Do you have a budget? Does it feel freeing, or confining? Do you follow it, or create one and never look at it again?
Financial Freedom 101 teaches that we should all create a budget, stick to it, and never spend more than we earn, no matter what. Even with a degree in accounting and a financially-oriented mind, I always resisted creating a formal budget – something I felt quite guilty about until just a few years ago. After all, it makes rational sense that estimating your income and expenses and then operating within those intended guidelines is a solid path to success, right?
My personal hang-up with budgets was twofold:
1) The idea of creating one felt unbelievably restrictive.
2) It felt like pulling numbers out of the air so it seemed like building a plan on bogus information.
Needless to say these two internal obstacles went a long way towards keeping me stuck and budget-less.
It wasn’t until I was able to shake loose of these assumptions that were not serving me that I was able to get a handle on a budget that actually works. Here’s how I did it.
Budgets Can Be Freeing
I resisted the idea of being held hostage by a budget for decades. I felt that if I wanted something I was not about to be told by some random spreadsheet that I couldn’t have it. That didn’t mean I was willing to go deeply in debt just to buy something, though. Quite the opposite, it wasn’t until I started my own business that I had any debt at all other than a mortgage or car payment. Somehow I simply focused on saving as much as I could and trusted it would all work out.
I still espouse trusting that it will all work out as a solid mindset. However, having a general guideline of what your budget looks like goes a long way toward adding a bit of rigor and data. Now I actually have something to refer to determine what needs to ebb or flow in order to make the cash flow work, without feeling like I can never spend money on fun things or invest in my own personal growth.
Where to Find Those Elusive Estimates
Determining what numbers to use as estimates always confounded me. Do I pull them out of the air? What do I base them on? How do I know I’ve accounted for everything? This step always gave me utter and complete brain paralysis. As a result, I just avoided it completely.
Once I started my business, avoiding budgets was no longer a possibility. How I broke through the feeling of simply making numbers up was actually quite simple. I listened to my very practical accountant. She suggested that I base my budget on my past expenses, then review those expenses and determine if they were ongoing and if so, was there any way to reduce them without feeling like I was missing out (for example: getting new quotes for car insurance to see if what I was paying was competitively priced).
Simple, practical, and doable.
Once I overcame the budget barrier, all I needed to do was compare my actual expenditures to budgeted expenses semi-annually to see if I was on track and if any adjustments needed to be made.
The act of having a good sense of what expenses I am actually incurring and a general estimate of what that looks like going forward has been infinitely helpful as a self-employed business owner where income can fluctuate greatly from month to month.
Paula Gregorowicz plucks business owners off the hamster wheel of struggle, self-doubt, and feeling overwhelmed, and helps them create a life they love while building authentic, sustainable businesses. Learn more about her unique approach of practical action and inner awareness at the Paula G. Company.