We all need a way to track our money. Whether or not you use an excel spreadsheet, you need a way to track your money.
There are several spreadsheets available at your fingertips. The Balance compiled the best spreadsheets here. Ultimately you need to find a way that works for you. Trust me, keeping all of your spending in your head won’t work.
Here are some steps that can help you create a budget.
Step 1: KNOW YOUR NET INCOME
The very first step to creating a budget is knowing how much money you bring in each week/bi-weekly. Take a look at your paycheck and note the net income: The beauty of your paycheck is that it includes your deductions (Social Security, Taxes, 401k, Flex spending, Health Insurance ect…). Your final take-home pay is your Net Income and that is the number you should use when you are creating your very first budget.
Step 2: WHAT ARE YOU SPENDING YOUR MONEY ON
Start by listing all of your fixed expenses. Your fixed expenses are your monthly bills like your rent/morgage, utilities, car expenses ect… Your fixed expenses are rarely things that you can cut back on since they are at a set monthly costs. Next, start jotting down the variable expenses – those are flexible each month and may vary month over month. Your variable expenses are your groceries, gas and perhaps entertainment (movies, dates, social activities). This area is highly flexible and you can find ways to cut back.
Step 3: WHAT ARE YOUR GOALS
You will need a goal. What do you hope to accomplish short-term and long-term? Short term goals can be achieved within a year and long-term goals may take more than a year. Saving for retirement for example is a long-term goal. Paying off your credit card is a short-term goal. Please note that your goals should have some wiggle room. Nothing is written in stone and your goals certainly should not be set in stone however you should identify your top priorities before you create a budget.
Step 4: MAKE A SOLID PLAN
You will need to use your variable and fixed monthly expenses to get a good sense of what you will be spending the coming months. Your past expenses and spending habits is a true guide of what month-over-month spent will look like.
Step 5: MAKE ADJUSTMENTS
Now that you’ve added all of your variable and fixed expenses into your spreadsheet, you can now have a clear idea of where you would like to see some cuts. Maybe you don’t really need that monthly subscription of Maxim or you realized that you don’t watch as much TV as you thought you would when you signed up for that big package.
Step 6: REVIEW WEEKLY OR MONTHLY
When you decided to create a budget, it was not for a one time use. You need to keep checking your spreadsheet on a regular basis to make sure that you have not derailed. Who knows, maybe some things have changed – more income is coming in or you spent less this month vs last. It is a crucial that you keep track of everything.
Tip: Download an app to make your life easier. Check out this Forbes article for the top apps on the market.