How to make a monthly budget

calculating personal finances

Time needed: 30 minutes.

This post looks at how to create a simple expenditure budget using a spreadsheet and highlights the hidden costs that are often forgotten. You can download the monthly budget template at the end of the post.

  1. Identify what you spend

    This is the key step for making a watertight budget. Most expenditure is easy to spot and just involves looking at your bank statement; Netflix, gym membership, electric etc but some are less obvious, even invisible. I break down expenditure into 3 categories:
    Regular: these are the easy to spot monthly payments on my bank statement such as utility bills, Netflix.
    Irregular: these aren’t monthly payments, some examples include: clothes shopping, Amazon Prime (this is about £80 per year in the UK), travel/home insurance, ground rent, dentist, haircuts and the hidden cost most people forget about **depreciation**. If you buy a new laptop/phone every 3 years then you need to account for this. Likewise, if you’re a homeowner then you need to save for when your boiler needs replacing every ~10 years.
    Saving: if like most people you like a holiday, then this needs to be accounted for in your monthly expenditure budget. Other things you could be saving for: a new car (bad investment BTW), a bicycle (much better idea), family birthday presents etc.

  2. Calculate all expenditure as a monthly amount

    Make a simple calculation as to what your irregular (dentist etc) and saving (holidays etc) payments are as a monthly payment. If my dentist appointments are £100 each and I’m going twice a year then: (100 x 2) / 12 = £16.6 per month. Another example, if I have budgeted £2,500 for holidays: 2500 / 12 = £208.3 per month.
    calculator

  3. Make a simple monthly budget spreadsheet

    Put all your regular (monthly bills) and irregular (depreciation, dentist etc) costs into a spreadsheet. I use Google spreadsheets because it’s really good and free. The below screenshot is mostly self-explanatory, a few comments though:
    – Budgeted: this is the annual amount forecasted for each irregular payment
    – Actual: is a running total of how much has been spent YTD
    – Total monthly: is your true monthly expenditure

    monthly budget spreadsheet

  4. Earn interest while you save

    Put aside all expenditure that’s an irregular (dentist etc) and saving (holidays etc) into an easy access saving account. This removes it from your main spending account so you have a clearer picture of what can be spent and it earns some extra cash. If your bank offers a rubbish easy access saving rate (most banks) then take a look here (UK examples): https://www.thesavings.guru/saving-accounts/easy-access
    I opened a Marcus account with a 1.5% saving rate (took ~3 mins to open online). I figure they are available in the USA too as it’s Goldman Sachs. When I need to make a payment (eg for my dentist) then I transfer it back to my main spending account.

  5. Use your main spending account for regular payments

    With irregular bills and savings put aside into a savings account, there are still monthly/regular bills (Netflix, utilities etc) to contend with. Using the above spreadsheet example – I can see my monthly (regular) bills are £966. This means I need to make sure I have this amount available in my main spending account otherwise I’ll go overdrawn. I’ve become a recent convert to Monzo as my main bank account which makes budgeting and visualising how much money is really available after bills much easier. If your bank account doesn’t offer simple budgeting options then consider moving to a new bank account (switching is so simple now). This screenshot from the Monzo
    app shows me how much I really have to spend after pending bills and budgeted groceries:

    Monzo bank budget screen

  6. Invest any money that’s left

    As a general rule, I only keep around 6 – 8 weeks of money in my main spending account. However, if there’s more than this left after everything has been accounted for then I put it to work to earn extra cash, otherwise, inflation will erode your money. I’m not advocating becoming a stock market expert (this would end badly!), however, there are various ways to invest easily (with low fees), for example in an index fund (by Vanguard) that keeps track of the overall stock market return. History suggests you will make money this way when investing for the *long term* (many years).

Depreciation worksheet

If you rent or don’t have many owned assets then keeping track of depreciation is quite straightforward. Regardless, it’s still quite easy but usually forgotten. The below screenshot is a list of assets that require replacing when faulty (eg. a boiler). Once set up the worksheet calculates how much I need to put aside each month. Here’ a quick explanation on each column:

  • Rep. price = replacement price. It’s worth updating this every year or so based on current prices, this can go down which means saving less
  • Purc. date = when the asset was purchased.
  • Lifespan (yrs) = how long the assets is expected to last before replacement.
  • Salvage value = resale value (if any).
  • Dep. / month = amount needed to save each month. This is a calculated field based on lifespan, replacement value while subtracting any salvage value.
  • Fund = how much you should have saved for replacement asset. When an asset outlives the estimated lifespan and a surplus is created, either adjust your monthly payment or keep paying to compensate for items that have a shorter than expected lifespan.

Download monthly budget template

You can view and download the monthly budget worksheet below. This will open in a Google spreadsheet where you can copy or download in Excel or other formats.

**View and download monthly budget template**

Final notes

Your monthly budget should require minimal maintenance. I check budgeted amounts and depreciation values from time to time and that’s it. If you have any tips or feedback then please leave them in the comments below – I’d love to hear.

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