Reduce Debt Increase Wealth

Budget Spreadsheet

December 04, 2022 MIsterchuck Season 3 Episode 142
Reduce Debt Increase Wealth
Budget Spreadsheet
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Show Notes Transcript

How to create a budget using a spreadsheet made simple. This is the easiest way to create a budget using a spreadsheet, going to explain how this is done, giving easy to follow instructions. Will include setting up subtotals within each category and the reasons to do so. 

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Charles McDonald:

Hello, I'm your host, Mr. Chuck, I retired accountant turned truck driver, I reduce my debt in a relatively short period of time, debt reduction to achieve financial freedom takes commitment, confidence, determination budget spreadsheet, how to create a budget using a spreadsheet made simple. This is the easiest way to create a budget. Using a spreadsheet, I'm going to explain how this is done, given easy to follow instructions will include setting up subtotals within each category, and the reasons to do so. And my show notes, I have a link to an article, better money habits dot Bank of, saving, budgeting creating a budget. I'm not gonna use it entirely, but it's just a way to get started. And step one is calculating your net income, which is genuinely your net, take home pay the amount of money that is deposited into your checking account. Each payday, that goes for you. And if you're married or have a spouse goes for your spouse also, if you're self employed, such as a freelancer, contractor, or gig worker, whatever that income from that self employment work would be the amount of draw that you take. A draw is the amount of money that you put into your personal checking account. I'm assuming you're running a full time business or some type of business, you have a separate business checking account so you can deposit your money into and you pay all your business bills from it. But if you file a Schedule C or a partner in a partnership, and file partnership tax return, then the amount of your personal income would be the drawls you take either weekly, monthly or how often you take it. And step two is tracking your spending. We talked about that in the last episode, using an app to do so which makes creating your spreadsheet or your control center your budget much easier. Then you gotta set goals set realistic goals before you start shifting through the information you track. Make a list of your short term long term financial goals. Short Term Goals should take around one to three years to achieve and might include things like setting up an emergency fund, or paying down credit card debt. long term goal goals such as saving for retirement, child's education may take decades to reach. Remember, your goals don't have to be set in stone. But identifying them can help motivate you to stick to your budget. For example, it may be easier to cut spending, if you know you're saving for a vacation. Step four, make a plan. And that would be if you're trying to pay off debt, your debt reduction plan. If you're trying to save up money for our home, that would be a savings plan for their new home. Adjust your spending to stay on budget. So what that really means is look through what you're spending your money on and try to do with things that you don't need to be spending money on maybe and then at four or six them review your budget regularly. And that should be reviewed at least monthly. I would say every time you get paid because that is how we're going to be setting up our budget and up and updating the budget is gonna be based on how often you get paid. So let's get started with the way that I think you should create a budget. If you don't want to go through all the steps I created a budget that I will email to you if you request it. Send me a email request in the spreadsheet subject spreadsheet to reduce debt increase I've already sent it out to a few people. I don't know if they're using it or if they like it. I have no clue. But it's different. The budget line on a walk you through as a one sheet spreadsheet budget. Keeping it simple for those who's never done a budget in the past or for those who've done budgets but keep giving up because you think it's too hard. Or just cringe at the idea is a budget. It's not a bug Budget is your control center for your purse personal finances. It's where you can review what's going on, and your personal finances. So you can see if you're on track, or make changes. So you can stay on track on meaning whatever goals you have set. Now I assuming that you're doing as some type of tracking that using an on App sub some type does, I use an online app to make things easier that way, I don't have to download the software, I don't have to update the software, and is paid one yearly fee, it's less than $10 a year does a great job. That's tracking software also has predetermined categories, which is basically I try to use all the predetermined categories, I don't try to get too complicated. I don't want to make my own because it may not make sense in the future. But stick with the categories that are in your app, once you have at least 30 days and put into that tracking software. And your checking account is reconciled. Your savings accounts are reconciled. Your all your credit cards are reconciled. What that means is, the balance you're showing in the app is matching the balances on your bank statement or your bank account online, or your credit cards online. So that tells you that you've entered all the transactions that you need to enter. The one thing I forgot to talk about is when you start out with a credit card, you go back 30 days and figure out what your outstanding balance was 30 days ago. And then you do all the transactions from that point forward. And if it doesn't match your balance, you either missed something, or you forgot something, something was wrong, there might been a timing delay in there. But that's kind of how you do it. So once we have that you print out a do a report by category and you print it out. So you have it might be two or three pages long. But now we got to take that and put it in some type of order. So I'm looking at a spreadsheet that's on my screen, across the top is ABC is the columns, down the left side is the row rolls, and they're numbered