Reduce Debt Increase Wealth

Budget Categories with percentages on Spreadsheet

March 19, 2023 MIsterchuck Season 4 Episode 157
Reduce Debt Increase Wealth
Budget Categories with percentages on Spreadsheet
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Show Notes Transcript

Doing a budget requires some type of written document. Using a computer spreadsheet to do the math makes this a straightforward process. How to set up a budget on a spreadsheet and how to categorize expenses.

Article Link: By Kathy Evans

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Charles McDonald:

Hello, I'm your host, Mr. Chuck, I a 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 categories with percentages on spreadsheet. Doing a budget requires some type of written document. Using a computer's spreadsheet to do the math makes this a straightforward process, how to set up a budget on a spreadsheet, and how to categorize expenses. I have links in my show notes for articles, the can refer to better money habits, thought Bank of, creating a budget and going Recommend budget percentages, which are gonna refer to later in this podcast. And I have a new one, which we're gonna talk about later in my final thoughts. It's a spreadsheet you can download. But it's not the typical I want to talk about that later on. So let's get started. When you're creating a budget, you should be doing it in a written form, which the easiest way to do it is on a computer spreadsheet, you can put formulas in there. And it can do all the math for you. If you would just Google monthly budget or budget spreadsheet templates, you'll get a lot of opportunities to select one that you'd like. But I'm going to talk about how you're going to categorize it. If you're looking at a single monthly budget on your spreadsheet, Column A should be your descriptions. Column B should be your budget amount, or the dollar amounts that you set, you don't want to go over that you actually budgeted based on past history. Column C is the actual amount of money you're spending in the current month. Column D is the difference between the two. So if that difference is positive, that means you're under your budget amount, so you're doing good. If it's a negative amount, that means you gone over to either overspent your money, or your income is less than what you budgeted for. So that's your layout. At column E, I set up percent of a net income, you can also make that percent of gross income. But in order to do that, you have to use a gross income number which is not going to be in your spreadsheet. Because we're using your income is the money the you actually deposit in your checking account or your take home pay. So your gross is the total before taxes, health insurance and any retirement deductions you may have. So for a budget, we're only looking at how much money you have available to pay your bills that simply put that can't say a state that any other way. You can do yes, categorize all your expenses in alphabetical order. You can categorize them in the same order that your tracking program does. You know you do a transaction report for the particular month. And it's gonna put all your categories in alphabetical order. So you can set a budget up to exactly the same but I don't like that. We want to group your budget categories by needs first, then wants and needs our housing, transportation, daily living expenses, which are gas for the automobile. Well now that's not gas for the automobile because that's transportation and groceries and or dining out. You can also name that food if you want to, but I'm doing daily living expenses. Okay, when I set up my particular spreadsheet I have my first sheets is my total page. And then I add a second sheet where I set up or I enter all my income, then I have another sheet, I separate this by sheet. So I don't go way down forever, I can stay up in the top 20 to 30 rows. And I just click on the tabs at the bottom, I'm using Excel. And I'm just doing a sheet and then I'm bringing my totals from that particular page, up to my total page, which is sheet number one. The other daily living expenses was getting to as groceries, personal supplies, clothing, cleaning supplies, education or lessons if you have children taken music lessons, dining out, eating out, haircuts, pet food, coffee shops, and I included federal income taxes, local income tax and shopping. And as a general item. Shopping, that's other than those other categories that I have, which is pretty much matches my category for my tracking app. I enter the information there, then I can go up above to my monthly budget. And I have multiple months spreadsheet. So I have January from A to E and I go across for all the 12 months of the year. And what I did, I set up my columns and my description. And then I just copy and paste and I just changed the name from January to February to March, April May across. And then after I did all that I set up. Well, I set up one month first with all the formulas in there. And once I had that working good, then I just copied and pasted 11 more times. So now I have one spreadsheet, where I have a whole year worth of data in there on one place. So when I'm on my total page has given me the what's bringing forward my total. So I can look at everything as an overview. And then if I see My why is my credit card payments so high? Well, then I can go down to the detail where it says credit cards, I can click on that. And I can see what's going on with my credit cards. Now credit cards are a little bit different. Because I have an opening balance, I have payments, I have charges and I have an ending balance. I'm not tracking the individual item I'm spending money on I'm just tracking the balance of the credit