Does budgeting work?

I met up with a friend last week. During our chat, she confided in me about her insecurities regarding her earning capacity.

She’s a solopreneur and, in some months, doesn’t earn a commission if she doesn’t close a deal. Despite making pretty good money overall, she gets anxious during the dry months.

I asked her if she budgets.

Without hesitation, she threw the question back at me: “Why do I need to budget? As long as I have enough to pay my bills, cover my kids’ education, and set some aside for investments, why do I need one? I just don’t see the point.”

She continued to explain that she didn’t have the time to budget and found it complex, restricting and confusing. Furthermore, she said it was difficult to budget as her income wasn’t consistent. She felt she didn’t need one.

I didn’t push the conversation further, but it was an interesting observation. A simple question about budgeting had triggered a host of emotions for her.

Being a solopreneur myself, I understand the challenges of budgeting with a fluctuating income. However, budgeting gives me the assurance that I direct my money where it should go and what it should do, rather than allowing it to dictate my emotions.

When you don’t control your financial life, you may spiral into a money-you-don’t-have hole or debt. Budgeting your money gives you the knowledge and the authority to change that. Knowing how much you are spending and prioritising, which will eventually lead you to financial independence.

Feeling empowered by budgeting is so so much better than feeling anxious about money.

Here are my top 5 reasons why everyone should budget:

1. Budgeting can help you in an emergency.
2. Budgeting can help you fix bad spending habits.
3. Budgeting gives you control of your finances.
4. Budgeting can reduce financial stress and improve mental health.
5. Budgeting can improve family life.

How exactly do you make a budget?

Here are the basic steps:

1. Compile all your bank statements, credit card balances, payslips, etc.
2. Calculate your monthly income.
3. List your expenses like rent or mortgage, car payments, insurance, health insurance, utility bills, and credit card payments. Include food, travel, and entertainment too—anything that you need to pay every month.
4. Subtract your expenses from your income.
   
   • If you have positive cash flow, congratulations!
   • If you have negative cash flow, you need to reassess your spending habits.

Here is the breakdown of my personal budget:

• Expenses: 60%
• Insurance: 10%
• Savings/Investment: 30%

As I work towards FIRE (Financial Independence, Retire Early), I aim to increase my Savings/Investment to 50% to allow my money to compound, ready for me when I retire. This is another topic I’ll write about later.

Budgeting is more than just a financial task—it’s a way to gain control over your life and reduce anxiety. By understanding and directing your money, you empower yourself to handle fluctuations, prepare for emergencies, and work towards financial independence.

It may seem complex at first, but the peace of mind it brings is worth the effort. Start small, stay consistent, and watch how budgeting can transform your financial health and overall well-being.

What about you? Do you budget? Share your thoughts in the comment.