you need to spend your entire income on paper before you spend it in real life. This allows you to make the value-based decisions you’re talking about.

    People sometimes get stuck in their financial progress by thinking “I have money left over so I’m ok.” The fact is you should be as thoughtful with the “left overs” as you are with your other funds. In fact, you should really be more thoughtful because those are the funds that can really accelerate your big-picture financial goals, including financial independence. Instead of just letting those funds dissipate, use them to start a business, pay down debt, or save for a vacation. If you don’t, you’ll end up with a whole lot of un-measurable nothing.


  7. Rebecca Beltran Says:

    Who taught us to call the leftover money “disposable income” anyway? Unfortunately, you are right, that is how lots of people treat their leftover cash, like it’s disposable.

  8. Hal Says:

    Good question. I think the term “discretionary” works better.

    Suppose my son asks to a movie on Saturday afternoon. It will cost $15 for two tickets plus popcorn. I could

    a.) Say to him, no, Daddy did not budget $15 this month for movies; or,
    b.) I have $50 “discretionary” money that has not been spent this month, so yes we can go.

    My point is that I don’t see a value is tracking spending at a more-detailed level. Next month we probably won’t go to a movie; it will be something else. I’m not being irresponsible, just not tracking every purchase.

  9. Dan Says:

    Hal’s ‘discretionary’ example is perfect. When we were initially putting together a family budget, my wife and I stressed too much about the specificity of our budget categories. Did it really matter that we had budgeted to the cent the amount that we were going to be spending on entertainment? No. What matters is we had planned on spending $50 for any type of entertainment that month.

    This gives us the flexibility that our day to day life requires, but still gets us to a zero based budget. And if we didn’t spend the money in entertainment one month, we roll it over to the next month or put it to savings, but ALL the money is accounted for by the end of the month.

  10. sjpeer Says:

    Hal and Dan,
    You are both correct. I probably could have communicated it better in this post, but when I say you allocate EVERYTHING I don’t mean down to the specific purchase. I mean that you do exactly as you both suggested: allocate every category. We do the exact same thing as Dan, budgeting a lump sum amount for “entertainment” for example.

    The danger is in vaguely or ambiguously leaving money unallocated. If you have allocated all your expenses and have money left over, I’m not saying you shouldn’t spend it. Go ahead and allocate it in one lump sum in a “blow” or “fun” category. Just do so consciously.

    I’ll try to address this issue in more detail soon.

  11. Emma Says:

    Dan, this is a great post. I agree that budgeting, or whatever you want to call it, is an essential element of a healthy financial plan.

    There are a lot of people that, like Dan, feel a budget is restrictive. For us, it’s been the most freeing thing we’ve ever done. We sit down every month and look at things that are coming up in that month and where we need to put money aside for things in the not too distant future. We have a his and hers blow category, so we can spend how we wish. It’s worked great.

    In regards to belts, we are black belts through and through. Murphy rarely comes by..I wonder why?

    As an aside, our daughter gets commission for different chores around the house. If she wants to buy a movie or toy or candy, she uses her money. If it’s a family thing, like family movie night, we use the money in the entertainment category.

    Budgeting has made our lives much more simple. I highly recommend it to anyone, regardless of your financial state.

  12. I’m a black belt! Who knew? « Money Talk Says:

    […] I was checking out the Getting Finances Done blog and saw this post from October 3rd called How to become a personal finance “black belt”. All this time and I never knew that we were black belts! Yay! […]

  13. Wisdom from the Rich Dad » Blog Archive » Personal Finance is like….martial arts? Says:

    […] Decide which belt you are in now, at Getting Finance Done site. […]

  14. Dr. Artfredo C. Abella-Commission on Audit-Philippines-UB Says:

    Oh, I never thought that financial matters could also be attributed to martial arts. Should that be the case, we must follow and emulate the styles of Bruce Lee in meeting our financial problems and foes. I believe that attaining or having the dream of immediately becoming a financial black belt would be too abrupt. Remember everything must have a beginning. I think what is more important is that attaining a financial independence or the better word is comfortable living is to have focus in our financial matters. The saying: ” The only business of business is business.” is applicable here. If we really want to attain financial abundance in life, first and foremost, we must have a business that we can call our own then give 100% percent focus and efforts to make it a success. This is akin to the saying that genius is 98% perspiration and 2% inspiration. I think you can only say that you have already attained the status of financial black belt in life once you can feel that business is already running in your vein. It is as good as saying that every time you breath air it is like breathing in cash and when you breath out, you breath for your spirit to pay your overheads and meeting all your financial obligations on time. Breath in again and you breath investments in bonds, stocks, treasury bills and mutual funds and breath out by donating excess funds to charitable institutions. Breath in by purchasing lands and other asset producing income and you breath out meeting all current and fixed liabilities until you become a financial Kung Fu expert. At the end of the day you will always tell yourself, it is not how much you earn that counts but how much labor of love have you given to your business and in one blow with a flying kick all your financial worries are gone and dissipated.

  15. BlackBeltat50 Says:

    As we say at my dojo, “if you can measure it, you can manage it”. This is what, in large part, you are saying.

    Also, intentions are not actions.

    See, you could push your belt metaphor further.

  16. Abdominal workout Says:

    Abdominal workout

    dance your way to hot – sexy abs and burn fat…

  17. Affiliate income Says:

    Affiliate income

    earn money selling credit cards…

  18. Canoot Says:


    truck – van – and car graphics…

  19. ultram Says:

    All about Ultram

    All you need to know about ultram

  20. 7 Proven Steps to Fix Your Personal Finances That You Can Implement Right Now | Complete Online Information Says:

    […] How to become a personal finance “black belt” | Getting Finances Done – David Allen in Getting Things Done compares productivity to the martial arts. He gives instruction on how to become a black belt in your personal. […]

Join my FREE newsletter and get
Exclusive content for the "12 Weeks to Fiscal Fitness" course.

12 Weeks to Fiscal Fitness

Get exclusive content by entering your First Name and Email below:

I hate SPAM and won't share your email address with anyone!

GFD Marketplace