Do you want to maximize your income and invest your savings in order to increase your net worth and maybe even retire early? Well then, it all starts with a budget.
An itemized budget which covers all the basic budget categories, is one of the most important tools you can use to help take control of your finances. But where do you start?
My Budget Template Google Sheet is all you need to get started. (The worksheet is downloadable within my free budgeting basics course. That's why the above link takes you there.)
What Is a Budget?
A personal budget is a spending plan. It shows you what you will have left after you take your income and subtract all your expenses each month.
To create a budget, you need to break down all of your spending into categories, so you can clearly see your spending habits and where you might be overspending.
So That's ALL I Have to Do…and Eventually I'll Be RICH!?!
A personal budget is like a road map to your financial future.
But what good is a road map (or GPS on your phone, for those of you who’ve never seen a map) if you don't follow it or listen to the directions it's chirping at you?!!
If this analogy has confused you, it's because it's a crappy analogy. But, what I'm attempting to say here is that a budget is only one of the two critical requirements to financial success.
The second super critical requirement with budgeting is tracking your spending accurately (aka bookkeeping), and then comparing the results against your budget.
I also wrote this other article about tracking your spending, fyi…You Need to Track Your Finances (Like a Business)…and You Hate It…Now What?!?
But for the sake of this post, I'm going to focus on the personal itemized budget categories. The truth is that you don't have to have a master’s degree in Excel finance to make a more than adequate budget!
Actually, you don't even need to know how to make a budget in Excel (or Sheets), because I'm going to give you this Budget Template Google Sheets Masterpiece to use and work off of. Aaah, don't mention it. Really, it's no biggie.
What Are Personal Itemized Budget Categories?
You personal budget is made up of income and expenses. And while income is technically a category, expenses make up 98% of categories.
Now, not all categories apply to everyone, but the vast majority do. Like if you don't have kids, not only will you save a lot of money (ha!), but you won't need that category.
Some people will need to track their student loan costs, while other lucky bastards will have already paid off their student loans—or better yet, had their parents pay for their 4 year party adventure. (Nice work on that scam.)
What Kind of Budget Should I Use? Shouldn't I Be Stuffing Cash Into Envelopes Every Month (or Something to That Effect)?
There are a lot of gimmicks out there when it comes to budgets. The “50/30/20 Budget,” the “Envelope Budget,” the “Pay Yourself First Budget,” blah blah blah. There are as many cute names for budgets as there are for diet trends.
Don't get me wrong, I get that for the people that hate counting things and don't like spreadsheets, gimmicks can make it seem more “fun” and “interesting”…and I really do support anything that helps you start a budget.
The problem is that people often truly don't know where to start with a budget, because they really don't know how much they spend. And so they get stuck.
You can throw estimated numbers into a budget all you want, but if you don't know how much you actually spend on your life, you won’t know if it's a practical estimation…or what would be a practical reduction to save money.
Wait—what? You haven't tracked all of your spending for the year in some kind of computer software? So you can't actually see how much money you spent and on what? Oh. Yikes.
Soooo how do you know if you spent more than you made? (Sorry guys. Don't worry…I'm not going to make you feel bad anymore. I'm just glad you're here now, and we can FIX THIS! If you haven't read it already, here's the link to get you “on track” with tracking your finances…You Need to Track Your Finances (Like a Business)…and You Hate It…Now What?!?)
Alright, back to the budget.
OK, So What Does Your Itemized Budget Look Like, Joe?
Well here ya go! Below is my current budget and budget categories. It basically looks like what you will find in that Budget Template Google Sheet included in my free budgeting course.
FYI…A year ago, my family and I moved across the country from Los Angeles, CA to Dunedin, FL. We did this largely to reduce our living expenses so we could spend more time with our son. Believe it or not, this current budget is 60% less than our last LA budget. Kinda insane.
How Did You Determine the Main Itemized Budget Categories?
My first budget was originally made sometime in the 90's…haha. So obviously, the categories have been tweaked and altered over the years. Likewise, you'll find the need to adjust yours to your preference and current life situation.
For example, when my wife and I joined our finances, I added in a sub category under “Personal” for her clothing and grooming (i know..its a weird word…grooming) and for her work expenses. I wanted to keep them separate so we could analyze these categories in the most accurate way.
