*Follow along with this article using our *__Sample Budget Sheet__*!*

Budgeting is a bit of a controversial subject because most folks think of budgeting as the hyper-focused and time-consuming tracking of all money. The perception of budgeting as restricting fun and limiting choice prevents many individuals and families from avoiding a budget altogether.

I take a different approach to budgeting at this point and use a set-it-and-forget-it approach. This surprises many folks because they assume I must spend tons of time thinking about my money to save half of my income, and they seem surprised that a set-it-and-forget-it approach even exists for budgeting. It does, and I highly recommend it.

Creating a new budget is something I do anytime my regular streams of income or retirement contributions change. My employer provides salary adjustments at the start of each calendar year, and __retirement contribution limits change at the start of each calendar year__, so early January is a natural time for me to reconsider my budget. Last year, I also revisited my budget mid-year since I __secured a promotion__ that increased my main stream of income in May.

When I redesign my budget, it provides an opportunity for me to choose how I want to allocate my money to __maximize my happiness__ now and in the future. I start with a __pay yourself first approach__ and allocate the money to maximize my retirement contributions. Even if you are not maximizing your retirement contributions, allocate the money you want to contribute to retirement first so it is an unquestionable allocation of money. Then, go through your other essentials before considering how to divide the remainder of your money to provide some fun spending in the near-future.

If that sounds overwhelming, give yourself one hour to dedicate to your finances this holiday season. Just one hour! If you do not know where to start, use this __Sample Budget Sheet__ to help you create your first budget in minutes. Select “File,” then “Make a copy” to save your own budget that you can edit with your income and expenses to meet your spending goals. The outline below walks you through how to use this template to make a monthly budget for 2024.

**Green Cells: Enter your Income & Tax Liability**

To start creating your budget, figure out your monthly income! Most of us know our hourly rate or our annual salary, but a lot of us still do not know how much money this translates to in any given month. If you are not sure how much income you receive, now is the time to calculate it.

*Salaried Positions*

If you have an annual salary, calculating your monthly income is very straightforward. Determine (1) your gross salary and (2) your pay frequency. If you do not know your gross salary, you can typically log into your company’s HR portal to view your pay stubs. If this is not an option, you can use your most recent tax return as a starting point and factor in any salary adjustments that occurred since last year.

Your pay frequency matters when determining how much you make each month. If you are paid monthly, you receive only one paycheck each month and can divide your gross salary by 12 to find out the amount in each monthly paycheck. For example, if you make $60,000 per year, divide that by 12 to see that you will make $5,000 a month:

$60,000 ÷ 12 = $5,000

A semi-monthly pay frequency is similar; you just receive 24 paychecks a year instead of 12 paychecks. *The current spreadsheet is already set up as if you are paid semi-monthly*. So, for a $60,000 salary, you can divide by 24 to determine how much money you will get each paycheck, knowing you will get two paychecks a month:

Gross Paycheck: $60,000 ÷ 24 = $2,500

Paychecks Per Month: 2

Gross Monthly Salary: $5,000

Some folks, including federal government employees, are paid bi-weekly rather than semi-monthly. While this is nearly the same pay scale, there are 52 weeks in a year. This means those getting paid bi-weely receive 26 paychecks a year rather than 24 paychecks a year for folks who are paid semi-monthly.

If you are paid bi-weekly you can handle this in a few different ways. My favorite is to calculate your monthly budget as if you are receiving two paychecks (because most months you will receive two paychecks!) and contribute the two “bonus” paychecks to __investments__ when they arrive. For example, if you make $60,000, these would be your calculations:

Gross Paycheck: $60,000 ÷ 26 = $2,307.69

Paychecks Per Month: 2

Gross Monthly Salary: $4,615.38

* “Bonus” Money to *__Invest__* Annually: $4,615.38*

Particularly if you make right around $100,000, that “bonus” income can be a great way to fund a __Roth IRA__ for the year. However, your two “bonus” paychecks can also go towards any other area of spending as well. It can be your annual travel fund, gift fund, or any other spending priority.

A weekly payment schedule is similar to bi-weekly. You can assume you will have four paychecks per month and treat the four additional paychecks that appear throughout the year as “bonus” money, so your calculations look like this:

Gross Paycheck: $60,000 ÷ 52 = $1,153.85

Paychecks Per Month: 4

Gross Monthly Salary: $4,615.38

* “Bonus” Money to Invest Annually: $4,615.38*

*Hourly Positions*

Hourly positions are a bit more difficult to calculate. You have two possible approaches. If you had the same hourly job last year that you will have in the upcoming year, you can use your gross income as a reference point and use the salaried position calculations based on how frequently you are paid to create a budget.

If you do not have a full year’s salary as a reference point, you will need to estimate. Based on your recent schedule, pinpoint the likely hours you will work in the average month, and use this extrapolation to determine your typical monthly salary. If it is easier to start with your weekly hours, just multiply by four to estimate a month. For example, if you make $25 an hour and work 40 hours per week, your monthly calculation would be:

Gross Weekly Income: $25 × 40 =$1,000

Gross Monthly Income: $1,000 × 4 = $4,000

This calculation is slightly less than you would actually make each month since it assumes each month is 28 days, but that means you will be left with additional money to invest or put towards savings goals!

