Tag: Budgeting

Do I Really Need to Budget

Do I Really Need to Budget

I wrote a guest post for The Smart Investor about deciding if you need a budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More.  Here is the start of it, to read the 

Retirement Savings: How Much Do You Need

Retirement Savings: How Much Do You Need

Retiring is one of the riskiest financial decisions you will make. On the day you retire, you can calculate your net worth. You won’t know, however, how much retirement savings you need because you don’t know: how much you will actually spend on day-to-day expenses 

How to Budget Step 9 – Monitoring your Budget

How to Budget Step 9 – Monitoring your Budget

You may have thought you were done when you created and balanced your budget.  However, there is one very important step left in the budgeting process – making sure you are living within the guidelines set by your budget, i.e., monitoring your budget.  That is, are you earning as much income as you planned? Are you limiting your expenses to the amounts in your budget?  Did you put aside the savings you included in your budget, whether for expenses you pay infrequently, for retirement or something in between?

In this post, I’ll tell you how to use a new, budget-monitoring worksheet to compare your budget with your actual income and expenses.

Entering Your Budget

Since the purpose of the spreadsheet is to compare your actual expenses with your budget, the first thing to do is to enter your budget.  Most people find it easiest to monitor their budget on a monthly basis, even if they created an annual budget.  If you created an annual budget, you’ll want to divide all of the values in your budget by 12.

Once you have your monthly budget, you’ll enter it on the budget Monitoring tab of the budget-monitoring spreadsheet at the link below.  Note that this spreadsheet is different from the one you used to track your expenses and create your budget, though many aspects of it will work the same as the budget creation spreadsheet (named budget Template).

Enter Your Category Names

To enter your budget, enter the names of the categories from your budget in Column A starting in Row 8. Here are three different ways you can input your category names:

      1. Type the names directly into Column A.
      2. Use Excel’s copy and paste features to copy them from your budget Template spreadsheet.

    a. On the budget tab in your budget Template spreadsheet, highlight all of your category names by putting your cursor on cell A11, holding down the shift key and moving the down arrow until all of them are highlighted. Let go of the shift key.

    b. Hold down the Ctrl key while you hit C or hit the copy button if you have one.

    c. Go to the budget Comparison tab of the monitoring spreadsheet.

    d. Put your cursor in A8.

    e. Hold down the Alt key while you hit E, S and V or hit the paste-values button if you have one. If you just use a regular paste button, you will get errors because the cells from which you are copying have formulas in them.

    3. Link your monitoring spreadsheet to your budget Template spreadsheet.

    a. Put your cursor in A8 of the budget Comparison tab of your budget Monitoring spreadsheet.

    b. Hit the equal sign on your keyboard.

    c. Go to the budget Template spreadsheet.

    d. Go to the budget tab.

    e. Put your cursor in A11.

    f. Hit Enter.

    g. Excel should return you to cell A8 of your budget Monitoring spreadsheet.

    h. Hit the F2 (edit) key.

    i. Hit the F4 key 3 times. Hit Enter. There should now be no $ in the cell reference.

    j. Copy the formula in A8 and paste it in as many cells in Column A as needed until all of your category names appear.

When you enter the category names, make sure that the row with the total amount of income is called “Total Income,” the row with the expense total is called “Total Expenses,” and the difference between those two values is called “Grand Total.”

Enter Your Budget Amounts

Next, enter the monthly budget amounts in Column B next to each of the category names in Column A. You can use any of the three approaches described above for the category names. If you have an annual budget, you’ll need to divided the values by 12 before copying them if you use the second approach or add “/12” (without the quotes) in step (i) before you hit enter if you use the third approach.

Entering Your Actual Income and Expenses

You can enter your actual income and expenses using the same instructions as were used for entering them in the budget Template spreadsheet.  See my posts on tracking expenses and paychecks and income for more details or review the instructions at the top of each tab.  Be sure to use the same category names as you used in your budget so all of your income and expenses will be included in the Actual column on the budget Comparison tab.

For monitoring your actual income and expenses, you don’t need to enter the number of times per year you receive each type of income or pay each bill since your goal is compare what you actually received and paid with your budget.

