Whether you’re looking to create a personal budget spreadsheet or just get a better grasp on money management, start with these six steps.
Whether or not you use a budget spreadsheet, you probably need some way of determining where your money is going each month. Creating a budget with a template can help you feel more in control of your finances and let you save money for your goals. The trick is to figure out a way to track your finances that works for you. The following steps can help you create a budget.
Step 1: Note your net income
The first step in creating a budget is to identify the amount of money you have coming in. Keep in mind, however, that it’s easy to overestimate what you can afford if you think of your total salary as what you have to spend. Remember to subtract your deductions for Social Security, taxes, 401(k) and flexible spending account allocations when creating a budget worksheet. Your final take-home pay is called net income, and that is the number you should use when creating a budget.
If you work freelance or part-time, we’ve put together some tips for managing irregular income.
Tip: If you have a hobby or a talent, you may be able to find a way to supplement your income. Having an extra source of income can also be helpful if you ever lose your job.
Step 2: Track your spending
It’s helpful to keep track of and categorize your spending so you know where you can make adjustments. Doing so will help you identify what you are spending the most money on and where it might be easiest to cut back.
Begin by listing all your fixed expenses. These are regular monthly bills such as rent or mortgage, utilities or car payments. It’s unlikely you’ll be able to cut back on these, but knowing how much of your monthly income they take up can be helpful.
Next list all your variable expenses—those that may change from month to month such as groceries, gas and entertainment. This is an area where you might find opportunities to cut back. Credit card and bank statements are a good place to start since they often itemize or categorize your monthly expenditures.
Tip: Record your daily spending with anything that’s handy—a pen and paper, an app or your smartphone.