one through whatever, I'm gonna mostly refer to columns, because the roll the rows would depend on how many lines you have how many different categories, you have each category on being on its own line a row. So we're looking at that. So Column A Well, Column A one, which is row one, column A, you want to put in the year, whatever the year, you're starting in this budget, you put the year in there, and you can maybe put a month in there. But that's gonna change. So just for let's say you're starting in July, so you put the year in July, because we want to start somewhere. Column A is for descriptions, that's where you put the name of the categories, Column B, you want to head that up as budget amount, control amount, same thing, Column C is actual amount, and then column D is to difference. Column D for now is the only place you got to put a formula, it's going to be B minus C is going to equal what goes in column D. If column D is a negative number, that means your actual spending as less as more than your budget amount for that category. If it's a positive number, that means your your spending is less than your budget amount which is good. I hope that didn't confuse you. So a negative number means you're overspending. A positive number means you're on track. So the first thing we need to do is group and I crack categories these by name needs. The first need is housing and under housing, so under description, you put housing and that'd be like a title We can center it and column A, if you wish, at your housing, the under housing, the first line category that you want to put in is your mortgage. If you have more than one mortgage, you put in all your mortgages, you can put in the name of the mortgage company, and so on so forth. If you have a line of credit, you do the same thing, if you have a second mortgage, you do the same thing. I tried to put them in the order, top to bottom, the order in which you acquired them. So when you bought the house that's that mortgage is mortgage a mortgage II had gotten, then you got a line of credit, that might be the second one. And then the third one, we would be your second mortgage would be a third one. And then so what you put in there is how much did you pay that first month. So put in under the control amount, or the budget amount, I'm gonna refer to this as control amount from now on, you put in whatever your payment was the total payment. If you have a mortgage payment includes taxes and insurance, that's fine. Just put in that one number, we're trying to keep this simple. If you have more than one mortgage, then you want to put total, and you want to and Column B, do an equals and sum up the first three lines that you just put in there. So you know what the total amount of your mortgage payments are. One big number, then the next grouping would be utilities. Utilities would be your gas, your electric, telephone, internet. And I do telephone because in the olden days, as I said before, the phone was wired to the house, you couldn't take it with you. So I'm still doing my cell phones, under housing. If you don't have an escrow and your mortgage, meaning that you pay your real estate taxes and your home insurance separately, then you need to include home insurance, and real estate taxes, that and then one more line would be maintenance, or repairs, it could include that as a one line item, if you want to. The reason I'm totaling up these five groups within the housing category, is because when when you apply percentages to your numbers, it's not the grand total number. Like if you want to know how much of your net income is spent on your housing mortgage costs, you can do the formula on the total line, or I call it the subtotal line, have all these different categories, you total them up separately within the housing category. And then you do a grand total of the total housing category. And why do you want to do that? Well, first of all, he wants to see what is your total housing costs, including everything, how much is your spending every month, and how's that change every month, then you want to break that down is how much of your housing costs is in mortgages, or loans, how much of your housing costs is in utilities, and then how much is repair and maintenance. The next category, which we're going to do the same thing is transportation. So you have in you at Senator transportation and column A and all your numbers so far are gone and column B. If you have more than one automobile and you have more than one automobile loan, you do the same thing as you did above you list each loan may be by the car that it relates to the model or make so that you can identify which car it is when you're looking at the payment. So you would put those in there and then you'd subtotal your loans. Then you would put gas, you know gasoline and oil and this would be oil that you put in between oil changes. So if you have a car that drips, little oil burns oil, and you put a quart in every once in a while. gas and oil that oil would be that one quart you put in. So if you go to the store and you buy four quarts and you do an oil change in your bio filter, that would be blow blow under maintenance and maintenance would be oil change. You know I will have one too category as maintenance, and then have a line that's for oil changes, tires, maybe in repairs, repairs would be everything else other than oil change and tires. The only other thing that you might replace every once in a while, maybe every four or five years would be the battery. So if you do the same thing, so you would you're gonna group things together by what they are. So loans are grouped together, things that you spend money on on a regular basis are grouped together. And then things that you do for maintenance are going to be grouped together. So that's housing and transportation, that's two of your four needs. The next need is food. And I would include this all together in one category, food and clothing, make one category. So we have three major categories. And within each major category, we have subcategories. I hope that's not too confusing. Once you write it down and see it on paper, it's gonna be simple to understand. So food and clothing. So first thing for food would be groceries, dining out, which would also be any way you buy food it's pre prepared for you