April is Financial Awareness Month. In honor or that, I am sharing my Pie Lady FI's Home Budget TEMPLATE including steps on how to use it for your own household or as a tool to learn from.
But before I get to that, I want to send a big THANK YOU to Sean G. for all of his invaluable feedback on getting this spreadsheet ready for its debut. 🙂 Thank you my new found friend!!! 🙂
Whether you are just starting on your financial journey or going through a setback and starting over, the key word is “starting“.
In 2009, I was starting over after a financial setback. It was overwhelming and scary. Once I got past my pity party, I was ready to get back up.
I didn't have the dozens of budgeting apps we have to choose from today, so I built my own in Excel. I started small focusing on income and expenses. Each year, I would build on the previous year, until it evolved into what I use today.
Before you start:
- The Categories listed are examples and can be changed/rearranged based on your life expenses and incomes.
- The numbers I have listed are examples to demonstrate functionality. Remove anything that does not apply. For example,don't have a pet and have no intention of getting one, then delete those rows.
- If you are not already familiar with Excel basics, this is probably not the tool to track your household budget but still a good learning tool. The concepts still apply.
Let's get started
Slice 1: Income Statement Tab (Update Daily)
My first household budget only had this tab. I tracked expenses on a daily basis, especially the cash ones. My only goal was to know exactly where my money was going and it was an eye opener. As I learned about my own spending habits, this tab evolved.
I started bundling the spending into groups to make it easier to analyze. The flow was changed to show money coming in, paying yourself first, taxes, monthly expenses and debt repayment.
Part 1: Living Below Your Means
Rule #0: Earned Income
Where it all starts, recording your income. When I started out I had 4 categories of income: Salary (when I had a job), Unemployment (when I didn't), Child Support and Misc. (for one off incomes, i.e. tax refund, birthday money, etc.).
Rule #1: Pay Yourself First
This is listed under expenses because you are literally “paying” yourself. There are 2 ways to do that: Pre-Tax (401k, Health Savings Account, etc…) and Post-Tax (Roth IRA, Index Fund, etc…).
Pre-Tax payments go further because this is money leveraged that has not been taxed, i.e. more cash available.
Post-Tax payments are equally important for 2 reasons. One, leverage. This is cash that can fund FIRE until actual retirement funds are available. Two, when we get to retirement age, we have options as to how much “taxable income” is used, thereby controlling the amount of taxes paid in retirement.
And then of course there are taxes, which we all pay. Did you know: Working for a paycheck is the highest taxed income type. No joke.
Rule #2: Pay Bills On Time
Eventually I made subtotals of my expenses to show how income was being spent.
After 3 months, a pattern emerged and started making changes to my spending habits. Hint: Food, Family and Miscellaneous are all areas to pay A LOT of attention to.
Rule #3: Pay off Debt
This area highlights how much money is going towards all debt not including a mortgage.
TIP: If you have a balance that is carried over month to month, you may want to add a line for each debt called “Interest”. This will really highlight how much money is thrown away.
Slice 2: Getting to FIRE Tab (Update Monthly)
Rule #4 SMART Goals and Achievements
Goals for the year, broken up by month, are recorded here as a bridge to tie the Income Statement tab to Cash Investments section. Sample goals are added to inspire.
TIP: Each time I check off a goal, I record it here and add any additional achievements that were not originally listed. When I look back at my goals and achievements, its a real ego boost to show what I have been able to get done.
Part 2: The Magic of Paying Yourself First & Compound Interest
Rule #1: Track Your Cash
At the end of each month, I record the balance of each of my cash accounts. Cash is broken up into Early Retirement (Cash on hand today), Retirement (Cash on hand at retirement) and College funds (for the kids).
Early Retirement Accounts
Early Retirement accounts, i.e. checking, savings, emergency, index funds, is money that can be used today if needed.
How much do you need to achieve Early Retirement?
To fund early retirement, you would need to 1) know how much you actually spend on a monthly (and annual) basis – see Income Statement tab. 2) have a strong control over spending (learn to live with daily joy on less).
Wes Moss, author of You Can Retire Sooner Than You Think, has a great rule of thumb. He calls it the “1,000-Buck-A-Month Rule”, basically stretching the 4% rule.
For every $240,000 saved in early retirement accounts, at 5% withdrawal per year will generate $12,000 annually.
5% per year x $240,000 = $12,000 per year (for 20 years)
This calculation is just for cash investments and does not take into consideration other forms of passive income.
The smaller your monthly expenses the less you need for early retirement. Here are a list of my favorite books that helped me get my financial house in order. Then once you reach retirement age, other forms of passive income become available.
Rule #2: Cash Goal Setting
To really drive home Paying Yourself First, I added a BASE and STRETCH goal for each month.
BASE goal reflects what you can pay yourself each month comfortably.
STRETCH goal reflects what you can pay yourself with a little belt tightening. 😉
Each month, I shoot for the STRETCH goal. It appeals to my competitive nature – against myself. 🙂 Best case, I hit it. Worst case, I am above my BASE. Either way, its a win and really shows me what I am capable of.
Slice 3: Net Worth Tab (Updated Annually)
Again, more made up numbers to show how this tab works.
This tab is straightforward, at the end of each year, I record the balance of each account under Assets and Liabilities.
There is a Subtotal for Cash assets to highlight growth year over year and all the hard work you put in.
Once the debt is paid off, the cash accounts really start to shine.
Slice 4: Paying Off Debt Tab
Here, I highlight the 4 methods of paying off debt outlining how each works and what it would accomplish. Annual Credit Report can pull your credit history from Equifax, Experian and TransUnion for free every 12 months.
You can pull them all at the same time or one every 4 months. If your goal is to become debt free, you may want to pull a credit report every 4 months to monitor progress and dispute any errors.
Slice 5: Credit Score Basics
This tab shows the breakdown of how a credit score is generated. If you are looking to build this up, this is a good tab to start with. Nowadays, most banks and even credit card companies will give you your credit score for free.
Well, there you have it. Pie Lady FI's weapon of choice in building wealth. I hope sharing Pie Lady FI's Home Budget TEMPLATE is helpful to you in building your own path to building wealth. Download it and make it your own.
If you have questions or would like to make suggestions on updates, please feel free to post a comment or email me directly, GrabYourSlice@gmail.com.
I love hearing from you guys!! 🙂 Please do keep the emails coming.
Have a great week!