Making a personal budget in excel is the first key step to taking control of your financial future.
Goals without a plan to attain them are just wishes. To convert wishes into goals, define them in a measurable way, and then track your progress towards attaining them.
This also counts for your financial goals.
The goal of a budget is to gain control over where your money is going. You can map your path to wealth by keeping track of your income and your expenses.
The key function that your budget performs is aiding you in achieving the first goal of financial wealth, namely to spend less than you earn.
The Golden Rule:
Spend less than you earn
To avoid going into overdraft on your account or falling into debt, you need to have a good grasp over your finances.
Moreover, to make your financial goals reality they need to be quantified and measurable. Creating a personal budget in excel is great for this.
Therefore, not only does a budget give you control over your finances, it is a key part of achieving your financial goals.
Follow these five simple steps and make your own personal budget in excel.
Step 1. Track Your Personal Income
Enter all sources of income that you have. The main component of this will most likely be your salary but you may also have other income from dividend payments, rental properties, or a side hustle.
I enter my gross salary first and then enter the amount that is automatically deducted from your salary by your employer.
Then I also estimate my tax bill for the year, erring on the conservative side, and divide this by 12. The total is then deducted from my salary.
Your gross salary minus these deductions forms your net salary.
Add a total in the cell at the bottom to calculate your total net (aftertax) income for the month.
This number is how much money you have at your disposal each month. Only once you know this, can you decide how to allocate it.
Step 2 Budget Your Necessary Expenses
Then budget your necessary expenses. I split these into two buckets. The first category comprises savings and debt payments. This is the ‘pay yourself’ first category, which is why it is at the top.
This is the most important category for me and the one I want to maximise the most.
Second is the needs category, which includes the ‘can’t live without items’. These might differ according to your situation.
Splitting your budget into sub categories, helps you differentiate between different priority levels of expenses. Moreover, it helps highlight the categoreis you want to focus on.
I love seeing the savings and debt category grow and I will try and minimise the other expenses so as to maximise this category.
Step 3 Budget Your Variable Expenses
Next are those expenses which finance your lifestyle. The allocation to these categoreis depend on your values, your financial situation, your goal, and what kind of lifestyle you want to lead.
For example if you are very frugal or live a minimalist lifestyle, this category might be very small.
However, if you love to travel or value charitable donations, you might have a larger budget here.
Key is to split up your variable spending on your ‘wants’ into individual line items.
To help you do this the first time you make your budget, it is useful to go back through old bank statements and credit card statements to examine what you spent money on. Then you can decide which line items to add and how much you want to spend on them in the future.
Step 4 Balance Your Budget in Excel
The final step in your excel budget is to add up all your expenses to find your total expense. Then subtract this from your total income.
The final balance must be zero or positive.
If the balance is negative, then you have two choices. Either you can increase your income or you need to decrease your expenses.
The former is hard to do, especially on short notice, unless you have forgotten to add a source of income.
Therefore, if the budget does not balance you need to go back over and make cuts in certain areas.
The goal is that the budget balances as closely as possible to zero. That way each franc in your budget as a job. This type of budgeting is also called zero based budgeting.
This way you know exactly where your money is going and can plan ahead.
Step 5 Track Your Planned Budget vs Your Actual Budget
Congrats! You have a personal excel budget!
The last step is to actually apply this budget. On your first payday after making your budget in excel, set up the automatic payments to your savings account, your investment account, and your debt repayments.
Then with your other expenses, refer to your budget to see how much you can spend.
For example, if you have a brunch invitation for Sunday, check your budget beforehand to see how much you can spend.
For the first few months of a new budget it is useful to track your actual spending versus your planned spending. This way you can see if your budget is realistic or not.
If you find that you are consistently under budget in one area, then consider adjusting your allocation. Don’t restrict yourself further than what you need to! You allocated a certain amount to your budget for a reason.
If you are consistently over budget in an area then also think about readjusting the amounts or renegotiating that expense, for example, your phone contract.
The budget must fit your lifestyle and your financial goals – not the other way around.
Use your budget as a map for your financial plans, make it part of your financial habits and you integrate it in your lifestyle.
I promise its worth it.
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Thank you, this is very useful.