Full disclosure: I never understood the value of creating a budget with my paycheck until I met Victoria. I had my paycheck directly deposited into my checking account, would occasionally move some over to my savings when I felt like I had a bit, and would periodically check the balance of my account to make sure that I wasn’t getting low. Victoria on the other hand, could tell me how much she spent on her gas bill three years ago. No… I am not kidding.
At first I thought she was crazy. However, she was a full time student with no income at the time and needed to plan out her expenses to make sure she didn’t run out of funds by the time she finished her PhD and PA school.
She challenged me to create a budget of my own. I was hesitant at first, because I genuinely thought of a budget as a diet for my spending life. It wasn’t until I took the challenge that I realized that I actually had the freedom to make purchases that I wanted to without feeling like I would ever run out. I realized that this new concept of purposeful spending took the mental energy out of moving money to my savings and constantly checking my balance.
From the experience, I can tell you that one of the most important things to consider for achieving true financial comfort is creating and following a personal budget of your own. You’ll hear this as a constant theme through many articles on this site.
There are many tools to help you create a budget yourself, but honestly, it doesn’t matter how you do your budget.
The DIY Way
One of my favorite DIY ways is using Microsoft Excel to create a simple budget. What’s great about this is that there are tools built into the software that allow you to automatically calculate differences, create visual representations of your savings, and categorize expenses to easily track where your money is going each month. You can make your spreadsheet as complicated or as basic as you’d like.
For today’s post, we’re going to keep it super simple. We’ve gone ahead and created a free budget template for you.
The template provided above will give you an excellent starting point if you’ve never created your own personal budget. The budget is also set up in a way that if you combine incomes or budget with somebody else in your household, you can do so very easily. It starts by listing your income to know how much money you have available to you throughout the month. Be sure to only include your net income in any of these sources, or the actual ‘take-home’ portion of it. I mention this because if you’re employed, you’ll likely have some deductions done automatically (like 401k contribution, HSA contribution, health insurance, etc.). Once you have completed all your sources of income, add those values and put the sum in the ‘Total’ field.
Next is the expenses. I’ve put explanations next to some of the fields that may need further explanation, but I’ll try to explain a bit further here.
- Mortgage / Rent – How much do you pay for housing? Are some of your bills included in your housing? If so, you can remove some of the later fields.
- Savings / Retirement – This field is one of the most important. It’s important that you do not include anything from your 401k or work sponsored retirement plan. If for some reason you are not already maximizing AT LEAST to the point where your employer matches, change that NOW. You’ll never find a 100% return on investment. This is where you’ll set up your emergency savings, your vacation savings, Roth IRA, college savings, etc. Ever heard the saying, “Pay yourself first”? That’s this field.
- Student Loans, Auto Loans, Credit Card Debt – Some financial experts say to pay off the smallest loans first. This is mathematically wrong, but psychologically very pleasing. However, I’m going to assume that if you’re reading a financial blog, that you’re more interested in making the best decision for your long term wealth. That answer is to pay your highest interest rate loan first to eliminate the actual cost of your debt. The strategy would be to pay the minimum amount on all debt that you have, then put any additional money you can to pay the highest interest rate loan off the fastest.
- Utilities – Add up your gas, electric, water, sewage, and any other utility bill you may have.
- Groceries – Where do you buy your groceries? Are the named brands that important to you in some products? Have you planned your trip before you go to the store? Do you take the time to find coupons? Considered buying certain items online? Victoria has a list of ways to cut costs here that she’ll be posting about in the coming weeks, so keep watching!
- Fast Food – Many people fall into the trap of not preparing meals ahead of time and eat out way too often. Mass meal preps, meal calendars, and leftovers are great ways to avoid dining out.
- Gasoline – Have a rewards debit card / debit card? Two of my cards rotate 5% cash back on gasoline throughout the year.
- Insurance – Car / Home insurance? Life insurance? Health insurance? If you pay every six or twelve months, figure out the monthly cost to you so that you can average it out. Often times you can receive discounts from your insurance company for paying in longer than month to month terms.
- Internet / TV – More and more millennials are joining the ‘Cord Cutting’ revolution. Consider dropping your cable and getting only internet. Many times, you can watch the shows you want online.
- Cell Phone – Many phone companies are doing away with unlimited plans and moving to a set amount of data. Be careful to not go over as the fees are ridiculous. You can also check with your cell phone provider to see if they offer discounts through your employer. I receive 30% off any device or plan with my provider because of my employer.
- Entertainment – Spotify, Netflix, video games, and other digital media consumption. Also includes weekend trips to the bars, sporting events, dates. Just because you have a budget doesn’t mean that you don’t get to enjoy your life.
- Other – Do you make donations to your church or give to charitable organizations in your community? Do you have a homeowner’s association that you pay fees for? Is it a holiday/birthday month that you’ll be buying a gift for somebody? Is it time to change the oil in your vehicle or get the house painted? The more planning you can do prior to going into a month, the less like a surprise will catch you off guard.
If a field doesn’t fit your budget or you need to add something else, simply change it. You can print this out once a month and already be done with the hard part. When you’re done entering in your expenses, add them up and put the sum in the ‘Total’ field. Finally, take your income total and subtract the expenses total to see the difference for your month. This difference is where you can really boost your Savings / Retirement for the next month.
In future articles, we’ll show more ways to track your finances, but if you haven’t started… this is a great place to get the ball rolling.