Tuesday, June 3, 2014

How to make your own simple budget - spreadsheet included

Fair warning - this is a beast of a post and may bore you to tears if you aren't interested in money. Feel free to just come back tomorrow for a post about cake.

There are a million ways to make a budget and most of them are described in detail somewhere on the internet. I'm not an expert, but I've had a few questions about how I developed my budget and recently I've helped a few family members with budgets and it finally motivated me to put this post together. If you're interesting in budgeting, or if you're just voyeuristic and love hearing about how other people handle their money (no shame here), read on.

budget cards
{budget cards}

Here's my disclosure - Money is individual. What works for one person may not work for another. What works for you in this stage of your life may not work for you later. Don't get discouraged. Just keep playing around with it until you find something that is working for you and then stick with it.

My needs are fairly simple.
- I want a breakdown of how much I can spend in various categories each month.
- I want to spend less than I earn and to put some money in savings.
- I don't want to have to track every single expense. I will never be the person entering all her receipts every day. So my budget needs to survive without too much maintenance and it needs to leave me a little wiggle room.

Here is a link to the spreadsheet I use for budgeting (I deleted my own numbers and notes because even though I'm pretty open about finances I apparently draw the line somewhere). You can download it and fill it in or you can create your own from scratch or do this on pen and paper. I prefer the automated spreadsheet because it makes it very easy to play around with reducing/increasing your amounts in various categories while you figure out your goals. You will need to download the spreadsheet from Google Drive to edit it. When you click on the link, take a look in the upper left corner of the screen and you should see a downward facing arrow icon. That will let you download the spreadsheet to your own computer.

Filling in the spreadsheet:

Figure out what you bring in each month, after taxes. Enter that in the income cell. This is what is actually deposited in our bank accounts, which doesn't include, for example - our health insurance premiums, union dues, my bus pass, anything that is taken out pre-tax.

Start filling in your expenses on the lines below. Delete and add lines as necessary. Feel free to move things between one category and another. I roughly follow the balanced money formula and I categorize our expenses into needs (red), wants (green) and savings (blue). But what you and I consider needs might be different. For example, I put our haircuts in the needs category but technically they are wants because we could just buy a Flowbee and do them at home if we really had to. I count our student loan payments as savings, which I know might seem odd, but my reasoning is that when we're done paying them off (please god, sometime in the next decade) that monthly amount will start flowing into a savings account instead.

My point is that the categories are personal and you shouldn't spend too much time agonizing over them. Recategorize as you like, add lines where you need them. You'll notice I don't have medical expenses included here and that's because I use an FSA account and have a certain amount of money deducted from my paycheck each month. In my system, if I don't see the money come into my bank account it doesn't exist. I don't want to have to think about any numbers I don't have to think about.

Filling in the categories might be difficult if you aren't completely sure what you spend every month. You have two options.

Option 1: You can go back through your credit card statements and track your spending in each category. For the best picture you should do several months, ideally a whole year to catch any seasonal variations in spending. Obviously this works best if you almost exclusively use credit cards.

Option 2: The second option is to just not worry too much about it and set the numbers as best you can. I recommend doing this if you find you're getting completely hung up on the data. An imperfect start is always preferable to indefinitely putting something off. When I started our first budget I didn't really know what we were spending so I entered goal numbers in each category. I later realized some of the goals were well below what we had been spending but (surprise!) we were able to meet the goals anyways. Sometimes a lack of information can be useful.

Take a look at where you stand. Do you have money left over each month? I aim for a $50 - $100 surplus.

Do you have savings? You'll notice that I use several savings accounts. I take full advantage of the CapitalOne* (formerly INGdirect, RIP orange lion!) savings accounts and set up new ones for anything I feel like saving for. I have a personal savings account, a joint long term savings account that we never touch (for big ticket items like a house (ha!), a car, etc), a joint short term savings account that we use for car repairs, vacations and pricey lamps, a Circe savings account that we use for any dog expenses, and a holidays savings account that we use for the sudden bump in expenses we see in November/December (that one is new this year and I think it's going to be really nice to have).

If you entered your exact expenses and now want to start adjusting for a new budget, make a copy of the entire sheet (it will show up as a second tab in the workbook) and rename it. Then start messing with the numbers. This is the good part. See what happens if you lower one expense and decide where you'd like the extra money to go. I spend some time each year recalibrating (which is more fun if you're doing it because of a raise vs. an annual rent increase). When we were contemplating our move, I set up multiple tabs with different rental amounts and it gave us a really concrete understanding of how our lifestyle would change based on the new rent at different levels. It convinced us that taking a less expensive apartment would absolutely be worth it.

When figuring out your budget, make sure you keep a small cushion in there. As I mentioned, I like to have $50 - $100 left over each month. This insulates us if we go over on any of our regular categories in any given month.

Once you have a budget you're most of the way there! Don't drop the ball yet, though. Implementing the budget is a separate process.

