** This is quite a lengthy post and requires a few hours work to implement. If you are serious about taking control of your personal finances, block out 2-3 hours in your calendar in the coming week. **
There’s nothing too glamorous about writing up a budget. Sifting through piles of receipts, old statements, a sea of numbers staring at you, Excel charts… snore! I get it. It is not an exciting topic whatsoever. It can probably be categorised in the ‘watching the grass grow’ field of interest.
Sticking to a budget can be perceived to be more of the same. Keeping a record of transactions, arguments with loved ones over spending, counting every last cent… double snore!
Thinking of budgeting in this way will always see it sitting on your ‘To Do’ list pile. In other words, “I’ll do it after I’ve super glued all those broken toys, scanned every last old photograph and organised my bookshelf according to the Dewey decimal system.” It’s the job you hate to do so you don’t do it.
Or perhaps this portrayal doesn’t represent you at all and you love budgeting like me. No, I wasn’t dropped on my head as a child (at least to my knowledge), but I do love budgeting. It’s not some weird fascination with the numbers but more the personal empowerment and security I find in knowing that I can meet my financial obligations.
If you loathe the letterbox because it is filled with overdue bills, then you need a budget. If you earn a decent income but feel like you are just treading water, then you need a budget. If you live from paycheck to paycheck, then you definitely need a budget.
What are the benefits of budgeting?
Sticking to a budget does not mean you can never buy a coffee or that you can never again see the inside of restaurant again. If you love your daily latté or hitting the town with your loved one, this is totally okay so long as you’ve budgeted for it. Everyone has different priorities and things that they value. A well planned budgets help you to avoid spending on the things that you don’t really care about.
Ever had a $100 note seemingly evaporate from your wallet and you had no idea what you purchased with it? Preparing a budget ensures that the money you spend is spent on what you value most. Think holidays, a reduction in your work hours, maybe that new coffee machine you’ve had your heart on. Budgeting provides you with peace of mind. It ensures you follow a direction that you have predetermined.
What types of budgets are there?
There are many, many, many methods of budgeting. There are quite a few gurus who hold to one particular method of budgeting religiously. Others presell templates, apps and programs. In truth there can be a lot of flexibility to suit your style. The main aim of a budget is to control where your money is going and to have your spending align with your personal goals. This post provides just one type of budget that I have found to cover all the major bases. If you are interested in budgeting but this style doesn’t suit, please don’t give up! Try something else.
Programs like YNAB and Every Dollar have developed some great user friendly budgeting tools for a reasonable price.
Other methods include the super basic envelope system whereby your pay is physically deposited into various envelopes labelled ‘Groceries’, ‘Petrol’ etc. The allocated money needs to last you until the next payday. Run out of money in one envelope and you cannot spend until next payday. It’s simplistic but works it works well for many people.
How do I create a budget?
This post provides a no cost method of budgeting using Microsoft Excel. Google Sheets is almost identical and adds an easy online component. It will take you some time to learn the ropes, but believe me the rewards are worth it. I have provided a template for you to tweak and change as you see fit. Take some time to learn some of the formulas because an hour of learning will pay of dividends in the future.
Excel is a common, readily available and adaptable spreadsheet tool. I can see eyes glazing over as you read this so let me cut to the chase and tell you why it is useful. Spreadsheets can help you to fully automate your calculations, meaning less Maths. You create a formula such as income minus expenses, hit enter and it works it out for you. Budgeting apps sometimes lack the ability to customise your formulas and to really personalise your budgets.
If you’re interested in a ‘How To Use Excel’ video series, click here. Admittedly it’s not going to rival the latest Star Wars in terms of entertainment value, but for those who freak out at the word ‘spreadsheet’, this will have you creating formulas like a pro.
If you would like to use the budget template provided click on Your Budget Template.
I’ve listed progressive steps below on how to create a budget. For the sake of time, I’ve skipped the ‘Click File/Open New’ type instructions under the assumption that people are familiar with basic computing.
- Open the budgeting spreadsheet provided and save it immediately somewhere you can easily access it. You will most likely be opening this file at least once a week if not more. You’ll notice that there are 4 tabs down the bottom. These are:
Expense Tracker– To log each and every transaction that occurs.
Weekly Expenditure– This tracks how your spending is going on a weekly basis. It highlights any windfalls as well as blowouts.
Budget Overview– This identifies all the nuts and bolts of where your money is going. This is where you will be working first.
Net Worth Calculations– To record your financial health on a macro level, this tab can be fabulous to see that you are moving onwards and upwards. This is a great place to record the market value of any savings, properties, shares and superannuation.
- Enter in all of your income. Think of each and every single thing you are remunerated for. Add in any interest bearing accounts or dividends received, benefits, entitlements, bonuses etc. You may choose to leave out fluctuating payments such as bonuses or tax returns and add it in later as it is received. It is better to err on the side of being conservative rather than counting your chickens before they have hatched.