would be dining out. So even if you order a pizza and have it delivered, that's the same thing as dining out groceries would be when you go to the grocery store and buy the food items and prepare it yourself. So groceries may be a category in there for coffee shop. Now these are going to be categories are not going to total together because they're going to be one by line by line. So groceries would be your total groceries that you spent for the month, then coffee shops would be all the money you spent at a coffee shop for the month. And then dining out would be all the things you spent at a restaurant for that particular month. And then you'd have another subcategory, and you could add all those groupings together for a food total. And then clothing, you can break that down clothing for husband, spouse, children, and you can even break it down for each individual child. If you want to go into that much detail, I would kind of just group it in in one big number. Because I'm lazy. And I want to go to the trouble of keeping track of all that. The more you break it down, the more detailed that you want, the more work it's gonna be. Now that work gets easier over time as the more and more you do it. Okay, so now we got the needs done. The next thing which is still needs would be to list your credit cards, list, debt. And then within that debt, you list all your credit cards and or personal loans, except but do not include the loans that's in housing, or transportation. So if it's already included in a category, it's done on this debt is just the debt that's not attached to anything else. So it'd be credit cards, personal loans, payday loans, student loans, would go under your debt category. The next category would be savings, you'd have under savings emergency fund, you do not have to go out and set up different savings accounts. You can have one savings account and put all your money in the one. That way you get the most interest. But for this purpose, we're breaking out so that you know how much of that savings account if you have$1,000 in a savings account, how much of that is allocated to your emergency fund to whatever goals you're doing, whatever you're trying to save money for. And then do a total on that amount. We're trying to identify everything where your money goes, whether you spend it or save it, whether you're paying on bills on debt, or spending it for needs, or once once is gonna be the major one's going to be entertainment. I would be your next category and you would put down your different entertainment entertainment would be streaming TV, cable TV, tickets to game tickets to a concert, whatever you do for event entertainment could go on or entertainment that could include dining out. So if you only go dining out like once a quarter, once a month, and you consider that enjoyable or entertainment, then you instead of putting it on her food, he can put it under entertainment. The idea here where they're trying to group things together way we relate to what it is. Now, this can be different for everybody, it's not set in stone, and it's not gonna be perfect, and you can fine tune it as you go any other needs, and I can't think of any other ones that would be or once that you may have, I can't think of anything. Maybe a one is a motorcycle, or a boat, and you bought a boat and you have a loan on the boat, well, then that loan would go under once, call it pleasure boating, or whatever, put the loan there kind of separate out from your entertainment because it could be considered entertainment. But we want to break it out big items, we want to break out and separate them so that we can add a glance know, again, or our money is gone. And if we're spending more in one category than another, or, or if we spent more next month, compared to last month. That's the idea. So once you have that done, and you got column B with all your numbers in that you did that first 30 days, that first month that you put in your tracking, that's your control amount. You didn't do away with anything, you're not, it's not like a diet where you just quit eating. This is long term, this is something that you're going to look at for years to come. If you want to keep this month, your first month sad, then only thing you got to do is copy Column A over to the right. So we got a, b, c, d, skip the column. So in column E, copy A to E, and copy all your headings for B, C and D to E, me C, F, E, F and G or whatever it turns out to be, he just copy it over. And then you put in the next month. And you're done. So see how easy that is. If you don't know anything about spreadsheets, if he can learn the copy command Ctrl C, on Windows and the Paste command Ctrl V, you got 90% of it done. Okay, now, what are we gonna do, we got numbers, and we got our descriptions and column A, we got our numbers in column B. We subtotal up the numbers. It's looking pretty. While we do with actual well as time goes by the next pay, we're starting in their second month of tracking. And I recommend you do this every pay period. That's why you can really focus in and see where your money is spending. next pay period is the second month we're working on, put everything in your tracking into a another report by category. This time you do it from the beginning of the current month to the current date. So if you start in July, and that's your control numbers. Now we're in August, you would do a report by category from August 1 to August say tap your first pay date, whatever that would be printed out. Under actual. You go through and put in all the numbers. Now when you do that, if it's a Hmong payment, it should match to the penny. So the difference would be B minus C equals d. If it comes to zero, you matched up perfectly. If it's an F it's a positive number. While you hadn't gone through the whole month yet. It should be a positive number on your first pay. Or your first week is say if it's a negative number, why is it a negative number already? Was a loan payment may mean, because you made a late payment the previous month, and you had to pay penalty and interest. Okay, well, that explains it. So now you know the reason. Now, you know, the reason why you need to pay your loans on time, and kind of help your credit rating, that is going to bring that number that back down to zero, and you can stay within your