Do I Really Need a Budget?
A budget is an estimate of your income and expenditures for a given time period. It can be for any period of time you set and for whatever purpose you like. While a budget can be very helpful in our personal lives, it can also be helpful for those who are trying to transition from a full-time job to entrepreneurship. If you have never thought about it before you may be wondering, “Do I really need a budget?” The short answer is “yes”.
Whether you want to be able to live within your means or you want to save up for something like a vacation or retirement, a budget can help keep you on track. Income is money you receive from employment or investments. It can be regular employment you are paid in the form of wages or the return you receive from an investment, like rent from a rental property, for example. A common question that arises is how do you make a budget with no money? Let’s take a look at that.
How to Create a Budget with No Money?
It may seem difficult to create a budget when it feels like you don’t have any money but that’s when budgeting is most important. Don’t look at budgeting as a punishment or chore, see it as a way to ensure you’ll be able to both meet your monthly expenses and to reach your financial goals. Do you feel like you’re living paycheck to paycheck? Are your checks already spent by the time you get it? That may be because you don’t have a budget. Chances are a budget will help you identify where you can find an extra dollar here and there.
How Do I Calculate a Monthly Budget?
A budget must be written down. You can use a piece of paper, a worksheet, an online app, or a spreadsheet. Budgets that are kept in your head will not work because it’ll be virtually impossible to remember everything. While there are many different types of budgets out there I find that the simplest way is often the best way, especially if you’re just getting started.
Of course, tweak any suggested budget so you feel comfortable with it. If it’s too restrictive chances are you won’t stick with it. And it shouldn’t feel like a punishment, but a rewarding process that helps you see actual results. To calculate a monthly budget, first, start out with every source of income you receive each month. If you don’t receive the same income every month take a look at your income for the past three months and use the average.
What Should Be Included?
Remember to take into account everything, whether it’s income, government assistance, child support, alimony, retirement income, everything. Be sure to include the amount you receive after deductions including taxes, health insurance, or anything else that comes from your income. This amount is your net income and is what is left over to include in your budget.
Next, write down all of your necessary monthly expenses. I know that the term “necessary” can be somewhat fluid, depending on who you ask. When I say necessary I mean things like rent or mortgage, medications, utility payments if you pay for heat, electricity, water, or sewer services, loan, credit card payments.
Also include the average amount you spend on food each month. We’ll come back to this but for now, estimate how much you spend based on spending from the past few months.
Next take into account expenses for things you want to keep like a car note, car insurance, storage unit, security alarm. Of course, you may have other expenses that aren’t listed here but this should get you on the right track. Now comes the fun part. We get to give you a raise! Well, at least this should feel like you’re getting a raise once you’re done. Take a look at all of your expenses.
Your income won’t change for now but in this next step we’re going to try and reduce as many of your expenses as possible so you have more disposable income, or leftover money once your bills are paid. If you have a mortgage or car note, is it possible to lower your interest rates? The interest we pay on these large ticket items makes a huge impact on our monthly payments. A reduction as little as .25% can save you a measurable amount each month.
How Can I Reduce My Expenses?
You’ll also want to contact your credit card companies for interest rate reductions. Next, contact your utility companies. Is there a way you can conserve energy to save on your utility bills? Are there a few cable channels that you can live without to lower your bill? Cable companies will often lower your bill if you threaten to move your service to a different provider. Even better yet, maybe a service like Hulu or Netflix can replace your cable for an immediate reduction in costs. Food costs are often the easiest to reduce if you are someone who eats out a lot.
The cost of purchasing groceries and cooking is way lower than the cost of eating out. If you eat lunch out every day consider preparing your own lunch to give your wallet a break. You can even bring in your own snacks to save even more. Sodas and bottled water from a vending machine can be $2.00 per bottle, but a case of a can of sodas in many places can be purchased for $10.00 or lower, bringing each soda to about .83 cents. Here in the U.S, a case of water is even cheaper. Once you have determined what your final expenses will be, use those figures as your final number for each item. Now that you have your numbers we can create a budget!
How to Make a Budget in Excel
Many people ask how to create a budget spreadsheet. If you’re familiar with Excel it’s not too difficult, but if you’re not familiar with it, there is somewhat of a learning curve. The good thing about using a program like Excel is you can create a budget template that can be used for different purposes.
You can save one version as a monthly budget, maybe one as a yearly budget, and if you get paid and pay your bills weekly, you can even create a weekly budget. Whatever is the easiest way to get started, do what makes sense for your household.