Options for Expenses You Don’t Pay Monthly

Here are three different ways to monitor expenses that you don’t pay monthly:

  1. Enter them in the Monitoring Spreadsheet as you pay them and keep them in mind as known variances from your budget each month. This approach is the easiest to implement but also the least helpful for comparing your actual expenses to your budget.
  2. Adjust the budget amounts to reflect the amount of those expenses you expect to pay in each month. For example, if you pay your car insurance bill four times a year in March, June, September and December, you would
    • take your budget amount
    • adjust it to a full year if you budgeted on a monthly basis by multiplying by 12
    • divide the annual amount by 4
    • include the result in your budget for March, June, September and December
    • put 0 in your budget column in all other months

This approach is a little more complicated to implement, but will make comparing actual expenses with your budget much easier.

  1. Add an expense transaction every month equal to 1/12thof your annual expense on the Bank Transactions, Cash Transactions or Credit Card Transactions tab. In the months in which you actually make the payment, you’ll enter 1/12th of your actual annual expense.  If the total of the amounts you set aside in previous months differs from the amount you actually pay, you’ll need to include this difference in the actual payment amount in the month you make the payment. This approach is equivalent to moving money from your checking account to your savings account in every month you don’t have this expense and moving it back to your checking account in the month in which you pay the expense.

You can also use any one of the above approaches for income you don’t receive monthly.  If you use the third approach, you’ll put 1/12th of your actual annual income on the Income tab.

Monitoring Your Budget – What Happens When Your Actual Isn’t as Good as Your Budget

There are many reasons why your actual income and expenses might look worse than your budget.  You may have been planning to work overtime or get a second job to increase your income.  Those lifestyle changes can be challenging, so you might not have done them.

More likely, you spent more than you budgeted, either due to an emergency, an impulse purchase or difficulty in breaking long-standing habits.  Emergencies happen to everyone.  If possible, you’ll want to include building or re-building your emergency savings (see this post for more on that topic) in your budget. While overspending your budget can be problematic, especially if you do it continuously, don’t be too hard on yourself. Changing your spending habits is really hard.

A Few More Words about Budget

Congratulations!  You made it through the entire budgeting process. As I said in my first post on budgeting, staying on a budget is like being on a diet.  Just as every calorie counts, so does every dollar spent.  Sticking to your budget will increase the likelihood you will meet your financial goals, so do your best!

Download Budgeting Monitoring Spreadsheet Here

How to Budget Step 8 – Refining your Budget

How to Budget Step 8 – Refining your Budget

Very few people have a balanced budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More on the first try.  This week, I’ll talk about how to refine your preliminary budgetA plan showing targets 

How to Budget Step 7 – Create your Budget

How to Budget Step 7 – Create your Budget

You made it!  This week your only task will be to create a first draft of your budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More.   Budgeting can be challenging as you 

How to Budget – Step 6: Review your Expenses

How to Budget – Step 6: Review your Expenses

You’re almost there!  Only one more week until I describe how to create your budget.  Before you can do that, you’ll want to make sure that the income and expenses you’ve entered don’t have too many mistakes.  In this post, I’ll talk hot to review the expenses and income you’ve entered in the spreadsheet to make sure you have an accurate starting point for your budget.

Before getting to that topic, here are your budgeting tasks for this week:

  1. Continue using and refining your expense tracking system.
  2. Continue to enter your income and expenses into the spreadsheet.
  3. Make sure to update the number of months you have been entering information on the Basic Inputs tab.
  4. Review the first two columns of the budget tab, as described in the rest of this post.

Make Sure Categories are Right

Over the past several weeks, you’ve been entering the category name with each income and expense line item.  Mistakes I’ve made include using more than one variation on some of my category names, such as household expense and household supplies.  I also sometimes misspell one or more of category names.

