Budget Travis Borden Budget Travis Borden

5 Steps to Financial Freedom

Everyone needs a monthly budget. Take control of your financial life.

Build a monthly budget to take control of your finances, save to make a big purchase, or plan for a dream vacation.   

Benefits of a Monthly Budget

  • Increase your financial I.Q.

  • Identify opportunities to save money 

  • Pursue your financial dreams

  • Establish targets for savings 

  • Track your performance against your plan

  • Make adjustments to stay on track

  • Achieve financial freedom

There are numerous apps you can use to track your spending and organize your bank and investment accounts. But none of them are as effective as an old fashioned budget spreadsheet.  Follow the steps below to build an effective spreadsheet, or start from this free Monthly Budget template.

Getting Started

Gather your W-2s, bank statements, credit card statements, mortgage statements, and investment account statements, and tax returns from the prior year. Most financial statements can be downloaded in csv format and you can load them directly into a budget spreadsheet to help expedite the process.

Step 1: Project Your Income

Project your monthly income.  Consider all the potential sources of income over the course of the year, including:

  • Salary/Wages including annual bonus (after taxes and other deductions)

  • Interest Income (bank savings, CD, bonds, etc.)

  • Dividend Income (equities)

  • Gifts (birthday, holiday, etc.) 

  • Other Income (e.g., rental income, child support, freelance work, etc.)

Step 2: Project Your Expenses

Organize your monthly expenses into categories to get a clear picture of where your money is being spent. Consider all categories of expenses, including:

Housing Expenses

  • Rent or Mortgage

  • Home / Rental Insurance

  • Phone

  • Utilities (electricity, water, gas)

  • Cable and Internet

  • Home Services (lawn care, HVAC maintenance, etc.)

  • Property Taxes (if applicable)

  • Home Repairs / Improvements


Living Expenses

  • Groceries

  • Household Supplies

  • Clothing / Retail

  • Gifts

  • Travel

  • Child Care

  • Charities / Donations

  • Miscellaneous


Entertainment Expenses

  • Dining Out

  • Streaming Services or Subscriptions

  • Hobbies

  • Travel and Vacations


Transportation Expenses

  • Car Payments

  • Fuel

  • Maintenance and Repairs

  • Car Wash / Cleaning 

  • Insurance

  • Public Transit Fees

Health Expenses

  • Health Insurance Premiums

  • Prescription Medications

  • Doctor Visits and Copays

  • Fitness Memberships or Wellness Programs

  • Life Insurance

  • Other Health / Wellness Expenses

Taxes (if applicable)

  • Self-employment / 1099 Taxes

  • Property taxes

  • Interest and Dividend taxes

  • Capital gains taxes

  • Estimated quarterly taxes

Pet Expenses (if applicable)

  • Food and Treats

  • Veterinary Bills

  • Grooming

  • Pet Insurance

  • Supplies (toys, bedding, etc.)

Savings 

  • Bank Savings / Emergency Fund (establish a target of months of living expenses)

  • College Savings 

  • Retirement Savings 

  • Other Short- or Long-Term Goals (vacations, home down payment, etc.)

Step 3: Calculate Net Income and Savings

Calculate your monthly income and subtract your monthly expenses to estimate your net income. The net income is the amount of cash you can expect to generate each month before savings or investments. Subtract target savings and investments to determine any excess cash each month. 

Step 4: Review Inputs and Compare to Prior Years

Review your monthly and full year income and expenses to make sure that the outputs are accurate. A good way to check is to compare the full year net income to prior years net income.  If the net income forecast is significantly different from prior years, consider whether your income changed, or your spending habits have changed. If not consider whether you have you missed some key income or expenses.

Step 5: Track and Adjust

Track your actual monthly income and spending and compare it to the monthly budget to identify areas for improvement or adjustment.

Conclusion

Life is unpredictable, so build in some flexibility for unexpected expenses or lost income. A buffer will enable you to manage emergencies or special occasions. Some experts argue for several months of expenses in a savings account for contingency purposes. Build a plan that works for you.

By following these steps, you’ll develop a monthly personal financial budget that empowers you to make informed financial decisions and work toward your goals. Good luck on your journey to financial freedom!


If you find this information useful, consider making a contribution to support SpreadSheetLove.org by clicking here: https://www.spreadsheetlove.org/contribute



Read More