card. Because the where you spend the money is gonna be broken out by transportation, housing, cat, you know, clothing, shopping, whatever, basically everything. So when you do your categories report from your tracking app, you got to include all categories and all accounts. So if you have a checking account that you're taking money out of, and you got three credit cards that you're spending on a regular basis, if you include all your credit cards in your checking account, then you get all your spending. And that's very important. So we don't need the detail in your budget spreadsheet of the credit card spending because it's already included, and all the different categories. Now the categories I have done is based on needs first, which is housing, transportation, credit card payments, and thirdly, living expenses. Then after that, it's one which would be entertainment and I call it miscellaneous things that I'm not really categorizing and this see what we got under there miscellaneous and my case is my advertising for my podcast. And I have doctor visits and lab fees, stuff like that medical related expenses. Now as I said before, when I do my categorization like for housing, I include my mortgage payment, or if you are renting your rent payment, and then I also include all the utilities, cable electric internet service, gas and oil for the home, real estate taxes. phone if you have a phone just for the house, home insurance, water, sewer and trash appliances and the furniture and lawn and garden maintenance, apply improvements and then I also included my cell phone with my home expenses. II cannot you can put that somewhere else if you want. But I just threw it in there because it Because I don't want to create too many categories, and transportation. On housing, if you have a mortgage, that's your mortgage payment, if you have an escrow with your mortgage payment, that would also include your insurance and your real estate taxes. If you're paying that separately, then you need to list it separately. If you are paying it on one mortgage payment, then this, you don't need real estate taxes, you don't need insurance, you just leave that blank or zero, and you use your rent or your mortgage payment to cover that. And the same thing with your autos or your transportation, you list your automobiles, if you have two automobiles, you list two, he had one, you only need list one, you list your payment, your insurance for the automobile, gasoline or fuel repairs license and any other related expenses to the automobile. I haven't broken out my automobile. So I can track, you know what's going on because your payments are separated. So if you know your insurance is different for each one. And if you keep track of how much gasoline you buy by auto, it makes, you know a nice report. You don't need to do that. But it makes a nice report. So if you are driving one automobile, and your significant other is driving an automobile and you each put your own fuel in, then you got it separate because he know who's paying for what then credit card debt we talked about before you would list all your credit cards, your opening balances your payments for the month, your charges for the month, and then your ending balance, the I also include the rate of interest, because you can highlight that. And then you can do a data sword. And you can organize your credit cards either by the lowest balance or by the highest rate of interest. So you know what the order you want to pay them off. If you have any other personal loans that are not connected to your transportation or housing, then that would be included under credit card debt on you can also include money your savings, because I don't have that anywhere. In particular, I have bank accounts, which again, is the beginning balance and the ending balance and then it tells you the difference. So you put your checking account balance in at the beginning of the month, and then you put it in again at the end of the month. And that carries over to your next month. And then for my savings I just broke I got one savings account for a bank, for instance. And I break out the amount of money that I you know, I have the total amount of the savings say it's $1,000. But I want 500 of that to be an emergency fund. I want 250 That to be set aside for auto repairs. And I want $250 set aside for home improvements. So you can make your own little categories in the spreadsheet. Even though you have one savings account with a total balance, you can allocate how much money you want to do where so sometime down the road, when you have an auto repair, you can look in your at the spreadsheet and go oh, I have $1,000 set aside auto repair, I can just transfer$1,000 Out of my savings account and you know you're good. I also then have a second savings account high yield. And you can put the beginning and the balance there case if you never use it. Your difference should be the amount of interest you're receiving the less you add more to it a particular month. Miscellaneous is set up to cover things and not anywhere else, pretty much maybe once not necessarily needs religious donation, charitable donation gifts posts, each bank fees, magazines, newspaper dues, membership, stuff like that. I include subscriptions for streaming or cable under housing, Excel, because it's called candlelight satellite or cable satellite. And because it's connected to the house and you don't use it anywhere else. You might want to put in a category called streaming TV and set that up different if you have different streaming TV, other than cable satellite, or you can rename cable satellite. So that's how you do it. And it's pretty straightforward and simple. Now we need to talk about percentages. And