If you’ve made similar mistakes, you’ll want to correct these mistakes so you have exactly one line in your budget for each type of income and expense.  Here are the steps to find and correct these mistakes:

  1. Go to the budget tab.
  2. Review the category names to see if there is more than one row in Column A that corresponds to the same category.
  3. If there is, figure out which category name you want to use.
  4. Make note of all of the incorrect names.
  5. Go to each of the Bank Transactions, Cash Transactions, Credit Card Transactions, Less-Than-Monthly Expenses, and Income tabs.
  6. Hold down the Alt Key and hit E.
  7. Hold down the Alt Key and hit F.
  8. Enter one of the incorrect names in the box next to “Find What.”
  9. Hit the Find Next button.
  10. Any time Excel finds the incorrect category name, replace it with the correct name.
  11. Repeat steps 9 and 10 on each of the tabs listed in Step 5 until the incorrect label no longer appears on the budget tab.
  12. Then repeat steps 6 through 11 for any other incorrect names.

You’ll know you are done when each category name appears exactly once on the budget tab.

Make Sure Amounts Look Reasonable

Once all of the category names appear only once and have the names you want, you’ll want to make sure that the values in Column B look reasonable.  These values are the totals of the values you entered on the various tabs, adjusted to either an annual or monthly basis depending on the choice you made in Cell B5 on the Basic Inputs tab.  Two reasons these amounts could look wrong are (1) you entered the wrong amount for a transaction or (2) you entered an incorrect value in the “How Many Times a Year” column.

If a number looks too high or too low, you can use the following steps to help find the problematic input:

  1. Identify the category name in Column A of any value in Column B that looks too high or too low.
  2. Go to each of the Bank Transactions, Cash Transactions, Credit Card Transactions, Less-Than-Monthly Expenses, and Income tabs.
  3. Hold down the Alt Key and hit E.
  4. Hold down the Alt Key and hit F.
  5. Enter a category name that has an unexpected value in the box next to “Find What.”
  6. Hit the Find Next button.
  7. Look in the Amount column of any row in which Excel finds your category name.
  8. Does the amount look right? Common entry errors are to transpose digits (i.e., enter them in the wrong order) and put the decimal point in the wrong place.
  9. Fix any errors in the amount.
  10. Look in the “How Many Times a Year” column.
  11. This column can be blank for any row that contains an expense you pay every month.
  12. For payments made less than once a month, the entries in this column should be the numbers of times per year you make payments of the amount shown. For example, if you pay your auto insurance bill twice a year, the semi-annual amount should be in the Amount column and 2 should be in the “How Many Times a Year” column.
  13. Repeat steps 7 through 12 on each of the tabs listed in Step 2 until the amount on the budget tab for this category looks reasonable.

Next Steps

Next week, I will talk about how you can create your budget using the income and expense information you have tabulated so far and corrected.

Download Budgeting Spreadsheet Here

How to Budget Step 5 – Paychecks and Income

How to Budget Step 5 – Paychecks and Income

Your budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More includes your income in addition to money you spend.  In my previous posts on the budgeting process, I talked about setting your goals 

How to Budget 4 – Expenses Not Paid Monthly

How to Budget 4 – Expenses Not Paid Monthly

Your budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More won’t be complete unless you include all your expenses, including those that you don’t pay every month.  In the past three weeks, I 

How to Budget Step 3 – Setting Goals

How to Budget Step 3 – Setting Goals

Setting one to three realistic financial goals is critical to financial success.  In Steps 1 and 2 of this series, I talked about creating systems for tracking and recording your expenses.  This week, I’ll finally focus on the first step I take in budgeting (as described in my very first post), setting goals.

This Week’s Budgeting To Do List

Before getting to the discussion of setting goals, here are your budgeting tasks for this week:

  1. Continue using and refining your expense tracking system.
  2. Continue to enter your expenses into the spreadsheet.
  3. Set three-to-five-year goals.
  4. Convert the goals to short-term, specific action items.

Set Three-to-Five-Year Goals

My first step in the budgeting process is to identify my financial goals.  These goals are statements of what I want to accomplish with stated time frames.  Here are some examples of different goals you might have, depending on your age and your current financial situation:

  1. If you have a lot of student loans, credit card debt, car loans and/or other loans: I want to be debt-free, other than my mortgage, in five years.
  2. For people who can’t quite make ends meet: I want to create a budget and spend less than I make.
  3. If you don’t have any credit card debt and can cover their expenses, including any loan payments, I want to be able to::

a. Buy SOMETHING I WANT or take a vacation to SOMEPLACE I WANT TO GO within three years.

b. Buy a $250,000 house with a 10% down payment within two years.

c. Take maternity/paternity leave and support SOME NUMBER of children starting next year.

d. Start saving as much as possible for retirement.

e. Save enough so I can retire at AGE with SOME AMOUNT of money (before inflation) available every year.

f. I want to give 5% of my earnings to charity each year.

