I'd never seriously set a budget before. Basically all of my life can be broken into one of two categories -- broke as shit, when I had almost no money and had to spend almost nothing, and don't have to worry about it at all as long I'm not totally out of control.
See, that's the tricky part of being an entrepreneur. Like most people who freelance or are small business owners of young companies, my cash balance is infinitely more tied to my income than my expenses. You can tweak your expenses down a bit here and there, and get some percentage points. But income is basically uncapped.
When a smart couple hours brings in a few hundred dollars or more, you tend to worry less about ordering a third cup of coffee at the upscale cafe, and more about having a smart couple hours.
And yet, I've never felt more freedom in regards to money since I started budgeting.
I had a good reason to it -- set some investment goals about building a family investment account, funding it up, and looking to have enough cash on hand to buy a house if and when there's a market correction in housing in Taipei.
So, if you do decide to start budgeting, that's my first recommendation -- have a good reason to do so, something exciting that's on the horizon.
Second? I'd track your expenses for at least a couple weeks. I do that anyways, because I've found Peter Drucker to be right when he said: "What gets measured, gets managed."
You could try setting a budget before figuring out what your previous expense baselines are, but I'd be wary of the initial guesses as to where cash actually goes.
After some tracking? It's fantastic. If you're feeling adventurous, you might try setting one category considerably lower than seems reasonable. It'd actually incredibly a lot of fun, and I feel wiser and much more connected and understanding of money after doing this.
I set my food budget at 300 Taiwan dollars per day (about $10 USD).
Suddenly, there's real tradeoffs involved -- I was at a cafe for a late work session that had coffees priced at 120 NTD ($4), 140 NTD ($4.65), and 150 NTD ($5). That's the kind of thing I wouldn't even notice before, but it's the difference between being able to grab some hard-boiled eggs, a rice ball with tuna, a bottle of tea, or some fruit on the way home.
I was out with a buddy at the Zhongshan night market the other night. He had sashimi for 200 NTD -- it looked great, and I do quite like fish -- and yet, I passed. Budget. Felt awesome.
I feel much more sensitive to pricing differences. I also feel more excited to hustle and close deals, bring more income in, and feel much more appreciation for cash in the $100 to $500 range. Checking prices and thinking through the fact that eggs cost 8 NTD each, whereas a solid mini-loaf of bread costs 40 NTD makes you realize that eggs are a much better buy for fillingness per cost, which is a calculation I'd have never done without the budget.
The most interesting thing about the whole budgeting thing? It's making me much more creative and more critical of my decisions. When your entertainment budget is slashed, parks and art galleries and museums become de rigeur instead of the more well-worn movie theater. Food, housing, transit? Start thinking of new things to eat, new ways to live, new ways to get around.
It's glorious. More of my income is dropping down to my net worth, it's enabling future plans, and I'm having of a lot of creative fun. If you haven't budgeted before, do consider giving it a whirl. Start by figuring out what you're building towards, and go from there -- you might just find yourself as a more creative and informed person... and with a lot more cash in your pocket.