Confession: I love spreadsheets! I also love automation. I’ve tried several budgeting tools, but I always return to the dependable and easy electronic checkbook register for one important reason – it’s a powerful forecasting tool. Here’s how I use it to keep my budget in line and to forecast into the future.
Your Financial Plan Drives your Budget
Does the budget drive your financial plan, or does your financial plan drive your budget? What’s that you say? You don’t have a financial plan? How about a budget? Let’s back up a bit. What do I mean by a financial plan? Here’s what I’m not talking about: an expensive complicated treatise developed by a financial planner. Instead, it’s a pretty basic template. In 2005, after devouring David Bach’s Smart Women Finish Rich book, I set up my first financial plan. I update it each year and it’s interesting to see how my priorities have shifted over the years. And it’s been fun to think about how to use “extra” money after major goals, like paying off the mortgage, have been accomplished.
The Three Basket Approach to Financial Planning
Before I launch into budgets, let’s spend a bit more time on the components of your basic financial plan:
The Three Baskets
The three baskets are retirement, savings, and dream funds. What’s a dream fund you ask? It can be anything, from saving enough money to retire early to paying for a new car to being a VIP guest at a superstar concert. Even if you don’t have a specific dream, put money away into the dream basket. Believe me, you will have a dream a year from now and be thankful you put the money aside!
Get your Priorities Straight
Your priorities will change over time. That’s the way life works. My first priority, and this should be yours as well, was to sock money away into an emergency savings account. I make sure I have at least six months worth of living expenses set aside for an emergency. Examples of other priorities include opening a Roth IRA, maxing out your retirement contribution, paying off your mortgage, or saving for a new car.
Turn your priorities into action by setting goals for each of the next four years. Why four years? Because it’s manageable. You can tackle a five or ten year plan if you like, but it’s easier to stick to four years. Your goals should be very specific. For instance, I will build my savings account to $10,000 by the end of this year. Give each goal an action and a deadline.
Have Fun Recording your Accomplishments
This is the fun part! You’ll want to give yourself a gold star, or perhaps take yourself out for a celebratory dinner, when you reach major accomplishments. And the cool thing is that you’ll have money freed up to divert to other goals.
There’s a symbiotic relationship between your financial plan and your budget. Your income might not support your lofty goals. So then it’s a matter of adjusting your goals – or bringing in more income and cutting expenses. It’s really that basic!
The Ease of the Electronic Checkbook Register
Now that you have a financial plan with specific goals, it’s time to get to work. Don’t let the length of this post intimidate you – I’m giving you step by step instructions. Follow these steps and you’ll be on your way to being a budget master who builds wealth over time!
Step 1: Download the Excel Spreadsheet
Download the Free Excel Checkbook Register Template. Yep, it’s free. You’ll need a little bit of working knowledge of Excel spreadsheets. Here’s what the template will look like (minus extraneous columns).
Step 2: Personalize the Template
Now it’s time to personalize the template. If you want to rename the file, now’s the time to do it. In addition, I’d suggest doing the following:
- Rename the worksheet ‘Register’ to the current year. (Right click on Register and rename to 2017)
- Decide if you want a warning when your account goes below a certain amount. The template has this set at $450 (cell H13). You can change this to any amount you like.
- Enter today’s starting balance (cell G15) and date (cell A15).
- Delete the ‘Mortgage/Rent’ label under Category in cell D15. Not sure why they have this in there as it’s your starting balance.
- The template includes five sample transactions. My advice is to simply override them with your transactions.
- Take a look at the ‘Help’ tab. It gives you step-by-step instructions, including how to customize the list of categories in the drop-down menu (under the ‘Settings’ tab). I use an older version that did not have customized categories so while it’s not essential, it’s a bonus attraction of this updated template.
I know it looks like a lot of moving parts here, but it’s pretty intuitive. Once you’ve customized the spreadsheet, you are ready to groove!