what am I talking about? Well if you would do a Google search, and of budget percentages You're probably gonna find where they're talking about 5030 20 50% of your income goes to needs 30% goes to once, and 20% goes to savings and credit card payments, I don't particularly do that. And I don't care for that type of budgeting, because it leaves it too wide open, I think that we need to be a little more precise on your budgeting. So your housing and these percentages for your housing and your transportation only pertains to the loan or the mortgage you have. So housing when I say 25 to 35% of your income. Now, this is your gross income. But remember, in the budget in this spreadsheet, that when we set it up, you're only putting in your net income. So that's why I stated that before that, when you calculate the percentage based on your spending, and you have that set up, it's based on your net income. So those percentages may be a little overstated. So if you want to if you know what your gross income as you can plug that in somewhere, and do your percentage calculation based off that, instead of your net income. That way you get a better feel for how your, your loan because the creditors are gonna base it on your gross income. So housing 25 to 35%. I've said in past episodes, it should not exceed 43%. Because once it does, you're gonna have time borrowed money. And because you're way too high, you're too heavy, you're spending too much of your income on your housing, and nobody else is gonna want to lend you any money. So these are percentages to make life comfortable, that you'll never overspend 25 to 35% on your mortgage. Now you're getting that doesn't include utilities, cable and all that other stuff. Transportation is the same thing is based these are percent of your automobile loans 10 to 15% of your gross income, food should be 10 to 15%. Also, things such as insurance, life insurance, medical insurance, home and auto insurance 10 to 25%, savings 15 to 20%. Entertainment, five to 10% health care would be doctors, five to 10% clothing 5%, personal expense five to 10%. If you add all those up, you're going to be over 100%. The goal here is to when you do your budget, you set up your percentage, and the reason you want to do it is so it's a quick look how much of your income has been spent on your mortgage payment. Now your mortgage payment may include homeowners insurance, and your your escrow your real estate tax. And that's fine, because the in so you can go a little bit higher instead of 35%, maybe 40%. Because you have your homeowner insurance and real estate taxes included in there. As I look down through these categories is nothing in there says anything about taxes. So we're paying real estate taxes. And that's going to be a biggest one you pay that we're not they're not taking any account for us a percent of your income. What other expenses are included in a well balanced budget? Well, major appliance repair replacement, we call that emergency fund, Last Minute Travel unexpected tax bills. So they're saying unexpected tax bills, and medical emergency car breakdown job loss or consider what they're considering a mergency expense. Anything that you don't pay on a regular basis that pops up suddenly and it's unexpected is an emergency expense. That's a good definition. If you're struggling to pay off debt, you're probably putting zero in your savings account or your this. These budget percentage says it should be up to 20% while 20% credit card payments and savings. And if you use more than 20% of your income to pay your credit card payments, you're not saving anything. So you're getting behind. That's why you have to have a plan. That's why you need to get things under control. I can't say Your spending is on our control. But something is out of control, whether you know it or not, you're out of control. And things are not going the way they should be. Because if you were doing everything correctly, and you had the correct amount of percentage of your income, and your budget, he should have money leftover, he shouldn't be, this is a good way as a percent of your income to stay under a span of least equal to or less than the amount that you make in knowing what it is, and where you're already at. Because you're probably struggling with that, you may be just started doing it, maybe you just started doing tracking, maybe you got your tracking app set up, you got your categories all done. You know, you got a descriptions, B, your budget amount, which I say is is your previous month spending. And that's the starting point, C is the current month, d is the percent of income that that particular item is using up, you configure the percentages of each individual, individual category. So you get an idea how much it's really costing you, at a quick glance, a number $100 A month may seem small. But when you look at the percent of income, it may be 25% of your income, your take home pay, that's fairly large, maybe that's something you can do without, if you do that for every item in your budget. And you set something up, whether you get a template, whether you do it all by yourself, whether you create a transaction report by category. And when you print it out, instead of printing it, you create, you save it and it's created own little spreadsheet and use that starting point, I did that with count about an A gave me you know category current period, compare period difference, so only you need to do is category, just change that to description, current period, just put that as make that the budgeted amount, because that was the previous month, your compare period, make that the actual difference from that stays the same as difference. And the percentage, well, it's there, it's