Here's a typical red flag post in a finance community that tells me the poster has never tried to budget:
My partner and I have no idea where our money is going. Our combined income is $143K a year, mortgage $1200, $300 electric bill, $18 for Netflix. For some reason we're never able to save.
They are thinking about their income in terms of what their employer told them they'd earn, but they've never thought about it in terms of how it will be spent, that's obvious. I add up their expenses and come up with $1518 a month - well under $20K per year. I have no idea what their take home pay is because taxes are different everywhere. And they clearly haven't gone through a statement with a highlighter. If they're not able to save, the money is going somewhere. They need a budget.
So I tell them the first step is to figure up their monthly take-home pay so they can compare apples to apples. Then think about what they use to spend - debit card? Credit? Cash? Then they need to look at what they've been spending, identify the line items that do not spark joy. Then they can set some goals.
Here is my really simple budget example:
And here are the good things about it:
We know it fits into income
By starting with monthly take-home pay, you can finally see what you really have to work with.
The "emergencies" are based on experience
I look back at what real emergencies threw me off my budget last year and use that for my budget. If I don't have an emergency, that amount rides in the checking account for next month. Home repairs, car repairs, vet bills, medical, travel for a funeral... they're not the big loss of all income emergencies, they're the normal ones.
10 lines or less
You are going to drive yourself crazy if you think about 500 budget lines. Maybe you're energized by it today, or inspired by someone who wants to sell you a really fancy template? But my advice is to avoid breaking out anything less than 5% of your budget. Do you really need a separate line item for haircuts? Dessert? Do you have to buy clothes every month? I hope not. Just have an "other" category with a little flexibility for stuff like that and call it good.
It has a plan for where to track it
How will you keep track of these ideas? Do you want to constantly update a spreadsheet with every line item? Or do you just want to look at the balance on a credit card and think yup, I'm on track. I'm the second person.
It predicts every credit card balance
I've written before about how the secret to credit cards is to
plan in advance what their balances will be - this is how you do it. You know the gray card will have a $500 bill every month, you've planned ahead and know it can fit into your budget, you have the income to pay off the balance every month. I use different cards for different categories so I can check on my grocery card and know if I'm on track without it being thrown off by the electric bill hitting it.
It shows what I could cut out
The 50/30/20 budget says you should keep your needed expenses under half your income. With this budget, I know what it would mean to cut out shopping, charities and savings if I had a sudden income loss.
I have never published a spreadsheet template on here because my believe is that everyone must make their own spreadsheet so they know just how it works, it appeals to them, they categorize how they like. Budgeting is probably the biggest area where that's true. I cannot make your spreadsheet! But you can, and I hope some of these lessons carry over.
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