Step 3: Add your Upcoming Transactions
Now it’s time to play with the spreadsheet and use it as a crystal ball into the future. Here are the next steps:
Enter your regularly scheduled deposits and expenditures
Do you get paid every week? Every other week? Hopefully, you have direct deposit set up – if not, that’s a “to do” item for sure. Why not enter those dates and deposit amounts now? Even if your paychecks vary week to week, enter an average amount. Don’t worry, you’ll modify the amount once your deposit has been made. And don’t forget to account for any raises that you anticipate receiving.
Now it’s time to look at the other side of balance sheet – your regular expenses. What are their due dates? If your mortgage or rent is due on the same date each month, enter those expenses. You can enter new rows at any time so make sure your transactions are entered chronologically. Do the same thing for your other regular expenses, like car payments, utilities (use averages), student loan payments, and insurance premiums.
Enter expected occasional expenses
Do you have some big expenses that are due quarterly, semi-annually, or annually? For example, I pay homeowner association fees and property taxes semi-annually. Enter those items into the spreadsheet (again, use an estimate if you are uncertain of the amount).
Set a budget amount for other expenses
I use a couple of primary credit cards to pay for my other expenses – a cash back credit card (Chase Freedom) and a Target REDCard. Based on a combination of previous spending and my goal to limit future spending, I enter a monthly budget for each credit card into the spreadsheet. For instance, my Chase credit card payment is due on the 14th of each month and my budget amount is $1,500. And YES, you must pay off the full balance each month! You’ll want to leave a cushion as unexpected expenses always pop up. And it may take a couple of months before you figure out a realistic amount to enter into this ‘Other’ category.
Step 4: Figure out What to Do with the Leftover Money!
Yes, I did say LEFTOVER MONEY! Yippee!!! Now you are on your way to building wealth. If you don’t have leftover money, it’s time to seriously think of ways you can increase your income and/or decrease your expenses. If your goal is financial independence, it’s time to buckle down.
Once you have all your anticipated transactions entered into the spreadsheet, you can tweak your plans to reach your retirement, savings, and dream goals. For instance, you can toy around with diverting additional funds into your work retirement plan. Can you afford to max out your contributions? Or can you contribute $50 more every pay period? On the contrary, perhaps you are putting TOO MUCH into retirement and neglecting your emergency savings goal? It’s time to match your priorities with your actions!
I’ll demonstrate how I use my not-so-fancy spreadsheet to fund my other accounts. I have a couple of checking accounts at Capital One 360 – one for fun and one for gifts. And this leads to another confession: I realized my frugality was shortchanging my ability to do fun stuff, so I created a separate FUN account so that I don’t feel guilty! I automatically send $75 each month into those accounts. Using “leftover money,” I’m also able to divert funds into my Betterment account, which houses my home remodeling fund.
Step 5: Take your Plan into Next Year
One of the neat things about the simple Excel spreadsheet is that once you have your major transactions figured out, you can project into the next year. Remember back in step 2 when I asked you to rename your worksheet to the current year? That’s because I want you to copy your current worksheet into a new worksheet, and rename that one with next year. Here are the details using the current year as an example:
- Right click on the ‘2017’ worksheet.
- Click on the ‘Move or Copy’ option
- Check the ‘Create a Copy’ option and put the new worksheet right before the ‘Settings’ worksheet.
- Rename the new worksheet ‘2018’.
You can then go into next year’s worksheet (‘2018’) and enter transactions to complete the year. As next year rolls around, modify the new worksheet as needed. And just like that, you have an easy-to-use tool that puts you on the path toward wealth!
Some Final Thoughts
The Excel spreadsheet works well if you want a “hands-on” approach to your finances. I’ll admit, it’s not for everybody. You might have better luck with an online tool, like YouNeedABudget (YNAB) or Quicken software. The reason why I keep returning to my simple spreadsheet is that it allows me to project into the future. Once it’s set up, it’s easy to maintain. In fact, I’m in the process of training my newly employed 19 year-old daughter on how to use the spreadsheet to reach her goals! The bottom line is that this simple budget spreadsheet will EMPOWER you to take charge of your future!