If you missed out on part one of this “How to Budget” miniseries, please click here so you’re all caught up. In part one, we learned how to build our balance sheet, which is basically a list of your liabilities, income/assets, and their difference aka your worth. In part two, we will get to the real nitty gritty of how to build a budget itself.
WARNING: This How to Budget post is a bit technical in nature. As you read along, be sure to keep referring to the graphic included. Columns are lettered across the top and rows are numbered along the side.
Step Three: Build the Budget
Let’s now take the time to compile your budget. First, we’re going to open a new sheet. At the bottom of your screen, right click on the tab that says “Sheet 1.” Click Rename. Type in “Balance Sheet.” Now click the “+” sign adjacent to this tab. You will now notice a new sheet automatically named “Sheet 2.” Like you did for the Balance Sheet, rename this “Budget.”
Budgeting over the course of an entire year is important. As mentioned in the first post of this series, some expenses are annual in nature (such as property taxes, car registrations, oil changes, etc.) and need to be mapped out on an annual budget. However, most fixed expenses are monthly. For this reason, we’ll look at a budget on a monthly basis and ensure we’re all planning properly. Let’s be real, without proper planning, most of us would spend all of our money for the month by the end of the first week. This is why we will be looking at our expenses week by week. Let’s start by setting up the following: In Column A put the Year, Column B will be the Month, and Column C will be the first day of the budgeted week.
In Column D, we’ll put the balance of your checking account. You will forecast this forward by taking the balance from the week prior and adding whatever money you made and deposited and subtracting whatever money you spent. Column E will be your paychecks and other income sources. Be sure to include these as negative numbers to differentiate from expenses. Columns F (through however many you need) will be your annual/monthly/weekly payments/expenses. This is when you will begin populating your chart. Don’t forget to include setting money aside for savings and tithing (what you give to a charity or church). Most likely you will notice a trend. You spend WAY more than you take in.
You will notice in my example, I pay my phone bill on the first of every month. This is a once a month expense that happens during the first week. I have three separate utility bills: internet, gas, and electricity. On average, my electricity costs $75 a month, my gas costs $7.50 a month, and my internet bill is $34.99 each month. These are typically all due in the third week of the month. However, you will notice they are spread out over three weeks. I do this on purpose. I pay the bills early little by little so that each week I spend roughly the same amount. Budgeting properly requires this strategic planning as to not have a massive amount of money sitting in your account one week and zero dollars the week after. It’s good to always have roughly the same amount. This will provide stability in your finances, giving you peace of mind.
Keep referencing the screenshot above. You will see I color coded the months to allow me to clearly see what each month looks like. You will also notice my formula in Column D. The formula will subtract your weekly expenses, add any weekly income and put this in Column D of the next row. This is your new balance. If you keep drawing this out over the next twelve months, you’ll start to notice trends. When does your account go negative? Is it next week? Next month? Whenever it is, you better figure something out before then because that’s the day you run out of money and can’t even afford basic necessities.
Step Four: 10-Minute Slim Down
Now look over your columns and find out where you spend too much money. If your average monthly spending over the last twelve months includes $350 in monthly fast food, you need to cut this out. No one can tell you what the perfect number for each of these is, but there are several posts on this site and others that will help guide you through this. You need to cut out anything that you don’t NEED. If you have two weeks before you run out of money, it’s time to cut the Hulu and Netflix subscriptions today. If you really run out of money, the subscriptions will turn off in two weeks anyways, so you may as well do it today. And perhaps get to keep your car for an extra week.
Step Five: Figure Out How to Bring in More CASH
Glance over 12 Easy Ways to Make More Money Now to help you. You should also read How to Add Income Streams That Actually Make You Rich. Here you’ll learn how to create immediate money to make up for the deficit in your budget NOW. Also, it will teach you how to create medium-term money that will help you in the long run make up the deficit permanently week after week. The hope is that you’ll be able to set some money aside and make long-term money passively in the future. This will really up your net worth.
Step Six: Debt Down
Once your budget doesn’t have a negative number in it, you’ll start having more money at the end of the month (whoa! savings?). At this point, you’ll be able to focus on paying off debt. There are many schools of thought here from paying off the highest interest first to the lowest balance first and everything in between. Stay tuned for new posts about debt services and pay down. For now, let’s focus on balancing your budget.
Step Seven: Grow Assets and Beyond
With debt at a controllable level, a budget balanced, and savings growing, it’s time to invest. Invest in yourself with a new business and invest in the economy through long-term money makers like real estate, bonds, retirement, etc.
Hopefully your head isn’t spinning all too much. If you need to re-read the steps above, do so as many times as it takes so that it makes sense for YOU and YOUR budget. Stay focused, keep your head up, and figure out how to make it happen. Following these steps won’t be easy, but you’ll thank me in the end!