budget, or your control center is gonna be zero. So when we time we do this, and then the second pay you have for the month, you do it from the beginning of the month to that particular date. And then the third and or fourth, if you get paid weekly, depends how often you get paid is how often you update your spreadsheet budget. And if you at the end of the month, the month completely done, you get all your transactions and for you're checking your savings, your all your credit cards, no matter how minor they are, you got all that and they're detail and you do a category for the month of August, for the total month, you put that in your actual and now we can look at where you may have spent more money in August than you did in July. That could be a bad thing. If you have a spending problem. If your entertainment is one up over$100 More than the previous month, that means you did something that costs $100 More may or if your clothing is that well, why did you buy more clothing? And August and July? Well, maybe because your children were going back to school. So you buy them some clothes for school? It's not the end of the world if it comes out a negative number. Yeah, a negative number. It just means you can look for the reason why did it happen? And how can I ever prevent it from happening in the future? Well, to begin with, you're just getting started. So your budget or your control numbers are not set in stone yet. They're not really maybe your average numbers that you would have month in and month out. That's what we're striving for. So if you look at August, and your numbers a little bit higher, which means you got a lot of negative numbers, and you know that nothing unusual happen, nothing happened to create that problem, then you need to update your control numbers to the most current actual net from like most current actual numbers. So if you copied everything over, you can just copy the numbers from column from your actual column. I'm not gonna say the column numbers because I could get them confused. So your actual column numbers, copy that over to the next month, and put it in for your control numbers. And then when you do that is gonna copy your formulas over for your subtotals and then copy your different formulas over and you're done. And he can take that whole area, highlight, it can copy and paste it from August to September, and you can copy and paste it again, he might want to wait for a while before you get too far ahead. But that's all we're gonna do. And now you have the history of the first month, you have the second month history, you update it your control numbers to maybe be more accurate. You're gonna start cutting down on some your spending. This is the time you look at your detail. Where's my money going? Why am I spending so much in their entertainment? Am I still using all this stuff? Can I cancel anything, because I need to cut back on my spending so that I can pay off my debt faster. I'll be back in one moment with my final thoughts. If you're interested in learning about an online software that helped myself get out of debt, it does tracking, budgeting, and keeps track of all your assets and all your debt and even tells you how much and when to transfer money into your savings account and how much and when to transfer money to your debt and which debts to pay off and order. First. It's not cheap. It's a one time payment. But it will definitely be an investment something and yourself and an investment in your personal life. financial life, if you're interested, send me an email at reduced debt increase And I'll send you the information about this online software that worked great for me, I didn't talk about income that goes at the top of your spreadsheet, you put your income at the very top, then you would total up all your income, where it comes from. So you have total income, as you work down through your different expenses. When you get to the bottom of your, say, your housing, you want to total up all your subtotals for your total housing, and you do that for all your different categories. So at the very bottom, you'll have a total expense, and then you do a grand total or a net, which would be your income less your total total income less your total expenses, that comes to zero, that means you accounted for everything, all the and you spent all your money, or at least put part of it in savings. And if you didn't put any of it in savings, that means you probably are having a problem. If it's a positive number you you spent less than what you earn. And if it's a negative number you spent more than what you earn. So that means you probably have a debt problem. The reasons we want to do the percents by category is for UI subtotal, we figure out 2%, of how much of your gross income is your total of your all your mortgages, how much of your gross income is a percent of your utilities, we do that for all the categories because keeping track of these percentages, we can look at what the lenders will lend you. If your mortgage percent is greater than 43%, you're having a hard time getting a loan for anything. If you want to keep that around 25 to 30%, you're doing really good. And you wouldn't have much trouble in paying all your bills on time. The higher that gets, the harder it is to pay other items that you have in your life. So it's important that tried to keep your mortgage percent. And a reasonable amount between 30 to 35% would be a good place to keep it. And you'll still get through life without much of a problem. It's important for you have your control center, it's important to monitor it on a regular basis. A weekly basis is what I recommend every pay day. You're looking at it and you're updating it and you're see where your spending is going or not going. And it's a good way to keep things under control. You can look at a category and say, Well, I'm spending too much on the entertainment where can I cut back on spending too much on clothes, what happened? My housing costs went way up what happened? And you'll know you'll be able to figure out what happened to the pre the current month as related to your Control Center numbers, which over time will become an average of everything throughout the year. So keeping your control center and keeping it up to date, and you'll have good information and you'll be glad you did so