Living with a Budget in Excel
Once you have decided that a budget is something you want to do and you have learned how to use the Home Budget template, then what? I won’t kid you, living on a budget is not the easiest thing to do. The potential benefits are huge, however, so it’s really worth your best shot. Let’s take a look at how the budget can help you and some of the difficulties people experience.
Analyze Your Spending
People usually have a pretty good idea of where their money comes from. It’s the spending that’s the big mystery! This is perhaps the most important area where a budget can help—enabling you to figure out exactly where your money is going.
Of course, you need some data before you can analyze your spending patterns. In most cases, there is no choice but to keep the budget for two or three months and then look at the information you collected. If you have been careful about keeping receipts, it might be possible to enter your spending information from the past few months, but few people are so organized! So you might have to start fresh on the first of next month.
One place many people find it easiest to start is to list the first month’s income and expenses. That can be your starting-point budget. Most expenses and income are similar each month for most categories. The second month, make adjustments as necessary. By the third month, you should have a budget that will work well for the following month.
The Jar SystemIt can be a bother to keep track of all your receipts, but you’ll need them for entering expenses into the budget calculator. This is particularly true when a single payment, such as a check you wrote at Wal-Mart or Target, includes expenses in more than one category. Here’s where the jar system comes in handy. Put a large jar in a handy place and put all your receipts in it. Then at the end of the month (or whenever) when you are working on the budget, you’ll have them together in one place. Another idea is to keep a small pad and pen with you at all times to record small expenses as they occur. Or you can use your PDA for this if you have one. Remember, you have to capture your cash transactions as well as checks and charges! |
Once you have a few months’ data, how does it look? How do the actual expenses in each category fit with your general perception of how you are—and should be—spending your hard-earned money? Are there categories where the expenditures are a lot more than you expected? These might be areas to cut back. Some expenses, such as rent and car payments, are fixed and cannot easily be reduced. Other categories are discretionary, such as entertainment and clothing, and deserve close examination.
Pay Yourself!Financial advisors generally agree that a budget should always include a savings category—in other words, a pay yourself category. No matter how small the amount, a saving category is a good idea because of the many benefits of building up some financial reserves. Furthermore, it is a lot easier to stick to a budget if you know you are putting something away for the future. |
Live Within Your Means
Perhaps the most important question is how your expenses compare with your income. In other words, are you spending more or less than you earn? If you are spending more than you earn, you might already be aware of it from the mounting credit card bills. This is perhaps the most serious sign of financial trouble and calls for immediate action on your part. You will never be able to take control of your finances if there’s more going out than coming in.
This is perhaps the most important reason why a budget is such a valuable tool. Only after you know what your budget is can you hope to stay within its boundaries. A budget is not an end in itself, but rather is a tool to help you achieve your goal of taking charge of your finances.
Live Beneath Your MeansThe phrase “live beneath your means” sums up what is perhaps the best financial philosophy. In today’s consumer-oriented society, it is not always easy to do, but it’s the best—perhaps the only—route to taking control of your finances for most of us. If you spend less than you earn, you have money to save, and it’s savings that are at the basis of eventually achieving financial independence. |