Chances are you are one of two people when it comes to budgeting:
- The kind of person that lives and dies on a budget, calculating everything to the last penny.
- Or two, you are the person who doesn’t have a budget, but in your head, you have convinced yourself you know exactly where your money goes… even though you have no clue.
Statistically speaking, you are most likely the second person.
Now I am not looking to point the finger considering my budgeting skills haven't been so good lately either, but my message to you (and myself) for 2021 is this:
Create and stay on a budget in 2021!
How to Create a Budget
Depending on what medium you are reading, statistics show that approximately 1 in 3 adult Americans actually uses a budget. In other words, only 33% of people who spend 40 hours a week making money – spend at least an hour managing it!
Even with apps like Mint, Personal Capital, and YNAB, budgeting is even made simpler these days.
However, even with those “Do it all apps” that track every dollar, most still struggle to keep a firm grasp of where their money goes.
Now I could be speaking for just myself, but I know how I operate. Even as someone who writes about money and personal finance I know first hand sticking with a budget can be challenging.
Without a piece of paper, a pen and about thirty minutes of my time, chances are I am not sticking to my budget. AKA, if I don’t write it down, it doesn’t happen.
No matter how many times I hop on my MINT app and redo my spending targets and redirect my funds, I am not as disciplined as I would like to be.
This is why personally, in 2021 my wife and I decided to create a budget that focused on these five common elements of a budget:
- Fixed Expenses
- Variable Expenses
- Cash Flow & Net Income
How to create a budget that works for you in 2021:
As I alluded to earlier, I need to own the process of creating a budget.
From designing it on Excel or just doing it on a piece of paper, I have to control the process of actually making a budget. That being said you might not be as compulsive as I so here are the steps to making your budget in 2021!
1. Create a budget with Google Sheets
If you want to create your own customized budget on Google Sheets or Excel simply keep this in mind:
- Columns A-L are what fit on a landscape page
- You can merge and auto sum all you want
- Be sure to follow the steps below to include on your custom budget
However, if you want a free budget template that is in Excel format and can be uploaded to Google Sheets simply use my free download here:
Simply download the attached budget sheet from above and get to work customizing it!
2. Figure out your income.
Everything hinges off this number… your NET income (not gross).
“Yeah, but I make $90,000 a year,” no you make closer to $65,000 or so after taxes and other items like retirement and insurance that are taken out of your check.
Rule number one with creating a budget this year is honesty. What honesty with your budget means is always thinking you have less than you do!
In other words – don't fool yourself into thinking you have more than you have!
Now, that you have a budget sheet, simply complete the following steps next:
- Figure out what you make each month
- Write in the “Take Home Income” section
- Include any other revenue sources (part-time jobs, side hustles, etc)
- Make sure it auto sums so that it auto-populates your “Totals” field for later
Start your personal budget sheet with a column for income, net income per month, and the date paid. Later on, in creating your budget, the fixed expenses and variable expenses are really going to be based on your income.
3. Fixed Expenses within your budget.
I am sure you know this, but most of your budget will go to fixed expenses like housing, transportation costs, utilities, insurance, and cell phone bills.
Some of these are adjustable – such as renegotiating car insurance and cell phone bills – and others are not.
When creating your budget, start with your fixed expenses. Make sure to include the following categories that apply to you along with a column for the due date:
Fixed expenses should include:
- Housing (Rent or Mortgage)
- Insurance (if separate)
- Internet (Learn to get free internet here)
- Cell Phone
- Life Insurance
- Health Insurance (if separate)
- Car Insurance
- Car Payment
- Car Maintenance
- Other (if not listed)
4. Variable Expenses
Here is where, believe it or not, you make or break your bank account. While fixed expenses take account for most of our net income, variable expenses are where we can all really make great strides to improve our financial selves.
For now, when creating your variable expense be very conservative. If you spend $400 eating out some months, but then other months you spend $200, go with the higher number. You will adjust later!
Variable expenses within your budget are not fixed, they are liable to change which means you can be the one who decides when and how that change occurs.
For example, imagine someone with a $700 food budget (or lack of budget) each month, paired with a $300 entertainment budget. Simply cutting those two in half will net that person $500 a month to go towards debt or savings… an additional $6,000 per year.
However, most of us cannot look at the small decision, cutting eating budgets in half for example, and see the long-term result – having $6,000 at our disposal.
In most cases it is not a money problem, it is a spending problem, and here is where that spending occurs:
Variable expense categories should include:
- Food – groceries
- Food – eating out
- Subscriptions – Netflix, Amazon, Spotify
- Pet Food
- Pet Bills (Man, pets are expensive)
- Dry Cleaning
- Gym Membership
Now that you have listed out variable expenses, see where you can make cuts to your budget. Consider cutting things like subscriptions, cable, gym memberships (there are plenty of alternatives other than giving $600 to the gym), food budgets, eating out, and entertainment.
You might be surprised to find an extra $300+ within your budget without having to work any differently.
Having debt can be somewhat discouraging at times. I get it. Whether you are listing out each student loans or maybe some of the dumb credit card purchases from back in the day, including debt within your budget is vital… even if it hurts to look at.
Just like maybe we don’t like what we see in the mirror when we compare the 28-year-old and the 18-year-old self, simply ignoring the lack of abs isn’t going to magically bring them back. And while my use of stupid analogies is not always the best, you get the point.
Listing out ALL debt including items broken down individually, as well should include the monthly minimum, due date, interest rate, the total amount owed.
Debt items to include:
- Auto loans
- Student loans (break down individually)
- Credit cards
- Other (HELOC, Personal Loan)
Be sure to get a copy of the MLW Debt eBook if you want to crush your debt in 2021!
6. Cash Flow
Now that you have all of the key budget categories, it is time to see the results. The most important aspect of your budget is cash flow. If rule #1 is honesty with a budget, rule #2 is being honest with your cash flow, or lack of. The way to calculate cash flow is as follows:
Start by listing out your Total Household Income, then subtract fixed expenses, variable expenses, and monthly debt payments from your total income. The result is your Net Cash Flow.
|Total Household Net Income||$8,000|
|Total Fixed Expenses||$3,000|
|Total Variable Expenses||$1,000|
|Total Debt Expenses||$1,000|
|Net Cash Flow||$3,000|
>> Use This: For an updated list of Making Money in 2021
Now, what do you do with your budget?
Now you have a budget designed on a piece of paper, or maybe an excel sheet. If you don't like my budget sheet or techniques, feel free to search for other budgeting guides. The next step is to track and adjust to get a firm grasp of your spending and finances. I personally use Mint to help keep track of my wife and I’s spending.
As I publish this blog post, I will be adjusting my monthly limits for each category on Mint (check out these Mint alternatives). We have our monthly budget and we are sticking to it, and you can too!
If you would like to get a sample of the budget sheet we use, feel free, just subscribe below and when you get my welcome email simply ask me about it!
Here is to a great 2021 where you stretch yourself to hit your financial goals… or at least come close!
Josh writes about ways to make money, pay off debt, and improve yourself. After paying off $300,000 in student loans with his wife in less than five years, Josh started Money Life Wax and has been featured on Forbes, Business Insider, Huffington Post, and many more! In addition to being a life-long entrepreneur, Josh and his wife enjoy spending time with their newborn son, their chocolate lab named Morgan, working out, being outside, traveling, and helping others with their finances! In case you were wondering, Josh uses Personal Capital to track his net worth and his first investment account ever was an Acorns account 😎