For a very long time, I didn’t really understand how budgeting worked. I only used budgets to limit myself, instead of realistically looking at my needs and what amount/percentage of my income I allocated to meeting those needs. Without knowing my actual spendings, it was pretty impossible to know what percentage I could save or invest.
I was stupidly unaware of where my money was going and felt helpless and unable to “fight” the system (the system of inflated lifestyle) that was clearly working against me.
Before I started observing my budget (the first step on the road to FI), I had no idea how to build a safety stash, create an investment portfolio from scratch and still be able to fully enjoy life without feeling deprived.
I’ve been budgeting or rather keeping a budget for over a year now, and only now I’m finally accepting that this is how our family’s budget looks like. There isn’t much room to wiggle around if we stay in an expensive city with high living costs. However, interestingly enough, once I began practising acceptance, I noticed that our spending organically started going down, however slowly.
Maybe my eco-minimalistic choices and sustainable swaps I’ve been implementing have something to do with it, or perhaps the realisation that we have enough of everything that we need is playing a significant part. Buying only what’s needed, as well as purchasing package-free foods does help decrease the budget. We don’t buy anything we won’t eat, and often fruits and veggies are much cheaper without packaging (I pay 0.30p per apple, so for five apples that is £1.50. For the identical five apples in a plastic bag, I would have to pay £2.00 – £2.50).
Knowing how much I spend and where the money goes was the first step towards understanding personal finances. Without that basic understanding, it’s hard even to comprehend FI, not to mention starting on the freedom journey. For as long as I didn’t know what I was spending money on, I was constantly surprised that something cost this much. Also, I wasn’t realistic about what our family’s financial needs were. That, in turn, meant that I couldn’t plan accordingly because I didn’t know what budget I was planning for and what savings or investments I was trying to make.
Budgeting also allows people to calculate how much money they will need to become financially independent, and how many years it will take them to reach that goal. That, in turn, leads to making decisions based on facts, instead of emotions and social pressure (cutting down on living costs/expenses, swapping a luxury car, or moving closer to work).
The hardcore numbers that the budget shows won’t lie to you. The numbers will clearly display where your money is gravitating towards and what areas of your financial life need improvement. Knowing your numbers will empower you to make decisions and change your life, if financial independence/early retirement is what you want, even if, at this moment in time, FI seems like a far-fetched dream.
I’ve never been good with numbers; in fact, anything math-related still freaks the bejesus out of me. But budgeting and knowing where my money is going and knowing what adjustments I need to make to reach my goals is super exciting.
Practical Tip
You don’t have to buy any budgeting apps, programs etc. We are using the Excel spreadsheet my hubby created. For now, it works for us, and it’s FREE.