Try to keep a full month's expenses in your checking account, untouched. Apparently this is a thing and it's called living on your last paycheck. I didn't realize it was a thing when we started it, I'm just miserly and terrified of ever paying overdraft fees so I keep a cushion in our account at all times. It's extremely helpful when one of you gets paper checks and isn't so great about getting to the bank to deposit them. Ahem.

Automate your savings. Hopefully there was enough left in your budget for savings. Set that up to automatically transfer over every month. I do mine at the beginning of the month but that's mostly a relic of the times when I was paid once monthly.

I also automate easy bills where I know the amount each month. This includes student loan payments, car insurance and all utilities. Sure, our gas and water vary by a few bucks each month but since we live in an apartment the fluctuations are pretty minimal.

I do not automate our credit card bills. We do all our spending on credit cards (points, protection, easy to track) and then pay them off each month. I know roughly what our bill on each of our two cards should be based on our budget. I worry that if I automated the bills it would be too easy to get lax about checking them regularly and I don't want to get caught off guard by credit card fraud. I do have an automated minimum payment set up to go through the day my bill is due. This way if I forget to pay a bill I don't get hit with fines. Yes, I really do hate fines. To date, I haven't forgotten a payment but I like knowing I have some back up.

Figure out a tracking system that works for you. I use the budget cards we designed, although I admit I long for an app that would do exactly the same thing. The critical thing for me is that I don't track all our spending. I don't worry about any of our recurring bills - those are budgeted for and I don't have to track them. The only categories we track are groceries, joint entertainment/eating out and joint household. We each track our personal spending to make sure we're staying within our allowances.

I let everything else go. I don't track haircuts, gas, cell phone bills, laundry, etc. If it's built into the budget as a line item, I have the money for it. This helps a lot if you tend to be lazy. Or cheap. I would avoid going for haircuts because it just seemed so expensive. But I feel better about myself if I get my hair cut. If the haircut is built into my budget, I know I have the money and I will go and not feel guilty. If there is something you know you should do for yourself but you find yourself not doing it, build it into your budget. Therapy? Biweekly massage? Manicure? Put it in your budget (decrease your allowance accordingly) and you'll be more likely to do it. It's a total mental thing because it's all just a big pool of money, but I find the line item really helpful in that respect.

There are tons of great budgeting tools out there and I won't claim to be the authority but this simple system has worked really well for me and been helpful when I've talked people through some budgeting issues. If it helps anyone reading, I'll be thrilled. If you have questions, or if you would just like to make fun of me for being such a nerd, leave it all in the comments and I'll get back to you. I can talk about money ALL DAY LONG, guys.


*If you're interested in opening up a CapitalOne account and don't have one already, I have a referral link right here that should give you a small bonus when you open an account with a deposit of at least $250. This isn't a special blog-gy thing (do I need to officially state that CapitalOne doesn't even know I exist? They don't), just a standard customer offer. I haven't used this in forever, but it looks like we each get $20. But of course, you don't need a referral. You can just go directly to the website and sign yourself up. I find having separate savings accounts hugely helpful and as far as I can tell, they have the easiest system and they make it simple to share accounts with your partner.

Related posts:
How we combined our finances after we got married
Setting up a budget strategy that works for us
Reflections on a full year with our new budget strategy

26 comments:

  1. Have you read The Millionaire Next Door? I think you'd love it. It's considered a classic by most interested in personal finance and doesn't require knowledge that's too complex. The basic thesis is - if you budget, save, and live within your means (aware of hyper-consumption), you can most likely receive "millionaire status" and complete financial independence. It's a fun/interesting read for those of us who like financial planning.

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    1. I haven't, although I've heard of it! I read Smart Couples Finish Rich years ago, right after I graduated from college and it was what got me to open my IRA so early (really grateful for that). At some point I discovered finance blogs and stopped seeking out books. But I should probably check out a few more! Always more to learn.

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  2. I love knowing how other people budget! I share our full budget, income, etc. on my blog: http://www.risingshining.com/finances.html. I like the cards you use to keep track of spending, I might have to give that a try. Lately we have been enjoying the Mr. Money Mustache blog, I really like that he challenges the typical consumer mindset, we've been encouraged to look for ways to buy less and save more.

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    1. So impressed! I was waffling back and forth on sharing everything because I love seeing how other people handle their individual budgets. I've checked out Mr. Money Mustache but haven't gotten in too deep (not been keeping up with ANY blog reading lately, which is sad). Hopping over to check out your post!

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    2. It can be scary to put a full budget out there, I think because we can feel so defined by our salaries and how we spend. So far I have received only very positive, encouraging comments but I do always worry before publishing a new finance post that someone will either think "wow, I can't believe you only make that much." or "Wow, I can't believe you are so wasteful or spend so much on X." But in a way, sharing the numbers somehow makes it feel like they define me less if that makes sense. Anyway, it's been a positive experience for me but I just love that you share so much about your budgeting method, I think that's great!

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    3. Kelsey -- I checked out your post and really appreciate the transparency! And Rachel, your budget posts are always so great. I'm trying to stick to a budget and these posts are really encouraging.

