How To Manage Your Money Using A Budget
By Leo Gura - October 25, 2014 | 20 Comments
Take charge of your money with one simple but powerful tool.
Hey, this is Leo for Actualized.org. In this video I’m showing you how to manage your money by creating a budget.
Let’s help you to manage your personal finances. That’s what I want to accomplish with this video. It’s going to be short, snappy and right to the point.
Know Where Your Money Is Going
I really have one tool that I’ve used in my own life ever since I became financially independent, went off on my own after college, started earning a living. I’ve been doing that to this day. When I was making that transition from not taking any more money from my parents or my family and just going it on my own, always having to worry about making ends meet, one of the things that kept me sane through that time and gave me a certain peace of mind and confidence about my personal finances was having this budget.
What I’m going to do in this video is I’m going to introduce and give you a downloadable budget worksheet for Microsoft Excel that you can download and use. I want you to use this, to customize it and then have you own personal budget. You can use this tool literally for the rest of your life just the way that I’ve been using it for the last ten years or so, and I anticipate that I’ll be using it for the rest of my life because it’s such an important tool.
These days I see a lot of people having a lot of issues with money and it’s not necessarily because they don’t have a good job, or because they’re not earning enough, but that’s a matter for another video, we’ll talk about how to earn more. Here I just want to focus you in on how to manage your expenses, and to know and keep track of the money that you’ve got in your life, where it’s coming from and where it’s going. Especially where it’s going. That’s the whole point here because this is all about your expenses.
Don’t think that this is going to be some sort of boring topic because actually this is not boring at all. What I found by using this worksheet, even though I’m not a guy who likes to crunch numbers, I don’t like doing any kind of accounting stuff. In my own business I hate doing that stuff, but this budget worksheet in my personal life has actually given me a sense of excitement and something to look forward to in my life because I can use this and I can make future projections about where I want to be with my finances. That’s something that I find exciting.
This worksheet, if you’re not a numbers person, don’t be afraid. I’m not a numbers person either. I think you’ll find that you’re going to like filling this out and you’re going to like working with this, not just doing it once but actually working on it continue it throughout your life, polishing it, working on your budget.
I think that having a budget is just crucial because if you don’t know what is going on with your money then you’re almost guaranteed to run out of it or lose it, not save enough of it, basically have money problems. You have to know what your expenses are. These have to be accurate estimates and calculations. They don’t have to be perfect but they need to be accurate, within eighty percent, ninety percent accuracy rating. If you’re in the fifty percent and below accuracy ratings on your monthly expenses then you’re probably going to struggle quite a bit.
Like I said before, the reason you want to do this is it will give you peace of mind and also confidence. Something that’s even better than all of that for me is that vision of where I want to go with my life and with my financial position. Finances for me are important even though in personal development a lot of times people talk about, “Oh, don’t worry about the money. Just follow your passion. Just be spiritual, be in the present moment…” all of this kind of stuff.
All that is great, but in the end you want to have your finances really locked down and handled so that you’ve got abundant finances to go out there and (1) not worry so much, and (2) so that you can finance the things that you want to do in your life. Living a powerful, extraordinary life does take money, it takes resources. This stuff doesn’t happen on the cheap so you want to keep an eye on that all the time.
Customize The Worksheet
In this work sheet which I’m going to have a link which you can go down below the video, click on this link and download this worksheet for Excel. What you’re going to see is several columns down there. One column is going to have the current monthly expenses that you’re going to be estimating for your current lifestyle.
Just picture the current lifestyle that you’re living, your house, the insurance that you’ve got, how much money you’re spending on entertainment, on shopping, on food, on groceries, on electronics, on magazine subscriptions, on electricity… all that kind of stuff. Think about all those potential expenses you’ve got. You’re going to list them on this column. That’s your current lifestyle.
What’s really cool is the second column here which is your ideal lifestyle. If you’re like most people then what you currently have as a lifestyle is not what you would hope to have in your dream life. I think it’s important to not only take a look at your current reality, which for some of you might be good, for some of you might be kind of grim, but also take a look at where you want to be.
