Budget - How To
This is the simplest budget, that is still effective, that I could possibly create. There are only 7 categories. Please Click on the Link to a Google Spreadsheet budget that you can use throughout your life.
https://docs.google.com/spreadsheets/d/1ljL4bkNgf2fE5Z3G1HL-sif1SoZSxvo_vcRbfRhNauw/edit?usp=sharing
Download this into your own Drive account so you can change it.
So long as you have a Google account you will have access to this budget from any web-enabled device. I have tips on using the budget both typed in the budget itself and below in the section: How do I get the most out of my budget?
In short, look at this budget before you spend any money!!!
Step 1: You need to know how all of your money has been spent and earned (net income = paycheck) during a one-month period. This can be as easy as pulling a statement report from your bank (if all your spending is auto-drafts and debit card purchases). Or you may need to keep receipts from all your purchases for one month.
Do NOT wait for the PERFECT month (one without unexpected bills). There is no such thing (although I might avoid December). Every month has some type of unforeseen cost. From this point forward you will be using SAVED money to cover these types of expenses.
Step 2: Categorize all of your expenses into one of these seven categories.
Housing
Transportation
Food/Misc.
Insurance
Charity
Savings
Retirement
Any unexpected (one-time) costs that cannot be easily added to the above categories could be ignored for the time being. With the thought that you will be using saved money to cover these expenses in the future.
Step 3: Using the Google "Editable Monthly Budget" type your amounts into the yellow boxes corresponding with each category. Where possible, type the expenses by date. You do not need to type in the month as the budget will be reused each month.
Additional lines have been provided for Income and additional, voluntary, contributions. Simply ignore (do NOT delete) any unused rows.
The budget is designed to grow with you and provide opportunities for additional forms of income (spouse, second-job, working-kids, annuities, derivatives, dividends, etc.) twice a month.
Understanding the Charts:
The charts provide a visual tool to help you manage your expenses. They are based on percentages of your net income and time honored methods of growing wealth.
Spending Plan:
This chart shows how much of your income is spent on each of the seven categories. The ideal percentages should be:
Housing - 30% or less
Transportation - 15% or less
Food/Misc. - 10% or less
Insurance - 5% or less
Charity - 10% or more
Savings - 20% or more
Retirement - 10% or more
60/20/10/10 Rule:
This chart show a broader perspective on your spending as the top four categories total 60% of your spending with 20% going to savings and 10% each going to Charitable Contributions and Investing/Retirement.
Using the Information:
Now that you can see how your money is being spent, your next task, over the next few months, is to work towards lowering any of the top four categories that are over the limits and increase any of the bottom three that are under the limits.
Once you have a balanced budget with ample savings and limited expenses you can start saving money for vacations, electronics, emergencies, or whatever you would like to buy that has not been budgeted for.
How do I get the most out of my budget?
Notice how the budget has a date column. If you put your expenses into the budget according to the date it's payed the budget will provide you with a YES/NO "button" of sorts.
Look at the budget for today's date, then compare the balance to what's in your bank account. If the bank accounts "available balance" is larger than the number listed on the budget then you can make an additional purchase. If the number is the same (or help us, lower) then you cannot make any more additional purchases.
Is there money left in the account at the end of the month? Transfer that money into your savings account and congratulations, I'm proud of you!
You are now ready to start a new month of income, expenses, and additional savings.
Conclusions:
You will need to maintain the budget from time to time throughout the year. If you receive a raise in pay or pay off a debt (or take on additional obligations) you will need to change the numbers in the budget. The charts will automatically update so you can see your progress towards building wealth.
Thoughts about using an app? At issue is the risk of identity theft and/or fraudulent behavior by the app developer. Most apps use third party companies to access your financial data. These companies will need your username/passwords in order to connect the app to your depository institutions. By keeping your checking account information separate from your budget you eliminate one more possible vulnerability to your security.
Resources:
Lecture Guide
PowerPoint: Budgeting Math Simulation
Teachers Pay Teachers Files