- Work out the total of your income using the formula =sum(drag the cursor over the income area) and hit enter. As a quick intro. into spreadsheet formulas just remember that all formula require an = sign to work, * means multiply, / means divide, ( ) denote the order of the calculation, dragging the corner of a cell continues a formula and clicking on a cells can help to automate a calculation, for example = B2 + C2 would add the two cells together
- Next we need to work out expenses. These include but are certainly not limited to:
- Mortgage statements
- Insurance notices
- Council rates notice
- Bank fees
- Vehicle registration/s
- Water rates notice
- Electricity bills
- Gas bills
- Medical bills
- Car Maintenance
- Repayments such as credit cards, vehicles, furniture and appliances
- Phone and mobile phone expenses
- Education expenses
- Pet registrations and medical fees
- Charitable donations/Tithing
- Accounting fees
- License fees
- Internet expenses
- Land taxes
- Income tax statements
- Everyday expenses such as clothing, petrol, groceries and gifts.
The more information you gather the less surprises you will receive. Basically collect any documents that record the expenses that you are aware of.
- Consider adding in a section towards your financial future. $100 deposited per week can quite easily amount to nearly $2 million dollars over time with the power of compound interest. Click here for more information relating to this.
- Another area of personal empowerment is if you can adding a section towards particular financial goals such as saving for a holiday, a new vehicle, a wedding, a new couch etc.
- Record those areas of expenses on Excel like the example given. Make sure to separate the expenses from the income. The columns and rows can be set out however you feel although I would advise having headings to state the name of the expense, the yearly expense and the monthly or weekly expense. I prefer weekly as it allows me to keep tighter control of my spending. Investment returns and expenses require a slightly higher level of sophistication but are critical to record. Make sure you complete the same records accurately.
- Once you’ve added all the information into your budget you can feel free to beautify it till your hearts content! Insert pictures, add a splash of colour, borders etc. Admittedly this is not my area of expertise and I mainly care about the spreadsheets function. It is important that you feel that your new budget represents you best however. My budget includes some colouration and borders. Delete as you see fit and make it your own.
Additional note- The way I like to budget is to have all my outgoings such as mortgage payments, insurance etc. to be deducted from my income to leave an allowable weekly spend. Fluctuating amounts such as groceries, clothing, entertainment and gifts can be very hard to accurately estimate. I found this to be the hardest component of budgeting. As such I have a maximum allowable spend whereby I can only spend that pre-set amount, but no more, within a given week.
Where do I get all my data from?
This is not fun, I’ll admit it. This can involve sifting through all your insurance notes, bank statements and receipts. If you haven’t already, I would highly advise setting up a folder of some sort to organise this. It will make life easier during tax time and help you to feel in control.
If you have no idea where any of this paper work is, just fill in the spreadsheet with estimates. It won’t be as accurate but it will at least give you a ballpark figure.
What happens if I am way off in my estimations?
One important thing to understand about budgeting is that it requires regular tweaking as you go. You will never get it perfectly right all the time. For example, you can plan to spend $150 per week on groceries but just wait till you get hit by Christmas or a birthday.
To alleviate this I always provide a buffer that accumulates over time. If things begin to go pear shaped, there is a maximum amount that I could spend to cover a budgeting surprise.
Additional note- As a word of advice, everyone should ensure (or work towards ensuring) that you have enough cash to cover 3-6 months’ worth of expenses. This means in the case of a job loss, severe illness etc. that the family home doesn’t have to go under the hammer to add to your stresses. Having this kind of a buffer sees you sleeping like a baby each night.
Now that I’ve made my budget, how do I track my expenses?
You’ll notice that in the spreadsheet template I attached that I include an Expense Tracker on the bottom left tab. As you spend you can type in the date, where the expense occurred and the amount of the expense. Personally, my wife and I share a Google account and use Google Keep to track our spending. I move those expenditures across to the Tracker at the end of the week. If you don’t find this helpful, simply delete the tab.
Other useful methods include using a recording app such as YNAB, a notes app or simply good ol’ pen and paper.
Why do people tend to give up on budgeting?
Jim Rohn had a great quote that relates to this-
“We must all suffer from one of two pains: the pain of discipline or the pain of regret. The difference is discipline weighs in ounces while regret weighs in tons.”
Once you’ve created a budget, it does take work to maintain it. Don’t throw in the towel! If you have a budget blow out or you forgot to track your spending for a while, just pick up where you left off. Many people give up too early.
The biggest and most important thing to keep you budgeting is to come up with a ‘why’. Why does money matter to you in the first place? How will more of it help improve your life or that of others?
Having a ‘why’ keeps you going when you feel like giving up. Money alone does not constitute a why. Saving for a family holiday, paying off your student debt, buying your first home, giving generously to particular charity and so on, all of these offer a far more tangible goal, can be visualised and therefore offer a much greater incentive to keep going. Use this as your motivational fuel when your tank is empty.
What other help is out there to help me on my budgeting journey?
Budget Brilliance will soon be offering email coaching services for a small fee.
Why email you ask? You have a written record of the assistance rendered to refer back to. It poses lower barriers for those who might be introverted person by nature. You have an opportunity to more effectively word your thoughts and clarify your intentions. And there is no need to schedule meetings as emails can be sent at all hours of the day.
If this is something you would be interested in, please email firstname.lastname@example.org for more information.
Thanks again for reading this lengthy post. If it has been helpful to you in any way, we would really appreciate it if you could pass it on to a friend.