This is the component that gives you the vision that you’re going to be shooting for. There you’re going to fill out, “If I was living my dream life, what kind of house or apartment would I be living in? How much would that cost me per month? What kind of health insurance would I have? How much money would I be spending on fine dining and my groceries? How would that affect how much money I’m spending on entertainment, on dates, on the kind of stuff and furniture I have in my house, the kind of electronics I own, the kind of travelling I do, what kind of hotels would I stay in?” All this kind of stuff.
You’ve got both those columns and then you’ve got one more column that just explains the different expense categories that I have, and I have quite a bit. What I did in this budget is I went through and of course I looked at my own budget because I literally use this exact worksheet for myself and I’ve been doing this for many, many years. This has worked for me, but what I’ve also done is I’ve actually expanded it out and added more categories because all of us have different things in our life that we spend money on.
What’s important with this worksheet is that you go in there and you start customizing it. I’m giving you the basics: rent, how much money you’re paying for your car, groceries, food, household supplies… all that kind of stuff. You have to get really nitty gritty here and get very realistic. What are all the recurring expenses that are happening in your life? Everything, even the little stuff.
In my recurring expenses I list stuff like contact lenses because I wear contact lenses so I’m spending money on that every month. If you have prescriptions that you’re paying for every month even if it’s just five dollars for a prescription at Walmart every month, write that down. If you have magazine subscriptions, are you spending money on Netflix or Amazon?
Do you like to buy books? Do you have certain hobbies that require money to finance? Maybe you’re an artist and you need to buy new paintbrushes or new water colors. Maybe you’re someone who likes to tinker with electronics, you buy lots of electronic gadgets. You like to decorate your home so you buy a lot of home decor type of stuff.
All this has to be accounted for, even things like toilet paper and paper towels, just very basic necessities that you’re always going to be spending money on, probably for the rest of your life. You’re always going to need toilet paper, you’re always going to need paper towels, you’re always going to be buying drinking water, you’re always going to be paying for electricity so these kinds of things, you want to get all of this stuff accounted for.
It takes you some time to think about this if you haven’t thought about it before. It takes you some time to sit down and ask yourself, “What are all the categories of expenses that I have in my life? Start with the ones I’ve got and if some of them don’t apply to you, you could either delete them or just put zeros on those as to how much you’re spending on those per month.
The Magic Number
What’s going to happen is all those are going to be tallied up and at the bottom you’re going to get a number. That number is going to be your monthly expense. You’re going to get a second number which is your annual expense. Basically your monthly expense times twelve, that’s your annual expense. That tells you basically how much you need to be earning per month and per year in order to break even.
Stats like that magic number. If you’re below that number that tells you that you’ve got to start to either prune some of your expenses, cut down on them. Maybe you’re being way to lavish and extravagant with your expenses, or maybe it’s just that you have a bad job that’s not paying you enough. If that’s another problem then we’ve got to work on getting you a better paying job. That magic number is what’s really important.
Here’s some tips for how to use this worksheet. I’ve already told you to go through and customize all your expenses. Also, as you go into every expense category you’re going to be in your mind estimating how much does this cost you. When you’re making these estimates it’s important to be realistic, it’s important to be pragmatic. Always prefer to overestimate than to underestimate.
Most of us don’t know how much money exactly we spend on toilet paper per month, we don’t know how much money we spend on the movie theatre, we don’t know how much we spend on groceries, on going out, eating at restaurants. Certain things are pretty easy. It’s pretty easy to average out, for example, your cell phone bill over the year.
You can know how much you’re paying per month for your cell phone bill. It’s pretty to know your rent, your electricity…this stuff you can average it out, but some of these other things are a little bit difficult. Especially stuff like, for example, electronics because electronic purchases will tend to be one off type of purchases.
Maybe you’ll buy a TV once every couple of years, maybe you’ll buy a new computer once every couple of years, maybe you’ll buy an iPod or some other gadget like that. With those types of expenses, I still like to treat them as though they are monthly expenses. What I do is I kind of average out and I see, in a given year approximately how much money do I spend on electronics?
