Some pieces of advice are repeated so often they stop having an impact on your brain. Drink more water, get regular exercise, start a budget – these basic tips are so commonly trotted out that we tend to skip past them with a “yeah, yeah” in search of something more novel or revolutionary.
The question is, are you actually doing them?
There’s an interesting brain blip that can occur with oft-repeated advice, and it’s similar to what happens when you hear a cliche. If someone were to say their lunch was “heavenly” or that they’re “all thumbs”, you wouldn’t actually picture a heavenly scene or a creepy version of your friend with an overabundance of thumbs. Instead, since you’ve heard these expressions so many times before, you’d simply grasp the basic meaning that their meal tasted good but they’re a bit clumsy.
A similar thing occurs with over-repeated advice. Since you’ve heard it so many times before, your brain treats it like something you already do. In other words, it skips over it, deciding you don’t need to hear it again. The problem is that this can leave you skipping strategies that could drastically improve your life.
So, the next question is: do you actually have a budget you update regularly and use to guide your financial decisions?
If so, great! You’re one step closer to the financial freedom we all seek.
If not, you’re in for a pleasant surprise. Budgeting doesn’t have to be boring. It doesn’t have to add a whole lot of extra work to your week, and it can start saving you money from day one. In this article, we’ll take you through the importance of budgeting and give you an easy way to start (and maintain) your first budget.
Why is budgeting important?
The purpose of budgeting is to give you complete visibility over the flow of money in your life. Living without a budget is like driving with limited visibility. You can still get where you’re going, but you’ll probably get there slower, and there may be risks and dangers you don’t see until it’s too late.
Tracking your expenses
Even if you’re still managing to save and invest a good amount of money each month, a budget can help you identify financial waste and get your money working more effectively. You may, for example, be shocked to discover that you’re spending hundreds of dollars a month on nights out at bars that you don’t really enjoy that much. When you realize the economic impact this habit is having, it might be the push you need to suggest an alternative hang-out spot to your friends.
Alternatively, you may love your nights out and be happy with what they’re costing you but discover that you’re paying for a bunch of subscription services you don’t even use.
Your discoveries will be unique to you, but it’s almost guaranteed that you’ll find some expenses that surprise you.
Understanding your income
The value of budgeting stretches beyond expense tracking. When you monitor your expected and actual income, you’re able to quickly identify issues like late payment or underpayment. This is more of an issue for business owners, freelancers, and contractors. However, it’s helpful for everyone to understand what they’re taking home each month.
For those who don’t have a single fixed income, a budget can also help you identify seasonality and other trends in your income. For example, if you offer a B2B service, you may notice that business drops off over the holiday season. When you identify such trends in your budget, you’re able to prepare for them and adjust your expenses and your marketing strategy to match.
How to create a budget in three simple steps
With the importance of budgeting covered, let’s dive into some straightforward budgeting tips to help you start and maintain a budget.
Step 1: Choose your weapons
If you’ve tried and failed to start a budget in the past, it could be that you were using the wrong tools. We all have different personalities and preferences, so the spreadsheet that works for one person might seem like a monotonous drag to another. Thankfully, there’s an abundance of weapons available to you in your budgeting quest.
If you’re looking for a free budgeting tool, consider one of the spreadsheet templates available in Google Sheets. You can access Google Sheets from your Gmail account, and then browse the template gallery to find a budget template you like.
You’ll also find free and low-cost budgeting apps in the Apple and Google Play stores. It might take you a few goes to find an app that feels intuitive to you, but there’s sure to be one out there. If you want some guidance in choosing, check out our guide to the best budgeting apps, where we test out the top-rated apps and detail their pros and cons.
If you’re the kind of person who keeps a handwritten journal, or you simply want a break from screens, consider getting or making a physical budget planner. There’s something deeply satisfying about sitting down with pen and paper and budgeting the old-fashioned way. Add a cup of tea or coffee and a tranquil environment, and your weekly budget update could be an ASMR-worthy experience.
Step 2: Update your budget regularly
You might have noticed we mentioned “weekly budget updates” just now. That’s because weekly updates are the best way to record your expenses and take guidance from your budget. There are a few reasons for this.
First, sitting down at the end of the month to type in a seemingly endless list of small expenses can feel so tedious that you’ll want to put it off. This can lead you to ditch your budget and decide it’s just not for you. When you go through your expenses weekly, by contrast, the job is smaller and you’re far less likely to be overwhelmed.
Second, when you check in with your budget weekly, you empower yourself to correct course if needed. You may see that you’ve been spending a little too wildly in one category, or you may discover that you’re on track for your goals and can afford to treat yourself in the coming week.
Finally, weekly check-ins help you lock budgeting in as a habit, making you more likely to stick with it long-term.
Step 3: Analyse the data from your budget
This is where you take your budgeting to a whole new level. Once you’ve kept up the habit for a few months (ideally a year or more), you can start analyzing trends and gaining a deeper understanding of your finances.
If you’re paying off debt, you’ll be able to see just how far you’ve come, which can give you the motivation you need to keep pushing. If you’re a freelancer, you’ll get a picture of your cash flow over time, revealing seasonal trends you may never have noticed without your budget. You’ll also see whether you’re growing or stagnating, helping you determine whether you need to seek out new clients or raise your rates.
Whether you’re an employee, a business owner, or a freelancer, you’ll be able to see how your income is tracking against the cost of living in your country. This can offer the inspiration you need to increase your rates or ask for a raise. Crucially, it will also give you data to back this move up.
Final thoughts on budgeting
Hopefully, this article has given you the final push you need to actually get your budget up and running. It may take you a few goes to find an approach that works for you, but the benefits are well worth it. You can start saving money from day one, avoiding expenses that really aren’t serving you, and funneling those funds into far more worthy investments