CENTRE COUNTY — Every organization, no matter how big or small, for-profit or nonprofit, government or business, operates on a financial budget. Your household, whether you are a single college student or a married suburbanite, is also an organization that runs on a budget. At its core a budget gives you an intuitive sense of the flow of money in and out of your organization.
To get started making a budget, you don’t need much. Pen and paper can get the job done. Start by collecting the paperwork: pay stubs, credit card statements and receipts from cash purchases.
When deciding what tools to use, make sure you remember that budgeting isn’t something you are going to just do once and forget about. It is something that you want to update and refresh once a month. This is why I prefer to use Excel, because it lets me update fields with new numbers so I don’t have to recreate the budget from scratch every single time. I use credit cards for 99% of my purchases and I download this data in a format that works with Excel, so I don’t have to keep receipts. Google Sheets is a free alternative to Excel.
If doing this exercise every month seems cumbersome, here are some suggestions.
One, consider doing it once a year, this will take longer as you’ll need a year paperwork to go through. But you’ll be doing taxes once a year anyway and that is essentially a household budget.
Two, split the difference between monthly and yearly, and do it once a quarter.
Three, simplify what you need to track. Maybe get rid of a credit card (fewer monthly statements to read through) or consider consolidating checking accounts at one bank.
I’ll assume you’ve got the tools and data. First, take your pay stub(s) and find the gross amount. This is what hits your bank account after everything gets taken out: Social Security, Medicare, health insurance, 401(k) contribution. Next, put in expenses: rent/mortgage, groceries, utilities (gas/oil, electricity, cellphone, internet, water, sewer, trash removal), car (gas, maintenance, registration, insurance), gifts (holidays, birthdays, anniversaries), entertainment (event tickets, streaming services). Then take your top-line income and subtract out all the expenses.
Having done all this work, there is just a bit more that really makes it all worthwhile: analyze your results! Is there any category where you are spending more than you expected? If yes, what can you do to trim some costs? Do you have any money left after you subtract your expenses? If yes, consider how to save some of it and how to reward yourself for saving money. If not, you’ll have to do a bit more work.
If the net money (income minus expenses) is close to zero or below, there is a chance you are constantly carrying debt on high-interest credit cards. In which case, you should consider debt-consolidation, OR paying off one credit card at a time, then eventually lowering the number of credit cards in active use.
This final step of analyzing your budget is the most crucial. It is frankly the whole point of the budgeting exercise. Figuring out where your money is coming from and where it’s going, and where you might need to make some adjustments.
Ash Idrisy graduated from Penn State in 2015 with a Ph.D. in theoretical Astrophysics and has lived in State College since 2010. He has been managing multiple investment accounts for the past 15 years and runs a business intelligence consulting firm: Eden Analytics LLC. You can find more of his content for free at ashidrisy.substack.com.
