Knowledge is power. If you have basic budgeting skills you are doing much more than simply getting a better grasp of your financial situation. Budgeting allows you to regain control over your life, understand yourself and your spending habits better, and puts you on the fast track to achieving financial independence.
How could you become financially independent – living off income-producing assets, or IPAs as I call them, if you don’t know what your incoming and outgoing cash flow is? If you don’t budget your expenses you are flying completely blindly…it is almost as if you ran against the clock but had not clue what time it is!
Budgeting is empowering, and I really don’t understand why not more people track their expenses on a regular basis.
Simply tracking your monthly income and expenses is a necessary step to reach financial independence. Start by tracking your expenses on a monthly basis. It doesn’t have to be that complicated either. Start by writing down each month how much money you spend on rent, insurances, groceries, transportation, utilities, education expenses etc. You don’t have to be super detailed from the get-go, you can refine your approach as you go along. But it is important that you start budgeting. Later on, you can break down your expenses into more categories.
Budgeting this way will allow you to understand your cash flow better. Where are you spending money, and where are you possibly spending too much money? Once you have gained an understanding about your spending habits, you can way more easily take corrective action. For instance, cutting back on entertainment expenses is more easy when you understand that you have already spend a certain amount X on entertainment this month, or that you have to save a certain amount of money for expense Y.
Remember, budgeting your expenses is empowering you! It isn’t very time-consuming either. You also don’t have to develop complicated Excel sheets to start budgeting, a simple pen and paper will suffice at the beginning. The important part is that you start, and that you commit yourself to getting back into control of your finances.
For people that are more serious about budgeting and tracking their expenses, I have prepared a comprehensive Excel budgeting sheet, which I think is a great start for you to kick off your budgeting experience. You can find the Excel sheet here.