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In today’s world, budgeting apps are all the rage, and they can certainly be helpful tools. But if you’re like me, you might prefer to have full control over your budgeting process by creating and maintaining your own budget spreadsheet. I often recommend this to my clients because it gives you a clear, detailed view of your financial situation. However, there are a few things to keep in mind if you decide to go the spreadsheet route.
Budget by Paycheck or by Month
One of the first decisions you’ll need to make is how frequently you want to budget. Personally, I find that it’s most effective to budget either by paycheck or by month. For example, if you get paid every two weeks, it might make more sense to structure your budget around that two-week cycle, rather than trying to budget for the entire month. This ensures that your budget aligns with your cash flow, making it easier to manage your spending.
Include 3 Key Columns in Your Budget
When creating your budget, I always recommend including three key columns for each line item:
Actual Amount Spent
Budgeted Amount
Variance (the difference between the budgeted and actual amount)
These columns are critical because they allow you to see where you might be overspending or underspending. If you consistently go over your budgeted amount in a certain category, it’s a signal that you need to adjust that budgeted figure to reflect reality. A budget is only helpful if it’s accurate, so don’t hesitate to revise your numbers when necessary.
Cover All Your Bases
Your budget should include all regular expenses, as well as savings. Typical categories might include rent or mortgage, Internet, cell phone, utilities, food, and transportation. But don’t forget to include a line item for entertainment and unexpected expenses—these are often overlooked. I tell my clients to aim to save about 10% to 15% of their income. And if you’re under-budget on unexpected expenses, funnel that extra money into your savings.
Keep Your Budget Realistic
One of the biggest challenges people face with budgeting is being overly optimistic. If your budget is too tight, you’ll constantly find yourself over-budget, and your figures will simply become wishful thinking. On the flip side, if your budget is too loose, you’ll miss out on opportunities to save. A good budget strikes the right balance, pushing you to save but also allowing for some flexibility.
Update Your Budget Regularly
A budget isn’t a set-it-and-forget-it tool. To be truly effective, you need to revisit and update your budget regularly. I recommend doing this every six months. This gives you enough time to accumulate data on your actual spending habits and adjust your budget based on those trends. Budgeting isn’t about perfection; it’s about creating awareness and developing better financial habits over time.
Final Thoughts
At the end of the day, a budget is simply a tool to help you build good financial habits and stay aware of how much you’re spending. The key is organization and tracking. A well-maintained budget spreadsheet can be incredibly empowering, and it doesn’t require fancy software to be effective. Just remember to be realistic, stay flexible, and review your numbers regularly.
Happy budgeting!
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About the Author:
David Peters, CPA, CFP, ChFC, CLU, CPCU, CGMA, is the Founder and Owner of Peters Professional Education (petersprofessionaleducation.com) and Peters Tax Preparation & Consulting, PC. David Peters is also registered with the U.S. Securities and Exchange Commission (SEC) as an Investment Advisor Representative (IAR) with Peters Financial LLC. He regularly teaches courses in accounting, finance, insurance, financial planning, and ethics throughout the United States, and regularly contributes regularly to various professional publications, including NCACPA’s Interim Report, SCACPA’s CPA Report, and VSCPA’s Disclosures.
Required Disclosure:
The content presented above is for informational purposes only, is general in nature, and is not intended to and should not be relied upon or construed as a financial plan or financial/investment advice regarding any specific issue or factual circumstance.
Financial and investment advisory services offered through Peters Financial LLC. Brokerage and custodial services offered through Charles Schwab Co. Inc., member FINRA and SIPC. Peters Financial LLC and Charles Schwab Co. Inc. are not affiliated. David Peters also offers tax services through Peters Tax Preparation & Consulting, PC. Peters Tax Preparation & Consulting, PC is not affiliated with Peters Financial LLC and clients or prospective clients are never obligated to use Peters Tax Preparation & Consulting, PC. as part of any financial planning or investment management services offered by Peters Financial LLC.
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