 

Pick no more than three goals, preferably only one or two, to target over the next few years.  Make sure they are realistic.  For example, if your student loans and credit card debt are a substantial portion of your income, it might be unrealistic to set a goal of paying them off in one year (unless you want to take the FIRE concept to an extreme).  Or, if you are 50 and have no retirement savings, a goal of retiring at 55 is likely unrealistic unless you have another source of income.

Turning Goals into Actions

Now that you know where you want to go, you need to identify what you need to do this year that will allow you to achieve your goals.  The list below gives some ideas for the sample goals above.

  1. Goal: I want to be debt-free, other than my mortgage, in five years. This year’s action items:  Adopt one of the student loan pre-payment strategies in this post. Pay all current charges on my credit card every month and not take out any other loans.
  2. I want to spend less than I make. This year’s action items: Create a budget to see where I can cut expenses.  Find an additional source of income that will cover the expenses that exceed my current income.
  3. For people who don’t have any credit card debt and can cover their expenses, including any loan payments:

a. I want to be able to buy SOMETHING I WANT or take a vacation to SOMEPLACE I WANT TO GO within three years. This year’s action items: Set aside designated savings equal to one thirty-sixth of the cost of my purchase every month.

b. I want to be able to buy a $250,000 house with a 10% down payment within two years. This year’s action items:  Research the costs of home ownership, including property taxes, maintenance, insurance and mortgage payments.  Set aside designated savings equal to $1,041 ($250,000 x 0.10 / 24 months) every month.  If the total monthly cost of home ownership is more than the $1,041 a month I am saving for the down payment, make sure there is room in my budget to cover those expenses once I buy the house.

c. I want to be able to take maternity/paternity leave and support SOME NUMBER of children starting next year. This year’s action items:  Research the costs of having children, both the medical costs associated with child birth and the costs of supporting them when they are young.  Learn about how much, if anything, my employer will provide for salary replacement for maternity/paternity leave.  Set aside designated savings equal to one twelfth of the difference between my normal wages and what my employer will pay during my maternity/paternity leave.  Make sure I can adjust my budget for next year so it covers the costs of having children.

d. If you are under 40: I want to start saving as much as possible for retirement. This year’s action items:  Put retirement savings in my budget.  Read Susie Q’s post about various retirement savings vehicles (Roth or Traditional IRAs and 401(k)s in the US or group or individual RRSPs or TFSAs in Canada) to figure out which best suits me.  Make contributions as budgeted.

e. If you are over 40: I want to save enough so I can retire at AGE with SOME AMOUNT of money (before inflation) available every year.  This year’s action items:  Figure out how much money I need to save every year to meet my goals, including reading Susie Q’s posts on how much that is.  (See the last section of Susie Q’s post on Young and the Invested and check back for future posts.)  Put that amount of retirement savings in my budget.  Read Susie Q’s post about various retirement savings vehicles (Roth or Traditional IRAs and 401(k)s in the US or group or individual RRSPs or TFSAs in Canada) to figure out which best suits me. Make contributions as budgeted.

 
For people who want to give to their community by donating money.  This year’s action items: Identify charities to whom I want to give and the best ways to contribute to them, using A Dime Saved’s Guide to Giving to Charity to help inform my decisions.

One Last Tip

It is good to revisit your financial goals every year or two.  In some cases, you won’t have made progress towards them and you’ll want to figure out why and fix the problem or revise the goals.  In other cases, you’ll have made significant progress or attained your goals and can set new goals.

Download Budgeting Spreadsheet Here

 

How to Budget Step 2: Tracking Expenses

How to Budget Step 2: Tracking Expenses

Now that you’ve found a system for tracking expenses for budgeting, it is time to start recording them in your spreadsheet.  In Getting Started with Budgeting, I talked about how to track your expenses.  This week, I’ll focus on the following steps from my very