Budget Planner Template

Using A Budget Planner Template

I recently received an email from John about using a budget planner template.  He wrote:

“Hello, I’m feeling a little lost and have some questions in regards to budgeting and saving.  1. Which budget planner template should I use?  2. From the total salary what percentage is ideal to spend for various needs, and how much to be saved for future?  Any insight would be greatly appreciated.”

It’s a question that we all must answer. Even if some of us would prefer to ignore it! Because, with rare exceptions, we all have to deal with having just so much money to cover all our expenses. And, if we spend more than we take in for very long we get into trouble.

Let’s look at a “typical” budget planner template. Then we’ll discuss it.

Category% of Income
Housing35%
Food15%
Auto15%
Insurance5%
Entertainment5%
Clothing5%
Medical5%
Everything Else5%
Savings10%

Understanding The Budget Planner Template

Budget Calculator

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The first thing you’ll notice is that I didn’t include any taxes (either income or Social Security). You can choose to do that if you like (in fact, it’s a real eye opener). But for our purposes it’s easier just to deal with your ‘take home’ pay.  The second thing to notice is that this is a guideline, not a straight jacket. The truth is that very few of us will fit into this exact framework.  So if your spending doesn’t match, don’t despair! Analyze the situation before you panic!  Try our free excel budget template!

Customize the Budget Planner Template To Fit Your Wants & Needs

For instance maybe your entertainment spending is closer to 10%. Is that a problem? Maybe not, if you’re young, single and sharing an apartment with three friends. In that case what you save on housing is going for entertainment. So overall you’re not spending more than you’re making.  Or you may be a city-dweller where housing is very expensive (think NYC). But because of public transportation you don’t own a car. So the extra you spend on housing is offset by the reduced spending on transportation.  You get the idea. Tailor your spending plan to your needs. And, adjust it as you go through life and your needs change.  One other thing to notice is that housing, food and auto make up the lion’s share of the expenses. That’s true for almost everyone.  It’s in those three areas that most families get into trouble. Most often by buying a home or vehicle that they cannot afford. But once the commitment is made it’s very hard to undo.

Categorizing Your Expenses

You might wonder where a certain expense goes. For instance, household cleaning supplies. Many people buy them at the grocery store. So are they a housing or food expense? The answer is: it doesn’t much matter. Put them wherever it seems best to you. The key is always putting them in the same place, so you can compare results from month to month.

Another common question is what should I do with charitable contributions. You can either take it off the top (like taxes) or create a separate category for it. If you believe that contributions should come before your expenses you’ll want to take it off the top. If you think that it’s part of your regular spending then include it as another expense category.  For a budget planner template to be effective you must continuously follow your progress.

How Much Should You Save?

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Finally, let’s look at John’s question about saving. There probably isn’t any single right answer, because saving isn’t really an expense. It’s an investment for a better future.  So I prefer to think of savings in terms of priorities. Before I can put money aside for savings I need food and a reasonable shelter. Probably also need dependable transportation to get to my job.  But after those basic needs are met, it’s time to begin saving some money. Not necessarily the 10% in our guidelines, but 2, 3 or 4%. Enough so that there’s some money set aside for the so-called unexpected expenses that happen to us all (dead appliances, home and auto repairs, unexpected sickness, temporary lack of work).

One other comment about savings. Paying off debt (especially credit card debt) is a little like savings. Consider payments used to reduce the amount owed as if they were savings or a Bank CD.  Finally, for those of you who don’t want to bother with any of this. I know what you’re thinking: I’m fine and don’t need any help monitoring my money. Just remember that most people who are in trouble today said the same thing when everything looked good to them.

 

7 Effective Budgeting Strategies

7 Effective Budgeting Strategies

For effective budgeting strategies, it’s important to understand the difference between budgeting principles and budgeting methods.  When talking about budgeting principles I am referring to the underlying reasoning and rationale behind effective budgeting.  The principles aspect has to do with the “why” behind approaches to budgeting.  Effective principles of budgeting do not change over time, just as principles of mathematics do not change over time.  After all, no matter how much the technology around budgeting advances, $3 less $2 will always equal $1.

When talking about budgeting methods I am referred to the “how” in terms of the tools, systems, and resources one employs to apply budgeting principles.  But budgeting methods also has to do with various systems of budgeting one chooses to use to manage their money.  The budgeting methods are as follows: the all-cash budgeting method, the envelope system, as well as check, debit card, and credit card budgeting methods.  What this means is one person may track their budget using a pencil, paper, and their checkbook.  Another may do so using credit cards and the latest integrated cloud-based personal finance software.

You can also take advantage of our budget calculator, which will assist you in creating a monthly budget.  Yet despite the use of vastly different budgeting methods, each of these individuals could be equally proficient in applying principles of effective budgeting strategies.  And what are these budgeting principles I’m referring to?

7 Effective Budgeting Strategies

  1. A budget needs to tie to how much money you actually have in the bank.  It does no good if you’re budget says you have $100 to get through the month, but in reality your checking account is Effective Budgeting Strategies Monthly Budgetoverdrawn $200.
  2. A budget needs to be realistic.  Your estimated income and expenses need to be as close an approximation as possible to your actual income and planned spending.
  3. A budget should cover a specific period of time.  Monthly budgets are best in most cases, but other budget periods (such as annual budgets) can also work if they more logically track your income and expenses.
  4. You should be able to update your budget quickly and easily.  While this may sound like mere convenience, it’s important because if you find your budgeting method to be excessively cumbersome there is a danger you could stop doing it altogether.
  5. A budget is a vital communication tool, so it should be intuitive and easy to understand.  Specifically, you should be able to clearly tell where your money is coming from, and where it’s going.
  6. A budget’s format should be flexible.  This will allow you to easily modify it as your preferences and circumstances change over time.
  7. You have to be committed to and respect your budget.  If you’ve budgeted $40 for entertainment and you spend $400 then you’re wasting your time.

This is okay, because as long as you follow effective principles of budgeting there are many different budgeting methods to choose from. Having effective budgeting strategies will allow you to better manage your finance to meet you financial goals.  As long as you incorporate the principles outlined above, you can employ the budgeting method that best reflects your own personality, preferences, priorities, and circumstances.