Creating a Monthly budget is a powerful tool to get control of one’s own finances. This will help us to plan for money so that you can achieve your goals
The first step is to understand how much one is making.
-
Salaried – A Salaried person needs to know how much net salary he is getting after all the deductions like taxes, medical insurance, etc
- Those are freelancers or have irregular income- In this case, we have considered the average income of 6 months for calculation. If the monthly income is fluctuating, then one has to become a little conservative and consider the lowest month’s income
Track Your Expenses
There is a way to gain control over your finances. Here’s how to structure that in an Excel sheet, along with the calculations and analysis you described.
Step 1: Set Up the Excel Sheet
First, open a new Excel spreadsheet. In the first row, you’ll create the column headers. This will make your data organized and easy to analyze.
|
A |
B |
C |
D |
|
Nature of Expense |
Type of Expense |
Category |
Amount |
Step 2: Fill in Your Expenses
Now, it’s time to populate your sheet with your real-world financial data. Go through your bank statements and credit card bills for at least the last month to get accurate numbers.
- Nature of Expense (Column A): Be specific. Instead of “Housing,” write “Rent/Mortgage.” Instead of “Utilities,” write “Electricity Bill,” “Gas,” and “Water.”
- Type of Expense (Column B): This is where you’ll categorize each item as either Fixed or Periodic. Fixed expenses are the same every month (like rent), while periodic expenses can change (like your grocery bill).
- Category (Column C): This is the key to your analysis. For each item, decide if it’s a Need, a Want, or a Saving. Remember, a Need is a non-negotiable expense essential for living (e.g., rent, groceries). A Want is something you can live without, a discretionary expense (e.g., streaming subscriptions, dining out, the phone you are paying for on EMI). A savings is money you set aside for future goals (e.g., emergency fund, retirement).
- Amount (Column D): Enter the exact amount you spent on each item in the last month.
Here’s an example of how a few rows of your sheet might look:
|
Nature of Expense |
Type of Expense |
Category |
Amount |
|
Rent |
Fixed |
Need |
$1,500 |
|
Electricity Bill |
Periodic |
Need |
$120 |
|
Groceries |
Periodic |
Need |
$450 |
|
Netflix Subscription |
Fixed |
Want |
$15 |
|
Dining Out |
Periodic |
Want |
$100 |
|
Phone EMI |
Fixed |
Want |
$80 |
|
Emergency Fund |
Fixed |
Saving |
$200 |
Step 3: Calculate Your Totals and Percentages
After you’ve listed all your expenses, you can perform calculations to get the data you need.
- Total Expenses: Use the formula =SUM(D2:D[last row]) to add up all your expenses.
- Total Needs, Wants, and Savings: Use the SUMIF function to calculate the total for each category. For example, =SUMIF(C:C,”Need”,D:D) will add up all the amounts in the “Amount” column where the “Category” column says “Need.” Do this for “Want” and “Saving” as well.
- Calculate Your Percentages: Divide the total for each category (Needs, Wants, Savings) by your total monthly income. For example, =(Total Wants / Total Monthly Income). This will show you exactly what percentage of your income is going to each category.
Step 4: Analyze and Adjust
Now, you can analyze your data. Your goal is to have your savings be at least 25% of your income.
- If your savings are already 25% or more: You’re on the right track! You can continue as you are, or even look for ways to increase your savings further.
- If your savings are less than 25%: Look at the “Want” category. This is where you have the most control. Identify expenses you can cut back on or eliminate entirely. Could you reduce dining out, cancel a subscription you don’t use, or find a cheaper phone plan?
By cutting down on your “Wants,” you can redirect that money to your “Savings” category. Continue to review and adjust your budget each month. This isn’t a one-time exercise; it’s a habit that will help you achieve your financial goals
