When you create a personal or household budget it is the starting point to effective money management and laying a solid financial foundation. Follow the steps to create a worksheet with columns that give you an accurate look into all aspects of your resources and the demands on them. The resulting document empowers you to discover what you have, how much you need to make, how well you’ve been managing so far, and how to adjust so that you stay ahead with your financial goals.
Start Here
- Gather up your most current statements, invoices, or receipts for both fixed and variable monthly expenses. In other words, be ready to put real numbers onto a budget worksheet in the next step. If you know about a recurring or upcoming expense but don't have a statement for it, just make note of the amount and when it will be paid out.
- Gather up income docs. Recent pay stubs, W-2s, 1099s, Social Security or other government benefits, rental income, gigs - anything that provides details about money coming in, even if it is not regular or predictable.
- If you don't already have one, download a personal budget worksheet or spreadsheet template to start plotting your numbers. Choose a template that corresponds to your needs. You'll be able to add or delete suggested line items and categories to make it your own. Essentially, you are making a ledger that accounts for every single dollar you bring in and spend. Doing so is the only way to get an accurate view of your spending habits and make future adjustments.
Income Details
Fixed and Potential Income
List out what your income is each month. Set columns in a grid that correspond to typical days of the month or week you receive income. One way to set this up is simply listing and adding up your total income.
Fixed Income - Your general income amounts might fluctuate, but the goal is first to get a handle on the least amount of money you can count on bringing in, adding this up in the first list or column. Possible, reliable sources of fixed income may include:
- Job wages or salary
- Grants or other reliable payments received (e.g., social security, public benefits)
- Court-ordered income such as child support or alimony.
- Investment payouts
- Interest income
Potential Income - Do not include money that comes unexpectedly or is not a sure thing in your base income. Create a separate column for income that might come in later.
- Side job or bonus income that fluctuates or may not happen
- Gifts, future inheritance, stimulus checks, scholarships
- Rebates, refunds
Expense Details
List out what your expenses are each month. Set columns that correspond to when you make payments. If you pay every quarter, determine the monthly portion to put aside. If payments vary from month to month (e.g., utilities), estimate the highest amount.
- Rent or mortgage payments
- Taxes, property or income-related
- Court-ordered payments such as child support or alimony.
- Monthly or utilities: phone, water, electricity, natural gas, HOA, insurance, internet, cable
- Personal: gasoline, commuting costs, groceries, auto maintenance, clothing, and other allowance, pet expenses, entertainment, gifts, and gym memberships
- Investment payments toward retirement
- Loans and credit card payments, other debt payments
- Emergency Fund: expenses that you might not expect but should put money aside for may include car repairs, auto violations, emergency travel, medical or veterinary needs. Many people set $1000 aside.
Let Your Spreadsheet Do the Math
Calculate Net Income and Make Adjustments
Subtract your expenses from your income. Your net income is what’s leftover. If you find that your income doesn’t adequately cover your costs, take a hard look at where you can reduce or eliminate spending. Paying off debt will increase future income-to-spend ratios, so choose to “live lean” for a time. Think of ways to make more income, even temporarily. Use the “potential income” column to pay off debt or add to the emergency fund. Use your excess net income to pay down debt until you can budget it for discretionary expenses like vacations.
It may seem like a daunting task, but creating a personal or household budget can give you peace of mind and firm control with an instant turnaround, even if previous spending habits have put you behind. Myrick CPA wants you to break away from anxiety and frustration with your finances into financial freedom. Have questions about putting your budget together or going that next step toward investing in your financial goals? Call or contact us online today to schedule a consultation.