Creating a Budget the Easy Way

Making a budget for the first time feels a little ridiculous.  You know you manage to spend a lot of money each month, but how much is on groceries?  How do you estimate medical expenses or the amount you spend on gas?  The first step to budgeting confidently is to save receipts for a month and write down how much you spend and on what.  But you may ask yourself, was that month really ‘average?’

Before starting, remember that budgeting is for you.  It is for your security and peace of mind.  It needs to make sense to you and fit your lifestyle.  No one is going to come to your house to make sure you are keeping your books ‘correctly.’  For a private citizen keeping track of their own money, ‘correct’ is what works for you.

The following is a guide for how I built my budget in Microsoft Excel.  If you’re unfamiliar with Excel or need a little review, check out “How to Make Excel Functions Work for You.” (link)  It’s not that hard, I promise!

-          Bills.  First, deal with the bills you pay every month.  Some, like rent, will be accurate down to the penny each month.  Others will fluctuate depending on season.  List every bill you pay: rent or mortgage, car payment, other debts like school loans or credit card payments; electric, water, sewage, gas and other utilities; cell phones, cable, internet; car insurance, renter’s or home insurance, etc.  Be thorough.  Write down or estimate what you pay each month as well.

-          In Excel.  The first thing I do is label the top of the sheet in Excel with the name of the month.  Then, I write the name of the bill to be paid in the far left column; let’s say it’s Rent.  To the right of ‘Rent,’ I write my estimate for what I will spend (cell B3).  Now, leave a row blank (B4).  This is where you will enter the amount you actually spent.  Finally, enter this equation in cell B5: =B3-B4.  Now, this cell will tell you whether you’ve gone over or under your estimated expense.  Repeat this process for all your monthly bills.

-          Other expenses.  List your other expenses and estimates per month.  This category includes things like groceries, medical expenses, petrol, eating out and other entertainment.  If you have children, list expenses related to them, such as lunch money or allowances.  Don’t forget pets.  And be sure to include a Miscellaneous category for the things that don’t fit anywhere else.  The more specific you can be with your categories, though, the better you’ll be able to see where your dollars have gone.

-          In Excel.  This is the same basic scenario as for your bills, but you’re likely to have more than one receipt for groceries or gas; so you’re going to need more space to write down each expenditure.  Just as before, label your category (Groceries, for example), but this time type your estimated expense each month directly under your label (let’s say it’s cell A29).   To the right of your label make these headings over three columns: Date, Amount and Location.  When you have a grocery receipt, enter the date of purchase, amount and store you where you spent it.  Below your headings, leave as many spaces as you think you’ll need to enter your expenses.  Remember, it’s better to leave too many spaces than too few; to write your formula, you’ll select all the spaces under the amount heading (let’s say D28-D47).  At the bottom, enter your equation under the ‘Amount’ column: =A29-SUM(D28:D47).  Repeat this for all other expense categories.

-          Income.  Find a blank area and construct a similar formula as the one above to list your income from the month.  Label it at the top with ‘Income,’ and leave several blank spaces to fill in with pay or monetary gifts.  At the bottom, write your SUM equation to give you the total of your income.

-          Totaling Expenses.  Under your Income total, you have to add up your expenses.  To do this, write your SUM function and select all of your expenses.  This means you must select each range of cells and separate them with a comma.  For example: =SUM(C4,C8,C24,D29:D47,C12,C16,C20,D51:D57,J40:J59,J30:J36,J20:J26,J12:J16,J3:J8,D28)  Yes, I know.  I promised it would be easy, and it looks complicated.  But it really isn’t that hard, it will just take a moment or two.  Take your time and be sure that after you select a cell or range of cells, you enter a comma.  Don’t forget to close your parentheses at the end!

-          Income-Expenses.  Now all you have to do is write a formula to subtract expenses from income.  If your income total is in cell N11 and your expense total is in cell N12, your equation will look like this: =N11-N12

Congratulations, you’ve made a budget!  Each individual section tells you how you’re doing in that category.  So at the end of the month, you can look back and say, “Wow, I only spent $206 on groceries, which is way under budget, but I spent $94 on going out to eat.”  Your income-minus-expenses section tells you how you did overall.  For instance, if you’re in between jobs you may be within your budget in each category but still losing money each month.

Once you’ve made a single blank form with all your budget estimates and formulas, copy the sheet to create a budget for the year within a single Excel workbook.  Then, adjust it as needed.  You built it, so you can make it work for you. A budget can also help you save money as you begin to identify the places where you can improve your spending habits. If you own a business and use a tax accountant, they will definitely thank you for keeping all your receipts handy — another plus to creating a budget!

Creating a Budget is a guest post by Sabrina at Wallet Watcher, a frugal living personal finance blog. How did you make your first – or current budget? Share your thoughts on budgeting here… comment below!