      --L

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  3. I love Capital One (RIP ING!) and also make separate savings accounts for specific things (right now I have one for travel and one for a new computer, in addition to savings/checking/IRA). It's the best. If you couldn't tell, I too could talk about this kind of thing all day long!

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    1. Aren't the separate savings accounts the best? I love knowing how we much we have in any given area. When it was one big savings pot we were constantly pulling out of it and then not being sure if it was fair or not. I like having the untouchable long term savings because I don't feel guilty when I pull out of our shorter term accounts that have dedicated purposes. I know I'm not sabotaging myself!

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  4. I love the idea of separate savings accounts! Our finances are a wreck right now and it's driving me crazy. The good thing is that we don't have debt (other than our mortgage) but we also don't have much in savings or retirement. That has to change soon!! So thank you for this great post. I'm terrible about sticking to a monthly budget, and always try to save money at the end of the month...when I've already spent it all! Duh.

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    1. The separate savings accounts are so helpful! I love knowing how much I have to spend in each category and it makes it easier to never touch our long term savings (which makes it easier not to feel guilty about spending our short term savings).

      And trust me, we were in the same boat a couple years ago. We weren't living beyond our means but we weren't really saving either and I was just avoiding looking at it because it felt overwhelming. Knowing exactly where you stand is so much less stressful.

      There are so many additional financial concepts that I haven't really touched on here (emergency savings, retirement, etc) but I swear, just getting a functional budget set up will make you feel a million times more in control.

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  5. I like using Mint.com for approximating how much I do spend each month, and in what category. It works particularly well if you don't use a lot of cash. If you do, then it's...not the greatest.

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    1. I hear great things about Mint! Initially we didn't use it because we didn't have combined finances. Now we have combined finances but since the budget cards are working for us we just stick with them. I always keep Mint in mind in case the cards start feeling less manageable for us.

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  6. This is my DREAM post! I found your blog about a month ago and have been binge-reading the archives. After trying tons of tracking methods, my partner and I tried your allowance budget cards last month - and they were just what we needed. Genius!

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    1. Oh, so glad they're useful to you! They're the only thing that has worked for us so far.

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  7. Awesome and helpful post. One thing that my husband and I do that I've found to be SUPER helpful: we each have our own checking accounts that we use for debit purchases only. Each time we get paid we transfer $$ into there and use that throughout the month for spending. (A while back I sat down and figured out a realistic spending goal based on our lifestyles and built those into our family budget. We adjust monthly spending allocations as needed based on things that might come up along the way... i.e. Record Store Day.) Having these separate debit-only accounts ensures that we don't worry about over-drafting on our pays-the-bills checking account. It also makes it pretty easy to look back and track the things we're actually spending $$ on. We belong to a credit union, which doesn't have minimum limits on the amounts we have in these accounts - so we can get the balance down to near $0 without being charged monthly fees.

    Budget nerds unite!

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    1. We do almost the same thing! We deposit our paychecks into and pay all our bills from a joint checking account that has a nice emergency cushion just in case. Then we each have individual checking accounts and that's where our allowances go each month. The only difference is that we each use our personal credit cards for personal purchases and then pay them off each month from our individual accounts (one more bill for each of us to deal with but we both like the cash back!). We don't adjust our monthly amounts but we do let it rollover, so we can save up for bigger purchases if we want.

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  8. Wow, I really needed this post... thanks for all the information :)

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  9. This is fantastic. I can't wait to sit down and compare notes with my current budgeting system (or lack thereof).

    I use SmartyPig for little "piggy bank" savings for vacations, plane tickets, etc. The 1%APY interest doesn't hurt either!

    Barclays is also my preferred location for large savings. Also has a 1% APY interest. :)

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    1. Love those little savings accounts! Makes goals so much more real.

      Pretty sure I'm not getting 1% interest at this point but I'm too lazy to switch accounts around. : (

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  10. re your app comment...a year ago my fiance's coworker wanted to work on developing a budget tracking app together, and i sent them your blog with the card system for inspiration! but like most of his app ideas, it fell by the wayside. it's hard to make your own apps on top of a regular software development job...

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    1. I have seriously considered talking to someone about creating an app, but it's so simple that I'm not sure how much utility it would have for other people! I don't want it to link to bank accounts or anything, so it's basically a shared calculator.

      I can only imagine trying to moonlight as a developer when it's also your day job - exhausting!

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  11. Amazing post, Rachel, and thank you for the file!

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  12. My husband and I bought and renovated a townhouse last year. We have been trying to get ourselves back on track financially ever since. We started using You Need a Budget (YNAB) this year, and it has really helped us. It is a bit annoying having to in put every transaction, but it is also great knowing exactly how much you have in every account/category. The phone app is great.

    Thanks for the insight into your budgeting system!

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  13. Oh thank you for sharing your awesome and neat system for budgeting. I will surely use this. I have been struggling with my own (similar) sheet but your suggestions of separate savings and allowance accts. make a whole lot of sense. Plus how you cut down everything by percentages. Do try and go ahead with that app idea ;)

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  14. I love budgets! Thanks for sharing. I don't see where to download the spending cards. Help!

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