Let’s create a sample budget. In this example, we are creating a budget for Marty. Marty is single with no children, he works as a bank teller, owns a car with no car note, has basic utilities, a cell phone, and does not cook. Let’s take a look at his monthly income and expenses.
Sample Budget for Marty Using Excel
How to Create a Budget Online
Excel spreadsheets are great to use because of the ability to use formulas, but if you want to be able to see your budget and make edits on the go, it may be easier to use Google Sheets, a web-based tool. If you have a Gmail account you can log in and use sheets right away. If you don’t have a Gmail account you will have to obtain one first. It is free and easy to set up. Just go to mail.google.com. This is the same spreadsheet of Marty’s budget using Sheets:
You can see in Marty’s expenses that he has room for reductions. He spends a lot on food each month. If he would buy groceries and make his own meals he could easily lower it, giving him money to set aside in savings. Where can you save money in your budget?
Planning Worksheet
A budget worksheet can be very helpful when planning your budget. I have always been one to prefer a written budget to one that’s on my computer. There’s something about having the ability to look at it, write on it, and see it in my hands that helps me a lot. I use worksheets for a lot of things, but they work particularly well for budgets.
Below this post, I’ve linked the personal expense tracker I use whenever I go through the exercise above. When my expenses get too high, I re-examine them to try and lower them using this exact tracker.
I hope it will help you give yourself a little raise and to get your expenses in check. If it is your goal to eventually become an entrepreneur, I hope these can become valuable tools in your arsenal.
Do you have a budget? Has it helped? Download the free template above and share your experience with budgets below!
5 Ways to Drastically Cut Your Grocery Bill
Maintain a Healthy Grocery Budget
Your biggest monthly spend, aside from your mortgage, is most likely groceries, eating out, and toiletries. And, unlike your mortgage, vehicle payment, and the majority of your other bills, you have some influence over how much you spend at the supermarket.
Make a Shopping List
Begin by keeping track of your grocery expenses for a few weeks. Create a weekly or monthly budget from there. Set aside that amount for groceries and don’t go over it. I can’t emphasize this enough! Create your list and go straight for those items. Eat before you go and don’t let yourself be tempted to add additional items you didn’t intend to buy.
Next, try decreasing your monthly budget by $20. Continue to discover how low you can fall. The remaining suggestions will assist you in doing so without feeling like you’re missing out on anything.
Maintain a Price Book
Who doesn’t enjoy a good deal or a bargain? They’re all over the store, but how do you know if the discount they advertise is genuinely saving you money?
Keep a small notebook or a text document on your phone with the typical pricing of the things you purchase on a regular basis. You can not only see if that “discount” is truly a deal, but you can also figure out where the cheapest kitchen staples are and modify your buying accordingly. When looking through weekly shopping fliers, your pricing book will come in handy. Long before you step foot out the door, you can assess if an item is worth driving to the store.
Make a Few Budget-Friendly Dishes
You don’t have to make huge adjustments and live on rice and beans for the entire week (even though that can be pretty good). Instead, consider a few low-cost dishes that your family appreciates. Rice and beans are a possibility. Consider a large pot of soup or stew. Meatless recipes are often the most cost-effective option or use meat in modest portions on frugal dish days.
Even a few frugal meals per month, paired with using up any and all leftovers, will make a significant difference in your shopping budget.
Look at the sales papers and decide what you’re going to make, depending on what’s for sale. Using circulars to help plan your meals will ensure that everything you buy will be at a reduced price.
Remove the Extras
Before you go to the store, make a list and stick to it. All the tiny touches, like the bakery’s beautiful bread. Like I said before, eat before you go and if you want a treat, fine. Just add it to your list and don’t go overboard.
Don't Let Unexpected Expenses Crush Your Budget
How to Create a Business Budget
A business budget is not much different than a personal budget. You have to take into account your revenue and your fixed expenses like rent, payroll, and expenses related to marketing and business management. A business must also take into account variable expenses as well since certain expenses can change from month to month.
A business has to rely on projections based on past performance to a much greater extent. Revenue is harder to predict than a paycheck. With a paycheck you can calculate the number of hours you worked and predict how much you will receive or rely on your salary to predict your pay. Of course, unless you are under a contract at-will employment is not guaranteed but you get the point.
So, remember when I said you would get a raise after creating your new budget? Well now’s the time to determine what to do with your savings. Will you pay off credit card debt? Will you put the money into a savings account? Maybe you want to start purchasing the products or services you will need to start your business. Saving money while still in your full-time job is one way to ease your way into entrepreneurship so think carefully about how your newfound savings can best place you in a position to reach financial freedom.