How many TVs do I buy? How many computer keyboards do I buy? How many stereo systems? How many iPods? This kind of stuff. It’s a little bit tricky to make these estimates. You don’t exactly know. You have to make an initial guess.
What’s going to happen is over the months that you make this initial guess, over the months and over the years you’re going to fine tune that and you’re going to hold yourself accountable to it. You’re going to ask yourself, “Is this an accurate estimate?” Then you can actually look at the receipts and you can look at your bank account payment s to verify of this is correct.
One thing that I don’t like to do with estimating my expenses is I don’t like to include really big one time purchases. For example, if you’re going to be remodeling your kitchen, that’s going to cost you five thousand dollars. You’re probably only going to remodel your kitchen every five or every ten years. It’s a pretty rare expense and it might be a very big expense. That’s something that you wouldn’t really want to turn into a monthly figure.
Or if you’re going to buy a car with cash, that’s also probably something that you don’t want to turn into a monthly figure. Everything else, try to turn into a monthly figure even if it’s an extravagant expense. For example, car registration. I live here in Las Vegas and it costs me about three hundred dollars a year to do registration and license on my car. It’s a recurring yearly payment.
What I’ll do is I’ll break that down. I’ll just divide that number by twelve and then I’ll put that down as a monthly expense. Try to account for all the details here. You’ve got to be detail oriented as you do this.
Be Realistic And Pragmatic
Be realistic. If you think that you’re spending X amount of money on toilet paper you’re probably spending a little bit more than you think. That’s what tends to be the case. That’s why sometimes it’s hard to make ends meet and sometimes you end up with less money than you think is because your initial estimates weren’t realistic.
What I want you to do is download this worksheet, go through and fill it all out. Take some time to think about your ideal life and what your ideal budget would be. When you’re thinking about this ideal budget also be pragmatic and realistic.
You don’t want to sit down and say, “Well, if I had an infinite amount of money then I would live in a fifteen thousand square foot mansion somewhere in the Hollywood Hills and that would cost me let’s say, twenty thousand dollars a month to pay rent on that house.” Ask yourself, do you really need that? Do you really want that?
If you do, okay put it down, but have a pragmatic ideal budget, not an out of this world, utopian ideal budget because it is an expense to going out there and earning lots of money. Earning money even if it’s easy if you put your life together in a certain way where earning money is easy, still you have to maintain that. A lot of people get trapped into this kind of never ending hamster in a wheel syndrome where they create this lavish lifestyle and then they spend the rest of their life trying to maintain it.
Maintaining even an extravagant lifestyle, it usually doesn’t give you fulfillment and happiness so make sure that whatever you’re putting into your ideal budget then that’s worth it to you. Maybe for you you’d rather spend a little more money on entertainment and fine dining, or on travel than you do on your rent or on your car. That tends to be smart because when you’re investing money in things versus experiences, that tends to be a poor investment.
I mean, maybe a thing like a car can actually hold that value better than spending that money on a vacation, actually as far as fulfillment goes, spending money on some nice vacation to some place in the world you’ve never been to, let’s say you want to go to South East Asia for a vacation, that’s going to give you more fulfillment, spending for example a week in South East Asia, than upgrading your car because your car, you’re going to get used to it.
Going to South East Asia, there you’re going to have some interesting experiences, there you’re going to have some revelations that will open up your mind, you’re going to experience new cultures. So think about that. Think about where you want to be allocating your money so you’re getting the most happiness points for the money that you’re spending.
Create this budget and then what you’re going to do is you’re going to have it and you’re going to continue to look at it on a quarterly basis. You don’t need to spend too much time but every once in a quarter take a look at it at the end of the quarter and see how are you doing? How are you measuring up to this? Have your expenses changed? Sometimes prices rise, other times certain expenses become irrelevant, sometimes new expenses get added on so that your budget is kept up to date.
The Value Is In The Numbers
Finally, and this is the real value here if you do this final part of this exercise you’re going to get so much value. You’re going to have this ideal budget but then you’re going to actually spend the next sixty days collecting every single receipt and every single purchase that you make. You’re going to have a box and you’re going to collect every single receipt and put it in there, or track it electronically through your bank account, whatever you want to do.
