One of the most common pieces of money advice is to make a budget.
What is a budget?
A budget is a plan showing your estimated future income and expenses over a given period of time. It can be tailored to fit one person, a group of people, a institution, or corporations.
The importance of a budget
To manage monthly or annual finances, prepare for life’s unpredictable blows to the stomach, and to build up enough savings to fulfill one’s wishes, a budget is important.
Sadly, too few people budget on a regular basis – only 32% of U.S households do monthly budgeting. And since you are here, you may be one of the 68% who doesn’t track your finances regularly.
But what’s the reason why you and other people don’t budget?
Why people don’t budget?
There are multiple reasons why people don’t like to budget, although they know deep down it would be the best decision.
1. It’s time-consuming: Managing a budget, and tracking one’s expenses and income can take a lot of time without a system and a great template. This results in people skipping the budget exercise, which often leads to zero control and bad financial decisions.
2. No fruits from my hard work: This is a personal observation I’ve done, and it’s about people using a too simple template. If it’s too simple it can be hard to find the root of the problem. Not only that, but it might also miss out on features that display the positive consequences of keeping a budget. This leads to a lack of motivation and thoughts like “why even bother budgeting?”
3. No Goals: If you don’t set up goals yourself it can be hard to even see why a budget would help you. That’s why I believe that within every budget template a list of goals should be displayed to keep up the motivation.
How to make budgeting a fun process?
A budget can be boring, unmanageable, and time-consuming, and if that’s the connotations that you put toward budgeting, it’s understandable why you don’t budget.
That’s why I want to show you how you can make budgeting a fun and simple process.
First thing first, we want to automate the spreadsheet as much as we can to eliminate most of the manual typing. That would increase efficiency, make it more manageable, and less time-consuming.
Then we want a somehow detailed template that displays all the features we need to both track our finances, but also to show us the potential reward we get if we keep going.
Finally, the template must include a section, where we can write down our goals.
You can support me and buy my template here, or you can make one yourself, which I’ll show you how to do.
Create a budget template in 4 steps
When creating the template we must remember to split it into different tabs to avoid having one sheet displaying the whole machinery. Thus, we follow these 4 steps:
Step 1 – Budget Setup
The first tab you would make within your Excel or Google Sheets is a ‘Budget Setup’ tab. It could be like the one below, which is the one included in my template.
I like to divide it into two colors; red/orange for expenses and green for income and savings. Then I split the expenses section into three different tables. One for my variable expenses such as groceries, unforeseen costs, shopping, etc., one for my bills, and finally one for my debt payments.
On the other side I make three tables as well; one containing all my income streams such as paychecks, side hustle, dividends, etc. one for my different savings accounts, and lastly a table for my investments.
Make sure to have two columns in each table; Category and Expected. Under category make a dropdown menu using the data validation feature (here’s a tutorial for how to do it ). On the right side of each table, you just put in the expected amount for the month.
Pro tip: I find budgeting more fun when the spreadsheet looks appealing to the eyes, and therefore I would recommend playing with colors as well.
Step 2 – Transactions
The second step is to make a transactions tab, that shows all your transactions for a month. This is the tab you would go to every time you’ve made a purchase or received money.
Making this tab is fairly easy. You make two tables containing four columns; Date, Description, Category, and Actual amount.
Then you make a dropdown menu under the category section just like you did in step 1. After you’ve done that this tab is finished – you just fill in the date, description, and the actual amount spent or received every time you make a transaction.
Pro tip: Overview is key to great financial decisions, which is why I recommend building two boxes on top of the tables displaying the current amount spent and received. This can easily be done using the SUM-function.
Step 3 – Trackers
It’s important to see how you actually spent your money compared to your expectations, and if you did earn the money you estimated beforehand. That’s what the trackers’ tab is all about.
This tab is a bit more time-consuming to make, but the effort is worth the end result.
Let’s start with the four tables on the left side; bills, debt, savings, and investments. Those tables should consist of three columns; category, expected, and actual. And if you remember the first step, we did already estimate the expected amount, and we need to use that now.
By using a “SUMif”-function, we can sum all the numbers per category in our trackers, which means every time we change the expected amount in a given category in the ‘budget setup’ tab it will automatically change in the ‘trackers’ tab.
You might think “why can’t I just use a sum-function, since it’s much easier?“. The reason why is that if you later choose to remove or change a category, the trackers would display the wrong numbers for the wrong categories. While you could fix this with a lot of manual work, it wouldn’t be worth it in my opinion. Instead, use the SUMif-function.
When that’s done the rest is pretty easy. Now you just type in the actual amount spent or received and sum it all in the ‘total row‘ in each table. This would help you see how you did compared to your expectations.
Pro tip: Too many budgets miss out on a subscription table, that tracks your subscriptions, which is why you should make one. Remember to connect the total subscription amount to your bill-tracker. By doing this you don’t have to remember all your subscriptions, and you can easily add, remove or change any subscription.
Step 4 – Monthly Dashboard
The last tab you must make is a monthly dashboard tab, that quickly gives you the overview you need in seconds.
First, make the six summaries you see in the middle; bills, debt, expenses, income, savings, and investments. Again you’ll need the SUMif-function from before to sum the total amount in both the ‘expected’ and ‘actual’ column using the numbers from the three other tabs you just made – I bet you are beginning to see how this is coming together as one big automated machine.
Above the six tables, you should make four diagrams; cash flow, expense breakdown, income breakdown, and allocation breakdown.
To make the three circle diagrams, select the ‘actual column’ under each of the three tables, then go to ‘insert’, and choose 2-D pie.
In order to make the last diagram, you must first make a monthly cash flow table like the one to the left. This is done by taking the total amount expected, and the total actual amount within each table. When that’s done you select the two columns to the right in your cashflow table, go to insert, and choose 2-D bar.
All this information might sound confusing, but try looking at the pictures, and just experiment with building your own budget. If you don’t want to build it yourself, you are welcome to buy a finished template of mine – this would save you the time and you are supporting me as well.