How much money do you need to make each month to survive?
If you don’t know the answer to that question, I’m here to help.
If you feel overwhelmed by your finances and would rather eat dirt than look at your bank account, I want you to know that your money doesn’t have to be as scary as you’ve made it out to be.
Here’s the deal. Knowledge is power.
Not knowing where your money is coming from and going to is stressful.
But by facing your finances through analyzing your spending and creating a budget, you’ll be able to gain control over money and fight off any fears. This will ultimately set you up for financial success which can help you reach your goals and give you confidence to chase after your dreams full force.
WOWZA. Look at what a little ol’ budget can do.
You in? Great.
So where do you begin?
If you’re serious about getting serious with your finances, I’m going to walk you through a step-by-step tutorial below, full of spreadsheets and lots of numbers.
Don’t worry, I’ll be right there with you the whole time.
So here we go.
Before you can even figure out how much money you should be budgeting, you need to figure out your current spending habits. Start with last month.
Pull up last month’s bank & credit card accounts (yes, even that Nordstrom card you swore you were only going to use once to get that extra 20% off).
Now we’re going to figure out where your money has been going.
Choose your tracking method.
We are going to plug all the numbers you see into a spreadsheet. This method may seem old school, but for me it has been the most tried and true.
I personally use the “Monthly budget” template already created in Google Drive and love it! So that’s what I’m going to use to show you how to create a budget.
Let’s get started.
Open this Google Spreadsheet template. Make a copy so you can edit it (File>Make a copy), then title it “(Month Year) Budget”, updating with last month’s name and the year.
Choose your expenses categories.
On the Summary tab of your spreadsheet, edit the categories under Expenses to reflect your personal spending habits.
For example, I don’t have any pets, so I would change the “Pets” category to “Business”.
I highly recommend keeping these categories broad as you begin and narrowing them later on. For instance, if you find yourself buying coffee a lot, you may want to add a separate “Coffee” category instead of including it with “Eating Out”.
Choose your income categories.
Still on the Summary tab, edit the categories under Income to reflect your personal income situation.
Input your transactions.
Now it’s time for the fun part.
With all of your online bank accounts open, go to the “Transactions” tab of your spreadsheet. Start inputting every single transaction for the past month.
For everything you spent, put it under the the Expenses table.
For everything you earned, put it under the Income table.
In each table, type in the transaction date, amount of transaction, a short description, and choose the category that it best fits. If you’re not sure, just select “Other”.
For example, your credit card statement shows that you spent $4.56 at Starbucks on September 5th. So in the Expenses table, type 9/5/2017 under Date. Next put in $4.56 under the Amount column. Then under the Description column, simply type “Starbucks”. Lastly, under the Category column, select “Home” from the dropdown menu. These categories should auto-populate from the categories on your Summary tab.
Analyze your numbers.
Now that all of your transactions for last month have been added to your spreadsheet, click back over to the Summary tab.
Does anything surprise?
Did you expect to see that high of a number under groceries? Did you take way more cabs than you realized last month?
You’re ready to create a budget.
This is where you get to work. Based on your numbers, you can start creating a budget.
Create a new copy of your current spreadsheet (File>Make a copy), then change the month and year of that spreadsheet to next month.
Enter your income.
On the Summary tab of your spreadsheet, start entering your estimated income under the Planned column in the Income table.
If you have a salaried position, this part will be easy for you. Just enter the date your paycheck is usually deposited along with the amount.
If your income varies each month, this may be a bit harder to estimate, but do your best based off of last month’s numbers.
Enter your fixed expenses.
Still on the Summary tab, look over to the Expenses table.
To make this easier, start entering your fixed expenses under the Planned column.
Fixed expenses are those necessary spendings that don’t change from month to month – aka your bills.
This typically includes any debt, your home expenses (rent or mortgage), utilities (electricity, internet, phone, etc.), transportation, and health insurance (if it’s not already taken out of your paycheck). I also highly recommend treating your savings as a fixed expense.
FYI, food is often included under fixed expenses because it’s a necessity for living, however, because the amount you spend on food can be so varied, I categorize it differently.
The total amount of your fixed expenses is how much money you need to make each month to survive.
Figure out your remaining budget.
Now subtract your Planned Fixed Expenses from your Planned Income.
(Hopefully, you’ll get a positive number. If you don’t, this means you aren’t making enough money to pay your bills. If you fall into this category, this article may be helpful.)
The remaining number you get can be used for your variable expenses.
Variable expenses are those things that you don’t need to have to survive. Items like going to the movies, lattes, and those super cute new shoes all fall under variable expenses.
Based on the number you get after subtracting your Planned Fixed Expenses from your Planned Income, divide this balance among your Planned Variable Expenses. This is your budget.
For example, if your total Planned Income is $3,000 and your total Planned Fixed Expenses are $2,000, you have $1,000 left to play around with under Planned Variable Expenses.
Distribute your balance to variable expenses.
To decide how much to allot each variable expense category, look at last month’s expenses and see which categories you could be spending a bit more in and which categories you need to cut back in.
For example, if your grocery expenses were $350 dollars last month and you live alone, try setting your budget at $300 this month. If you easily stay within the $300, try lowering your budget even further next month and see if you can make it on $250.
Another example would be if you’re trying to pay off a large amount of debt, give your debt category a higher budget, and lower the budgets on all of your variable expenses.
This part can be tricky at first, but it’ll get easier with time.
Once you’ve finished allocating your budget, your Expenses should be equal to your Income (in other words, if you subtract your total Planned Expenses from your total Planned Income, they should equal 0).
Congratulations! You’ve just created your first budget.
Tips for beginner budgeters.
Be flexible. The first few months of budgeting won’t be perfect. You’ll likely overspend in some categories and underspend in others. But as you go, you’ll get a more accurate handle on your spending habits.
Make a money date with yourself. Each week, choose a day where you sit down and update your spreadsheet. This will keep you accountable and make it less overwhelming than doing it all at the end of the month.
Plan for big events. If you know you have a wedding coming up, create a separate category for it under your Expenses table and decide on a budget. This might mean you need to make your entertainment or eating out budget smaller that month, but planning how much you’re going to spend will help keep your spending in check.
Creating a budget is one of the most important things you can do to get control over your finances. I know you have big dreams, and if money is what’s holding you back from achieving those dreams, then you need to start budgeting ASAP.
You deserve to live the life you’ve dreamed of. Don’t let your financial fears stop you.
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