telling you and it's doing the math when it does the report for you. But you then when you save it to a spreadsheet course there's no formulas there, you have to set up the formulas, it may be more kind thing to do that for the very first time. And that's after you get your category list and the order that you want it. And like I did was I want n and renamed like a one a two a three, housing a one transportation, a two daily living expenses, or shopping a three, a four, whatever. And I went in and I did that. So it came out in the order that I want it. And then you could then send that to a spreadsheet. And you're you're set to go. I'm going to talk about my final link in my show notes coming up next, 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 in 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 financial life. If you're interested, send me an email at reduce debt increase And I'll send you the information about this online software that worked great for me. If you want to know what 2% of your income each category should be, or at least a general idea. You can Google that budget category percentages and you can find many articles that will give you some numbers and percentages as all based on their theories and whatever. It's not really set in stone. But here's the main thing with knowingness and combination, if you were married, and you both were working, and you got the mortgage on your home based on two incomes, and then you start having children, and one of you quit working, so your incomes change, he needed to know what percent of your your mortgage payment is related to your income. And if it's the mortgage, the real estate taxes and your, your insurance, that's okay. You still need to know that. Because it may be a lot higher than what you think. And if you're struggling with debt, you may be you are overspending on your housing. So to make up for it, you're still spending the same level, but you're putting on credit cards, so you need to stop doing it. So if you can get an idea that, you know, before your mortgage, and everything was roughly 32% of your income, and now it's 48% of your income, and you need to cut back someplace else, as what, what's real reality, what's happening, you need to look at all this and see general areas, you know, housing, you're not going to be able to adjust that unless you refinance the home. And nowadays, mortgage rates are going up, you probably don't want to do that, unless you have a real high interest rates. And maybe you want to do that. Maybe you have two car payments, you're here at 30% of your income. So if you're at 40 and 30, at 75%, that's not giving you much room to pay for health insurance and other items even named absolute. Lee mean, and could be one of the reasons why you're not putting money aside in a savings account or increasing your emergency fund. While I was doing my research for this episode, I came across this website called Happy giraffe budget happy, it's happy And the link in my show notes is happy Curt Getting started basically has three short videos, you can watch and explains how to use their system, they have a spreadsheet, it's why I was talking about it is they have a spreadsheet all set up for you. And you can just download it, but it's not the typical budget spreadsheet, they could care less about what happened in the past. What this spreadsheet does, is tell you what's gonna happen in the future, based on the information you put into it. So I thought, Oh, I'll give it a shot. I want to know, I just recently retired. So my life is changing. I want to know, based on the income that I'm gonna have, based on the expenses I already know I am. Because I've been tracking for years, I have budgeted amount set up, I know what my utilities are, I know how much I'm spending everything, I have an average. So I can plug some numbers and see what this tells me. And the first when you open it up, and it says start. And you put in your start date. Now I had problems because I was looking at it. And it said, Monday, April whatever 2018. So I thought I had to type in the day, comma, month, day comment here. But you don't have to do that. When you enter the date you just put in. In my case, I put February 1 22. So I put in to slash one slash two, two, and then it's formatted the pop up as Tuesday, February 1 2022. Then below that wants to know how far in the future you're projecting. You can do 52 weeks you can do 104 weeks is two years. I thought let's do 104 weeks just to see what happening. Now the second year is not going to be all that accurate. Because you know things are going to change my income is gonna go up a little bit, my expenses will probably go up a little bit, but it gives you an idea or your stamp. So you put in 104 weeks, and that tells you it's two years and gives you an end date. And then at the bottom later he does the same thing. He's got a tab so he's creating a new sheet, a new page, and it's got income and it tells you up there what to do so it's not all that difficult. It starts out with bank balance. We want to put in the bank balance as of Do your start date, and then you put in your sources of income. In my case, I put in Social Security, it's a monthly payment, I put in $1 amount and I put in the date it starts. And then I have a government retirement, I put that in monthly, the amount and the date it starts. And that's my only two sources of income since I'm retired. Then I put in tab three is Scott, fixed expenses. Now, just remember, this bank balance is your checking account balance. So everything you put in here is money that's gonna come out of your checking account or go into your checking account. I originally put in my interest income, but that never makes