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A step-by-step guide to creating a valuable financial tool

Updated on July 10, 2016

You can create a personal budget worksheet quickly and simply even if you possess no financial expertise whatsoever. A moderate level of skill in using a spreadsheet, whilst helpful, is not absolutely necessary. Starting with a blank sheet of paper, a pencil and a calculator is a good idea. You can transfer the results to a spreadsheet later, and when the arithmetic becomes a little more demanding. However, if spreadsheets are your thing, then you will have no trouble in translating the following pencil, paper and calculator instructions directly onto your screen.

Columns for headings, months and total

Divide your blank sheet into 14 columns: column 1 for income and expense row headings, columns 2 to 13 for each month’s detail and column 14 for annual totals. Create your 14 column headings: "Income and expense type" in column 1, followed by "Jan.", "Feb.", "Mar." etc., and "Total" in column 14. If you prefer, you can start with the next month instead of January provided you have a column for every month in chronological order.

Net income

Now write "Net income" underneath the heading in column 1. Look at your last pay details to find out your net income. If it’s not a monthly payment, then convert it to an average monthly amount by dividing it by the number of weeks for which you were paid, then multiplying the result by 52 and dividing by 12. For example, if you received $1,538 for two weeks’ pay after all deductions, your average monthly net income would be $1,538/2 x 52/12 = $3,332.

Do this for all your sources of income and add up the monthly totals to arrive at an annual figure. Don’t forget to include things like any bank interest you may receive. Last year’s tax return should be a good guide to your total net income. Just make sure you deduct the tax you paid from your gross taxable income. If you know that your income fluctuates a lot from month-to-month because of seasonal overtime earnings for example, you can incorporate these monthly variations.

Expense types

Expenditure comes next, and it’s important to distinguish between the money you absolutely have to spend (‘Unavoidable Expenses’) and the money you would like to spend after all the basics have been covered (‘Discretionary Expenses’).

Unavoidable expenses

Unavoidable expenses are things like rent or mortgage payments, other minimum loan repayments, food, utilities, insurance, health costs, and travel to and from work. You will probably be familiar with all the headings you need to include here, but check your credit card and bank statements for anything you may have missed. These statements will also be your best source of information about the amounts to include under each month: your rent or mortgage may be payable monthly, your utility bills quarterly and your insurance premium annually. You may like to compare your figures with the U.S. Bureau of Labor Statistics data on average consumer expenditures.

Write your amounts down in the month in which you have to pay them, opposite the description for the expense type in column 1. Do this for all your unavoidable expenses and add them up so that you know how much you have to spend on them each month as well as for the whole year.

Discretionary surplus

Now leave a space and create an extra line on which you are going to write the amount you will have left each month after covering all your unavoidable expenses. This is your discretionary surplus. Subtract your total unavoidable expenses from your total income for each month and create a separate row labeled 'Discretionary surplus'. Some months may have a negative number, meaning that your income for the month was less than your unavoidable expenditure. This is not a big problem. You don’t need to start worrying unless the annual total is a negative number.

Discretionary expenses

Next comes the fun part, when you get to allocate your surplus funds to the activities you enjoy. Go back to your credit card statements as a guide, and list the individual amounts you think you can afford to spend on things like entertainment, eating out, holidays and new clothes - whatever your lifestyle choices are. Preferably allocate these discretionary expenditures to months where you already have a surplus after covering your unavoidable expenses.

Balancing your budget

Add up your discretionary expenses and take the total away from your discretionary surplus. Once again, a negative figure in one or more months is not a problem, but the annual total must be a positive number. If it isn’t, you need to go back and trim some of those discretionary expenses until you have at least a small annual surplus. This is an amount you can either invest or apply to reducing any existing debt you may have.

As you can see, creating a personal budget worksheet is neither complicated nor particularly time consuming. It is a vital tool for controlling your personal finances, and by comparing your actual result each month with your budget you will be able to tackle any developing financial problems before they become overwhelming.


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