Spend the next sixty days tracking all that stuff, just collecting receipts. Collect all the receipts and at the end of those sixty days sit down and actually categorize all the expenses that you had, use Microsoft Excel or whatever, categorize everything so you know how much you’re spending on clothes, how much did you spend on groceries, how much did you spend on your cell phone bill… break that down into categories and then see what the actual numbers are.
That’s where the real values come in. If you see the actual numbers and then you compare them to your hypotheticals that you had on this budget that you’re going to do right now, that’s going to tell you how close you are and how far you are with your estimates. Hopefully your estimates are going to be pretty accurate.
If they’re not accurate you’re going to retune your estimates so they reflect what actually happened in these sixty days. You don’t need to be doing this all the time but I find that doing this once this kind of sixty day exercise is going to be good because it keeps you honest, it keeps you accountable. It also gets you to have kind of a sanity check on whether your hypothetical budget is really real.
Once you have this budget, then you’re going to know exactly how much money you need right now. You’re also going to know how much money you need going forward in the future, shooting for your ideal. This will help you to know how you should be advancing in your career. Maybe it’ll give you an indication that you need to switch careers, maybe it’ll tell you that you need to start your own business if your ideal budget is very ambitious, it might also tell you that you have some expenses that need cutting.
A lot of people will waste money on credit card bills, interest rate payments, maybe you’re spending a lot of time or money eating out, maybe you’re spending a lot of money on dates, maybe you’re spending a lot of money on liquor. When you’re actually looking at these numbers, in your mind you’re going to be saying, “Wait I’m spending too much money on this thing here and this thing here and maybe I’m not spending enough on this here and this there.”
All of this is just to fine tune and optimize your budget. In the end I don’t like worrying about money. To me money is just a necessity that I need to run my life smoothly so this budget thing, it’s not about being an accountant of your life, it’s simply that when you do this work once a quarter, what that does is that allows you for the rest of the quarter or even if you want to do it only twice a year for half a year, it allows you just to be calm and grounded because you know that your money situation is handled. You don’t need to worry about it.
It doesn’t take that much time. You can probably fill out this worksheet in an hour right now, spend the next sixty days collecting receipts, that’s a pretty easy procedure, then spend a couple of hours categorizing those receipts after sixty days and then just at the end of the quarter spend another hour or so reviewing your budget and spend a little time making fine-tuned adjustments.
Nowadays when I look at my budget it actually excites me because I have ambitious goals for where I want to go with my business, where I want out go with my personal life. I have visions of me traveling to cool places and eating new types of food and going on cool dates and spending money on new gadgets new electronics, new books, my own education. That stuff is exciting to me and I like looking at my finances and saying, “Okay, I can actually make this happen.” Or if I’m seeing that I can’t make it happen right now then that kind of triggers my mind to start thinking what can I do so that I can start doing this in the next couple of years.
That’s a really exciting way to get your budget and your finances handled, rather than the way I see most people doing it which is like, “Oh man I don’t have enough.” It’s always jumping from not enough, struggling to pay the bills, always being short.
That’s not exciting. That’s miserable. Instead what you want with your life is you want to be comfortable with money and you want to have more. One of the ways to do that is by making sure that you account for all your expenses.
All right, this is Leo, I’m going to be signing off. Post me your comments down below. I want to be shooting more videos on money topics because I think it’s important to live an extraordinary life to account for money. We’ll cover other topics in future videos.
Also please like this video, share it with a friend, throw it on Facebook. Finally come and sign up to Actualized.org, sign up to my newsletter. It’s a weekly newsletter. I release new videos, I have a lot of cool exclusive content planned in the months ahead that’s only going to be possible through Actualized.org and not necessarily YouTube so sign up.
All the topics I cover, they are really topic about how to master your life, how to create a passionate life in all the different areas: your career, your finances of course, if you’re starting a business I’m really excited to shoot more videos on how to manage your business, how to find that dream business that you want to be living and getting your finances from. Also we talk about topics like relationships and inner mindsets. Mindsets that help you to self-actualize and make the most of yourself. Sign up and you’ll be all set for that. It’s free.