it to my checking account, because I leave it in the savings account. So I didn't have to include interest income under my income, because that kind of throws everything off. And under fixed expenses, they got weekly, monthly, yearly, and one time. So under weekly, they already had up charity, groceries, vehicle gas, anything you put in here is gone to be deducted out of your income. Keep that in mind. And then monthly, you know, rent, mortgage utilities, internet cable, car payment, cell phone, he calls it a buffer, this is the extra amount in there in case you go over in a different category. He's calling it a buffer, I put in $125, I have savings $250, I have put in a credit card payment of 500. Because I have one credit card I use and I pay it off every month, and it's somewhere around$500. And then my health insurance or my Medicare payment, those are my monthly expenses. And then yearly, I put in car insurance, but I pay my car insurance twice a year. So I put it in twice. So I've put it in car insurance, and I put in the dollar amount and I put in the due date. Then I put it in car insurance again, I put in the Adobe dollar amount. And I put in the due date, I did the same thing was real estate taxes, real estate taxes that pay twice a year. So I broke it out twice a year, when's the next due date, put that in, and I put in two of them. Home Insurance is once a year I put that in one time, my motorcycle insurance, put that my umbrella insurance put that in. I have a TV subscription I pay once a year, I have computer security of a once a year, I put all that in there. And then they have a one time account in a they say birthday party and credit card pay off. I don't know how you know one time credit card pay off, I just set those to zero. Then the next tab or sheet he calls it happy money. And what it does is figure out for the time great My case is two years, your total income, your total expenses, and it gives you how much money you have to spend. Then it takes your spendable money in the mizen my 50 104 weeks. And that gives you the amount maximum allowance that you can spend. Then down below is called actual weekly allowance. And you if you would put in the maximum allowance, you probably not gone to Yeah, it's gonna turn red. You got three other categories here. days your account will go negative. Your lowest bank balance and don't go broke. You're overspending if it's red, you overspent. So if I put in my maximum allowance, I'm over spending $21 a week. Pretty nice to know. So if I put in, I put in 165 Nope, store it if I put in 160 155 155 So based on all my expenses that I'm gonna pay with a buffer, little extra, including money going in my savings account, my credit card payment of 500 I'm gonna have$155 a week, or about $620 a month of spendable money that I can do something with enough I don't spend it that's that much more money I can put into my savings account. So I find this is a good spreadsheet to figure out how much can I spend on a weekly basis? If you would go and listen and watch his YouTube videos or the videos he may he will explain this to a tee II in you can understand it, then there's a cash flow chart, where if it shows any red means you went negative, so you got to make an adjustment somewhere you got to adjust your spending. And then at the very end, the last one is called adjusted cash flow. And it starts with that beginning bank balance you're put in with your income, then it goes through and takes out any expenses. Because when you put in an expense, you put in the day of the month that gets paid. So on that day of the month that gets paid that's coming out of your checking account. So it gives you a running balance of how much money you have a month, the month and it's detailed out based on what information you put in there, which is nice to know. But I was mostly happy with the happy money, my weekly allowance $155 on young retired, I don't have anything to do, I'm not going anywhere. Now my wife's paying for all the groceries. And remember before I said whatever you put in your expense amount is what's already deducted. So I put in $35 a week for gasoline for the two automobiles. So that's sonor and$40 a month, if I don't spend$140 a month, I have more money to put in my savings account. So my my Happy Monday would be bigger. My buffer is gonna cover anything. I know my numbers are fairly good. The only number that can vary a whole lot is my credit card payment. If I buy something expensive and charge it, that could jump way up. Other than that, I know I'm pretty well set. So I figure I can proudly say that leaves 500 to $750 a month, based on my income that I'm getting under retirement. That's pretty good to know. So I was shouldn't run out of money, I shouldn't be in pretty good shape, I should be able to pay all my semi yearly bills and my semi yearly in my yearly bills without too much of a problem just based on one of them receive on a monthly basis if I keep my weekly spending under $155. So if you're interested in it, it's called Happy I have a link in my show notes. And the Getting Started kind of explains how things work. And then he goes one step farther, which I'm not going to talk about and you can watch the video that he provided to, to get that information. So you need to do a budget, how you do it is up to you. How you categorize everything is up to you. But doing the categories, grouped them together and that makes sense to you. And doing your percent of net income at least is gonna give you a quick overview look of how you're really doing and it's important to keep up with it. Once you start doing it. It gets easier and easier and you'll get good information you'll be well informed and you'll be glad you did it.