Do You Really Need a Budget? (Spoiler: Yes, and Here's Why)

If you’ve ever seen someone create a budget for their monthly expenses and wondered whether you need one as well, buckle up because in this article we will unpack everything you need to understand budgeting better.

Let’s start with the basics, the what, why, and how?

What is a budget?

It’s actually very simple.

A budget is a spending plan.

E.g., In any given month, based on your salary, you can create a spending plan (a budget) that outlines where your money will go. The practice of creating and following a budget is called budgeting.

Would you ever attempt driving a car without ever steering the wheel? Maybe not.

A budget gives you control over your money and helps you track and understand where your money is going, instead of wondering where it went.

Like a steering wheel, it gives you the ability to steer your financial future in the direction you want. The idea is to be proactive with your financial decisions, instead of being reactive.

A budget can help you:

• Track expenses: Tracking your expenses is crucial because it gives you visibility into your spending habits. By consistently monitoring where your money goes, you can spot patterns and identify unnecessary expenditures and adjust your budget to maximize savings. Even if you spend less than your income, you might identify e.g., specific subscriptions or services you don’t use often, and cut that expense.

• Get out of loans: Loans reduce your income, and budgeting helps you understand how you can allocate more toward paying them off, giving you the freedom and ability to save for the future.

• Relieve anxiety and stress: Humans like to stay in control, and we get anxious when we are not. Creating and following a budget reduces financial anxiety by eliminating uncertainty about your finances. Knowing exactly how much money you have and how you plan to use it provides peace of mind and a sense of financial security.
• Plan and save for big purchases: A budget enable you to set aside funds consistently for large expenses such as buying a car, home renovations, children’s education, or weddings. Planning ahead ensures you can comfortably afford significant purchases without compromising your overall financial health.

• Fulfill financial emergencies: Life is unpredictable, and unexpected financial needs such as health emergencies or a sudden job loss can take a significant toll on your financial situation. Budgeting can help build financial safety nets such as an emergency fund. This preparation ensures you can handle emergencies without falling into debt or disrupting your financial stability.

So, how do you start budgeting?

You can start with a simple list of expenses on a piece of paper, a continuing note in your mobile phone, or a highly complex excel sheet with different expense categories, there is no way one perfect way to start your budgeting journey.

The key is to find a way that you feel comfortable with, and one that you can follow consistently.

Creating your first budget: A simple step-by-step guide:

1. Write down your total income: This could include your individual income or household income, depending on your circumstances. Don't forget to include any irregular income from freelance or part-time work.
2. Start listing all your expenses: Think of all the expenses you incur in a month including essentials i.e., utility bills, rent, loan repayments, school fees, etc. and non-essentials such as subscriptions, gym memberships, others.
3. Categorize expenses: Divide your expenses into essentials and non-essentials. This will give you absolute visibility (and realization) of your spending on things that you absolutely cannot live without.
4. Divide your income: Now divide your income between essential and non-essential expenses.
5. Evaluate: See where you can actually reduce your expenses to make room for savings.

How difficult was that?

But remember, creating a budget is the first step, throughout the month tracking your actual expenses against your budget is crucial to achieve your budget goals.

Budgeting isn't about restricting your life—it's about empowering your financial future. Think of it as a personal roadmap that guides you toward your dreams, not a restrictive diet for your wallet.

It's not about perfection, but progress. Some months you'll nail your financial goals, and other months you'll learn valuable lessons. The key is consistency and compassion with yourself.

Every small step you take is a step towards financial confidence and freedom.

So, take a deep breath, grab a pen or open that spreadsheet, and begin your budgeting journey. Your future self will thank you for the peace of mind, the reduced stress, and the exciting possibilities that come from truly understanding and controlling your money.