Paying off your debt and becoming financially independent has many important parts. The most important of those is creating a budget. A budget gives you an outline of where your money is going and where it should go. In some instances, it can be used to create strict limits for your spending. How well you stick to the budget is up to you.
When you reach the end of your budget month, the balance for the month should be 0. Funds in – Funds out = 0. If you end up with a negative number, you’ve overspent and will need to adjust by reducing budgeted funds in another category or by reducing the total amount of money available for the next month. If you end up with a positive number, you’ve spent less than you made. Good for you! Now, put that money to good use. Pay down some debt, or put it into savings.
Here’s a very simple budget set up.
Keep a simple income spreadsheet. List all the sources by name in column A. List how much each brings in in column B. And then, any notes you have for the income (like if it is temporary) in column C. You don’t need to get very detailed with the income, because it only needs to be accounted for so that we can budget for it’s use.
And, the incomes use is in our expenses spreadsheet. This spreadsheet will be much more complex than the income one. You’ll need a field for income that you carry over from the income sheet. You’ll also need a field for a total expenses budgeted for. A third field will give us the budget surplus. We get that by subtracting the budgeted amounts from the income amount. A final field will subtract the actual amount spent from the income, and will serve to tell us where we stand in our budget. If you like, you can add another field that subtracts the actual amount spent from the amount budgeted.
Here’s where the expense sheet gets complex. All of your categories of spending go in column A. Get as detailed as you like, or keep it really simple and just put the basic categories. Generally, the more detail the better. it’s also helpful to have categories for your categories. A Utilities category for your power, gas, water, etc, categories. Again, detail is good, but be wary of going into too much detail. Column B is where you’ll put the amount that you’re budgeting for that category. Column C, how much you’ve spent on that category to date. If you like (or are a statistics junkie) you can add columns for % of budgeted amount, and % of total budget as well. For our simple budget, we’ll just leave that out for now.
You can go over your budget as often as you like. Some find it easier to enter amounts every day after they’ve settled in for the day. Others will choose to go over it monthly. Going over it weekly is likely where most will settle though.
Occasionally, we’ll have a surplus or deficit at the end of the month. Perhaps you’ve spent too much, or not spent all that you thought you would. Spending too much can be troublesome, but not spending as much as you thought can be a lot of fun. You may want to consider adding a budget field carryover in the income sheet and one called shortfall in the expenses sheet. If you spent too much, the amount that you overspent by becomes your budgeted amount for shortfall in your expenses sheet the next month. Didn’t spend enough, and you put that amount in the carryover field in the income sheet. This will help you keep track of all your money as well as account for any shortfalls.
With these ideas, you can create a very basic budgeting system. Tweak them around a little to fit your personal finance situation. Making and maintaining a simple budget is the first step in getting control of your financial life.