Creating a personal budget is one of the easiest things to do and yet the most empowering. It is easy because you have most of the information you need stored in your brain. It is empowering because the information will help you take control of your finances. It’s really just a matter of gaining visibility of your monthly expenditures and then establishing a personal budget or goal to limit your spending and increase your income and savings.
There’s nothing complicated about it. But for many, including myself a few times, it does require a bit of courage. Some people are afraid of what the numbers might reveal. The truth is that once you face the financial monster, you’ll find that most of your fears were self-created and unjustified.
Until you create a plan to achieve prosperity, it’s like trying to build your dream home without architectural drawings showing what it will look like when you’re done! You won’t know where to begin or what steps to take to build it.
Personal Budget Spreadsheet
To streamline this activity, download (below) the personal budget spreadsheet I created for this article. This Microsoft Excel spreadsheet is a vastly improved version of one that I’ve been using for years. My goal in its design was simplicity, so it may not strictly follow accounting principles. The download includes a template and an example.
Template & Example Download
Get a copy here: Personal Budget Spreadsheet
Instructions & Inspiration
1. List Your Recurring Expenses
Enter all of your recurring expenses by month in the first section. Recurring expenses are those that have no foreseeable end.
Recurring expenses usually include rent or mortgage payments, home utilities, food, prescriptions, telephone, television, Internet, transportation (train, bus, taxi), vehicle fuel, insurance(s) (medical, dental, vision, life, & vehicle), memberships, and entertainment. In addition, include periodic and annual expenses such as car maintenance, vehicle registration, vision care, and subscription renewals, and place each in the month it is due.
Try to be as accurate as possible. If you can’t remember how much a bill is, look at your last statement, check, online bill pay record, or call the bank, company, or service provider.
If the item varies monthly, such as utilities or phone service, calculate the average. You can do this by adding the amounts of each monthly bill, then dividing by the total number of statements you collected. The result is the average. For example: Jan $88 + Feb $79 + March $96 + April $77 = $340 / 4 = $85 (average).
2. List Your Debts and Nonrecurring Expenses
Enter all of your debts and nonrecurring expenses in the second section. Debts and nonrecurring expenses are those that will end in the near future (hopefully!) and those that are one-time events.
Your debts might include things like a vehicle loan, a credit card balance, or a computer purchase. Your nonrecurring expenses might consist of new car tires or cosmetic dental work.
No personal budget would be accurate without an accounting of all your debts. So be sure to list everything, including personal loans.
Completing this section can be tough, but you’ve got to do it. You’ve got to face the debt monster! Once you do, the monster usually doesn’t look so scary.
On several occasions, I’ve been very concerned about updating my personal budget spreadsheet, fearing what it would reveal. It has never been as bad as I had imagined. In fact, my financial situation was usually much better than I had hoped.
3. List Your Income Sources
Enter your income sources in the third section. This may be a short list, but it’s important to account for everything.
Include income from your job, business, rentals, interest from savings or investments, and other sources.
Hopefully, when you add it all together, you’ll be encouraged. If not, you might be more inspired than ever to do something about it once you complete and study your personal budget.
4. List Your Liquid Assets
Enter your liquid assets in the fourth section. Liquid assets are assets that can be converted into cash quickly, such as checking, savings, and money market accounts.
One of the main objectives of this section is to identify resources that might be used to pay off high-interest debts, such as credit cards, finance a new online business, or create an emergency fund for employment gaps.
5. List Your Non-Liquid Assets
Enter your non-liquid assets in the fifth section. Non-liquid assets are things that cannot be readily converted into cash without a significant loss of principal, such as a house, a condominium, a vehicle, or a 401(k)/IRA.
Since a home purchase is a long-term investment, and its equity can fluctuate, this item should be estimated conservatively for its potential value if sold or used to secure a loan. Using this asset to take out a loan should only be done in a dire emergency. Loans of this kind, used for any other reason than an emergency, can get you into trouble in the long run.
6. Review and Evaluate the Results
The next step is to study the results. You might do this by analyzing the totals and percentages in the spreadsheet, or by pulling the totals and arranging them on a separate piece of paper.
You’re looking for…
- High expense items.
- High expense months.
- High cost items.
- High percentage of total items.
- Patterns and trends.
Your objectives here are to find out exactly how your money is being spent each month, what changes you can make to cut expenses, and ways to increase your income and savings.
7. Create a Personal Budget by Trimming and Pruning
This is where you create your personal budget. Everything you’ve done up to this point is in preparation for this most crucial step – trimming and pruning your budget.
It’s actually quite fun to do this because as you play with the numbers, your financial picture improves before your eyes! And the more you play with it, the better it can get.
You can cut some expenses right away, like food, entertainment, and vehicle fuel. Other costs, such as medical insurance, television, internet, and phone service, will require research and, if necessary, switching providers.
Look at each expense and debt listed on the spreadsheet and consider how you might reduce them. This may require that you go through this activity several times before you get the numbers where you want them.
Come up with ways to pay off your debts quicker by increasing the monthly payment or other means. In the case of high-interest incurring credit card debt, think about ways to pay them off as soon as possible, even if it means using some of your savings. You throw money away on the interest you pay on credit card debt. The net result is that you end up paying much more for the product or service than you did initially. What a waste!
In addition, include the amounts that you want to increase your income and savings. Enter your income goals in the “Notes” section to the far right. Enter your savings objectives in the “Goal” column in the liquid assets section.
This activity is what creating a personal budget is all about. Your objective is to give yourself monthly and annual expense, savings, and income goals. Include strategies on how you’re going to achieve your goals in the notes section.
8. Establish Some Inspiring Goals
Identify some exciting reasons for reducing your expenses and increasing your income and savings. Perhaps you imagine yourself completely debt-free, having 30 percent more income and savings each year, and financially secure within 10 years!
Write out your goals this way. First, describe them in detail. Then, list the steps you’ll need to take to achieve them. Finally, pick a date by which you will accomplish them.
Set some big, audacious goals that will keep you excited and pull you outside your comfort zone. Since people usually get what they focus on, be sure to set goals that truly reflect what you want, not what’s safe or easy.
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To your financial success!