Additionally, I'm sure as our son gets older, we'll add more sub categories for him, too. Consequently, we'll be able to have a “very informative and enlightening” conversation with him if we feel he needs to cut back in certain categories! (Looking forward to that one.)
However, you most likely won't need to alter the 8 main itemized budget categories I've created for expenses (unless they don't apply to you currently).
(You can also take a look at my youtube video, where I walk through the budget)
The 8 Main Itemized Budget Categories
- Car Expenses
- Child Expenses
- General Living
- Health Care
- Housing Expenses
- Savings (this includes investing).
In my many years of bookkeeping and budget analyzing, I've found these 8 categories to be the most intuitive way to break down my spending.
However, you will find a few additional category options in the budget spreadsheet, if you need to add in categories such as Other Unsecured Debt Payments. This category, for instance, would include student loans, credit card payments, and personal loan payments. I don't have any of these payments because we've paid off our student loans and I usually pay my credit card in full each month.
Are There Other Ways to Split Up the Main Itemized Budget Categories?
Absolutely. You could split it up further, into as many as 11 or 12, which might include separate categories for Insurance, Utilities and Food. But to me, eating out is entertainment, which I why I have it under “Discretionary,” instead of “Food.” Which leaves only groceries, and that makes sense to me under “General Living.”
Furthermore, when it comes to putting insurance in categories, my thinking is this: I've separated my health insurance, car insurance, home insurance, and life insurance into their respective categories, instead of lumping them all together under one category called “Insurance.”
Ultimately, you'll find what works best for you once you get started. It's just a matter a personal preference. You do you.
How Did You Determine All the Sub Categories?
When you open the Budget Template Google Sheets, you will be able to view my current budget with detailed notes listed next to each sub category. Hopefully, it will be able to answer many of the questions you might have about exactly what I've included as an expense in each sub category.
Again, you may need to adjust this slightly to your preference and your own personal situation.
How Did You Make this Budget?
Ok, so every year I update my existing budget. The process I follow is this: I bring up my personal finance tracking software (in my case Quicken Home & Business), run a report for my spending of the previous year, and see how much money I spent and on what, then take a monthly average.
The report I just mentioned has all the same categories that my budget has, so it's easy to compare. Usually, my spending falls roughly in line with the budget that already exists, but I'll decide on what categories I think I can spend less on, and revise them on the spreadsheet.
If you would like more information about my budget template, and how to customize it for yourself, please sign up for my free course...
So, after I make my new budget, on a monthly basis I run the same spending report in my software, and I can see if I stayed within budget for the month. See how these two things work so nicely together?
Of course, if this is your first budget, you essentially have to estimate what you think you spend on each of the itemized budget categories in the Budget Template Google Sheets I have provided.
The Biggest Question Regarding Personal Budgeting is, “Will You Take the Next Step and Track Your Spending?”
I'm sure this is the question you are wrestling with RIGHT NOW. You want to be that person who takes responsibility for your financial success, BUT it's just so hard to find the time and the motivation to set up your budget. I totally get that.
That's why I'm giving you the budget template in my free course, so you can at least avoid the hurdle of the setup. You don't even have to come up with your own budget categories.
So just do it right now. Pretend it's a game and try to guess how much money you are spending in each category. Enter it in and then get ready to be amazed when you compare your estimation to the reality of what you enter for this upcoming month.
You will likely be astonished, confused, and maybe a little bit embarrassed about your spending in certain categories. The truth always hurts. But it's a GREAT motivator for change.
Here's the thing. In reality, personal finance is simple. Spend less than you make, to the greatest degree possible.
As a result, what you have left over every month increases your net worth. Then you just have to keep that net worth invested in various vehicles that increase its value over time!
By the way, I wrote this more in-depth post on the topic of investing, if you're interested…Big Picture Investing: Why You Need to Get in the Game Now!
Are You Ready to Get YOUR Personal Itemized Budget Wrangled?
I really hope you feel inspired to start (or re-start if you've fallen off) tracking your finances with a personal budget with itemized budget categories.
While it does take some discipline, it gets easier (and more enjoyable…maybe?!?) the more you do it. Using the Budget Template that I've created, you can quickly be on your way to less anxiety and more big financial rewards (no envelope stuffing necessary).
Want to read more about money tracking? Dive into more advice with this article: You Need to Track Your Finances (Like a Business)…and You Hate It…Now What?!?)