Updated: Jul 10
Let’s talk about money for a moment. When was the last time you checked your bank account and thought “Oh, this looks not too bad!”. I feel you. Probably never or a very long time ago. What happened? Where did your money disappear? As you have guessed this article is dedicating to budgeting and understanding the importance of it.
Why to budget?
Budgeting is a tool that helps you to plan your income and expenses. You can budget for everything you are planning to receive and everything you are planning spends. By budgeting, you can create an estimation when in the future you would be able to buy your desired product or service.
Budgeting allows you to create the plan that if you follow precisely you will be able to live life debt-free and know exactly when you could afford certain things. If you are already in debt, budgeting will help to create step by step process to get out of the trouble.
“I am not a finance person…”
You probably had this thought once started reading the first paragraph. I am going to agree with you, you might be not a finance person, but you must know your finances. Unfortunately, financial education is not compulsory in schools just yet. The outcome of that is that many people who do not know how to deal or to act with the money, ending up living paycheck to paycheck with every year increasing loans various debts.
Even when I have finished a Bachelor of International Financial Management, I was still a student struggling with my finances on a daily basis. Even people who call me “that finance guy”, I was not able to manage my budget. Trust me, there are a lot of “finance people” out there who suck at sticking to their budget needless to say that they might not even have one. Just because you do not have an education in finances, it does not mean that you cannot learn a couple of simple ideas about what personal finances are.
My budget story
I will be honest with you, I truly started budgeting at the age of 23. I remember just after university, my bank account was still in the red. I used to work in for several hours per week in the store, trying to combine my studies but the rent and everything was just higher than what I was earning. However, with a lot of effort and saying no to several occasions of going out, I managed eventually to get my finances under control. At the end of my studies, I got a full-time job which was a great relief in terms of the higher income and I thought for myself “hmm, now I don’t need to care about the money”. Oh boy, I couldn’t be more wrong. You see the life tends to get more expensive for some reason once you start earning more. This was one of the biggest eyes opening for me. No matter how much more money you are going to earn, if you are not in control of your budget, you will always find ways how to spend more money. That’s economy, that’s life.
How to budget?
Before you even start with going into the numbers, think for a second about your Why. It might sound like cliché but if you truly decide why you want to budget, it will help you, in the long run, to stick to your budget.
Once you know your reason why the next step is honestly. Open your bank account and have a good look at that amount. This will be your starting point and your opening balance. Then go through all of your expenses and have a reality check. You must learn/know exactly how much and you are spending and on what.
No shame – no changes
When you are going through your receipts and starting feeling uncomfortable, sit with that feeling for a moment, feel it and then stop shaming yourself. From now on, you are the person who is going to look completely differently at your finances. The road might be with ups and downs, there will be trial and error for sure! I can guarantee you! I was in those places once myself. It really took a good year for me to learn the next budgeting habits and be consistent with my budget. But I have made me.
The idea of shame once, helped me to make changes and form habits that helped me to be out of negative numbers on my bank account, save money for the house deposit and just a couple of years after the university purchase my first apartment. I have a mortgage, that I can afford and savings that will help me in case something is going to happen in the future.
Where to start?
I have developed a simple excel Budgeting Tool that I am using on a monthly basis and it helps me to keep on track with my financial goals. If you want to start budgeting yourself watch my video below.