- A budget gives you visibility of spending habits
- No two budgets are the same
- “Net” is unused cash that you can use to invest more the next month
Like most people, my mother always told me to eat my veggies at dinner. I hated receiving the same repetitive advice over and over again, but years later I realized why those words of wisdom made sense. It kept me healthy in the long run.
Budgeting is similar.
One of the most common pieces of advice you’ll hear from financial professionals is that you need a budget. And just like eating your vegetables, it’s a good idea. Not only does a budget give you visibility into your spending habits, it can help you find savings and let you invest more.
Once I got my first paycheck from my first full-time job, I made a commitment to being responsible with my money and not falling into bad spending habits. So, I created a budget spreadsheet using Google Sheets that I still use years later.
Here’s how it works:
*Note: The numbers in these screenshots are for illustration purposes only.
Money In (Income)
The income section of my budget spreadsheet lays out all sources of income, including bimonthly paychecks and rollover cash (I’ll explain what that is later). I also keep an ‘Other’ category for additional or unexpected amounts of money that may come in, such as gifts or freelance work. If I were to win the lottery, my winnings would go here.
What’s Rollover Cash?
Rollover cash is money that’s sitting in my wallet and bank account at the end of every month. It’s essentially my cash savings from month to month. Since my rent is due at the beginning of every month, I use this cash to pay rent. However, the more rollover cash I have at the end of every month, the more I get to save and invest during the next month. So my goal is to increase my rollover cash by spending less.
Money Out (Expenses)
For expenses, it’s important to be transparent about the things you purchase on a monthly basis — and trust me you spend way more than you think you do.
Anything you buy should fit into one of the budget categories that you create (e.g. a bottle of water would go into ‘Miscellaneous’ and Netflix would go into ‘Subscriptions’). I’m committed to tracking every single purchase that I make throughout the month. It sounds like a lot of work, but it’s a process that I actually look forward to. I try to enter the information into my spreadsheet each night before I go to bed.
“I try my hardest not to go over the limit for each of my budget categories, but life happens sometimes.”
My expenses include basic things like rent, student loans, and groceries. The figures in the ‘Budget’ column are my spending limits for the month. The ‘Actual’ column is, as its name implies, what I’ve actually spent throughout the month. The ‘Left To Spend’ column outlines what I have left to spend in each category before I hit my limit.
I try my hardest not to go over the limit for each of my budget categories, but life happens sometimes. For example, there are times when I’ll overspend on social activities or entertainment. Overspending in a specific category gives me less money to save, so I try to do better the next month.
Money Up (Investments)
The “Investments” section has two main categories: brokerage and Individual Retirement Account (IRA). Most of the money I set aside goes into well-balanced funds with a mix of stocks and bonds in brokerage accounts. I prefer investing to saving because investing has the potential for higher returns. Nevertheless, I also have a stash of cash in a savings account, worth three months of expenses, in case of emergencies.
I also contribute to my IRA on a monthly basis because retirement is important.
The Bottom Line
The bottom line is what I call the ‘Net’. This is unused cash that I can use to invest more the next month. The number on the left is what I should have left over at the end of the month for rollover cash. The number on the right is what I currently have. My goal is for the number on the right to always be equal to or greater than the number on the left. If it isn’t, I try to do better next month.
How You Can Use It
This budget spreadsheet has helped me to control my spending, save thousands of dollars, and regularly travel abroad. (I’m a single person with no kids.) I’m already very aware of my finances, but this budget spreadsheet has given me complete visibility into how I’m spending, where I should cut back, and how I can save and invest more.
No two budgets are the same. Everyone has different priorities and preferences when it comes to spending, investing, and even viewing financial information. Your budget doesn’t have to look like mine, but you do need one if you want to keep your financial life in order.
Simple lessons that my mother taught me in childhood have had a big payoff in adulthood, and the same goes for simple lessons of budgeting.
Want to download this spreadsheet template and customize it? Click here.