Creating your first spending budget

As mentioned in my last article, “Getting a grasp of your own spending habits”, I was going to write up an article on budgets and getting reports on your spending. So, what we’ll look at is how you can use a simple tool like Microsoft Excel or Google Sheets to connect your spending with a budget. It’s really simple so this won’t be a super long article.

It’s not about rigidity, it’s about freedom

First of all, it’s not about being rigid, strict and never spending money on something fun. Quite the opposite, budgetting to me is supposed to allow you to spend your money on fun things. What budgetting does, is give you the structure to know that you will always have your necessary costs covered, and giving you the rest to spend as you wish. I call this “Guilt free spending” from Ramit’s book “I will teach you to be rich”.

What it comes down to then is simply to give you the breathing room to enjoy the money you’ve worked for, while not completely ruining your finances in the process. And the best part is, you can be as structured, detailed and as rigid as you wish. You set the level. However, I would highly recommend that you set a low bar for yourself in the start to get a feel for budgetting. So not overcomplicating the numbers and being overly strict with yourself.

With that said, let’s get into how you start.

Getting what we need to create our budget

Now, before we start, I assume that you have already taken an inventory of your spending from at least the past 2-3 months? If not, go read my article “Getting a grasp of your own spending habits”, and then come back here. Keep in mind that the template I provided in that article can be replaced with the one I have created for this particular article, as it contains an expenses sheet as well.

So now that you have all your expenses in the spreadsheet, and you have categorised all expenses, you can get the sum for each category through the use of the function SUM() in the spreadsheet tool, either Google Sheets or Microsoft Excel. You can do this however you like in terms of the structure in the file, the point is that you can get a summary of the amounts you spend on each category.

For reference, you can check out the template file I provided at the bottom of the article. Underneath the sheet named “Overview” you can see how I went about using the SUMIF() in Google Sheets to get the specific categories and the sum of their respective amounts.

Ok great, now you’ve got your sums for each category. Let’s get to finding a number for your budget.

Setting an amount for each spending category

When setting an amount for a specific spending category, you need to of course take into your previous spending habits. But you also have to think about how realistic they are based on your general spending. Do they reflect a typical spending month for each category? Do some amounts stick out as more a unforeseen expense? Maybe you invested in some new things for your home? Or bought extra amounts of food for that one dinner you hosted?

All these small variables are what make budgetting not as simple as just setting an number that equals the average you spend. You need to give yourself some wiggle room, just in case your friends decide that it’s time for another dinner at your place. But you don’t have to go crazy here, I usually aim for around 5% of wiggle room.

Keep working through each spending category that you have set up. These don’t have to be extensive and split up into every single type of expenditure you can imagine. For example, “Snacks” could include not just a banana on the way home from work, but also that coffee and muffin you have with your friend every other week. You can easily add granularity over time as you accumulate more and more expenses in your list.

Fantastic, now you should see your first budget forming in front of you. Hope it feels as great as it did for me when I created my first budget. Let’s talk about where we go from here and how you stick to your budget.

The hardest part is over, now comes the boring stuff

Now that you have both your spending habits in your list of expenses figured out and you have your first budget set up and ready to be used, you are ready to really get a grasp of your finances. What you have given yourself now is the foundation for much more stable and healthy spending of your well earned money. But the work doesn’t end here.

You have now put in the ground work, and the hardest part is truly over. But, in order for you to stick to your budget, you will have to keep entering your expenses into your spreadsheet. This only works if you don’t skip this at any point, no excuses are accepted because these are your personal finances we’re talking about. So you need to create a new habit of doing that work.

I like to make it my Sunday activity. As a matter of fact, I’m sitting and writing this very article on a Sunday and I’ll be doing my weekly spending work right after I finish this up. I’ve been doing it for the better part of 3 years now and the habit has become something I really enjoy, as I get instant insight into how I’m spending my money.

And what will happen over time, is that you will change the way you spend your money and the way you think about how you want to spend your money. Because with time, your budgets will change as you realise the amount of money you spend on unnecessary things, and the amount of money you actually can spend each month. And as you see your savings increase, you realise how much you can achieve in very little time.

All that is required, is that you create this new habit, and keep track of your money on a level that you are at least somewhat comfortable with and can maintain over time. So don’t overdo it and don’t overcomplicate it for yourself. Set a day each week, or every other week, where you go over your expenses and put them into your spreadsheet. I’d recommend weekly as it means less work each time you do it.

Final words

That’s about it really. It’s not that complicated, at least I hope it didn’t feel like it as you worked yourself through this. Hopefully it’s also been valuable, that you’ve learned something or at least realised something new, or just enjoyed the reading. I’m still figuring out what I’m writing and how I’m writing, even after years of writing in different formats and different mediums.

With all that said, I’m working on a, well, I think I’d call it an app, but really it’s a platform. I call it Budyet, and while it sure sounds like it, it is not just another budgetting app. I’ll be sharing more about it as it becomes more mature, so be sure to keep an eye out on my social media accounts for any updates.

In the end, budgetting and keeping track of my expenses fundamentally changed my relationship with money and what I have been able to do with it as a resource. I hope it can do that for you as well. And as I mentioned earlier in the article, you can find a clean template that is pretty much exactly the same as my own spreadsheet I used for years, down below.

Google sheets icon Budget template