*Inconsistent Income, Self-Employment, and Side Hustles*

Not all income is predictable. If you are __self-employed__, have a __side hustle__ that brings in significant income, work in a seasonal industry, or experience any other income inconsistencies, you probably do not have a consistent monthly income. Particularly if your main source of income fluctuates, you still need to include this source of income to create a budget.

To account for inconsistencies, there are a few different approaches. The most conservative is to take your lowest month from the past year and use this income estimation as your expected monthly income. Anything you earn above that amount is extra money to put towards investments or savings goals.

If this is unrealistically conservative, look at the entire year and determine your average monthly income. If you use this approach, you either (a) need to have an active high-yield savings account that can fund lower months in the event that they precede higher months or (b) you should feel confident that the beginning of the year generates above-average income. For example, Patrick can feel confident that January will be a higher-than-average month because tax season runs from January through mid-April. He has more clients reach out during this time and consistently gets new clients every year who just need a tax return completed. Since the beginning of the year is above-average, budgeting based on an average month is safe for his industry.

On the other hand, if your busy season is summer and fall because you are a __wedding photographer__, you should base your budget on your lowest month’s income if you do not yet have a high-yield savings account with money saved from more lucrative months. Even if you have to budget with this approach for 2024, you can save money from your upcoming high-income months so you can find a high-yield savings account and budget based on an average month next year. Each year, work to create more freedom for your budget!

*Entering Income in the Spreadsheet*

Once you have calculated your income, you can enter the income into your copy of the Sample Budget Sheet in cells B3 to B6. This is the first column of green cells. If you have more than four sources of income, you can insert more lines into the spreadsheet or just combine a couple paychecks together. Do what works best for you.

*Estimating Your Tax Rate*

The second column estimates the taxes you will have to pay on this gross income. This does not have to be an exact amount. If you have a W2 job, you likely receive pay stubs that tell you the exact amount taken from each paycheck, but you may have to estimate if you have a more variable income.

You can estimate your tax liability using the __2024 tax brackets__ or looking at the percentage of federal taxes you paid according to your tax return from last year, if your sources of income and gross salary are similar. Remember, to think of __tax brackets like walking up stairs__: Only the higher parts of your income are taxed at higher rates! For example, if you make $65,000, your money will be taxed at the following rates in 2024 if you are single:

Your first $14,600: not taxed due to the

__standard deduction__; salary above this amount (*i.e.*, $65,000 – $14,600 = $50,400) is taxable income$14,601 to $26,200

*($1 to $11,600 in taxable income)*: $11,600 taxed at 10% = $1,160 in taxes$26,201 to $61,750

*($11,601 to $47,150 in taxable income)*: $35,550 taxed at 12% = $4,266 in taxes$61,751 to $65,000

*($47,151 to $50,400 in taxable income)*: $3,250 taxed at 22% (yup, that’s a big jump!) = $715 in taxesTotal federal income tax liability: $1,160 + $4,266 + $715 = $6,141

Percentage of gross income that goes to federal income tax: 9.4%

Next, calculate your state (and local, if applicable) income tax liability. This varies by state, so look up the tax rates for where you live using the same approach as your federal taxes. Once you determine the overall tax rate, you can add that tax rate to your federal tax rate. For example, if your federal taxes were 9.4% above and your state taxes are 5%, 14.4% of your income should be withheld to pay federal and state income taxes.

Finally, be sure to include Social Security (6.2%) and Medicare (1.45%) taxes, plus any other taxes that apply (such as a state disability insurance tax), in the mix. (Disregard any of these taxes that do not apply, like for teachers who receive a pension rather than paying into Social Security.)

In this example, your total tax liability would be 14.4% + 6.2% + 1.45% = 22.05%.

To enter the taxes taken out of your income in the spreadsheet, use cells C3 to C6, the second green column. If you are entering the number based on a paystub, then just type in the number. If you are determining your taxes based on your overall tax rate (federal taxes + state taxes + other taxes), use the following formula:

=B3*[Insert Your Tax Rate Here as a decimal]

For example, if you had the 22.05% overall tax liability above, the formula would be:

=B3*.2205

To err on the side of caution and give yourself some breathing room, you may wish to increase this percentage slightly.

Once your gross salary and taxes are entered, the green cells are done, and you are ready for the next part of your budget.

**Purple Cells: Enter Your Employment-Based Retirement Plan Contributions**

The purple cells of the Sample Budget Sheet show your contributions to a __401(k) or similar employer plan__ and an __HSA__. These retirement plans are listed separately from any other investments because employer plans are withdrawn from your paycheck before it goes into your __checking account__. Just like with the streams of income, if you are lucky enough to be someone who has access to multiple employer retirement plans, you can add additional lines! Most folks will only have access to a 401(k), or similar plan, and perhaps an HSA.

This sheet is again set up for semi-monthly payments, and it assumes the person will __maximize__ their 401(k) and HSA contributions. You can make adjustments to these numbers if you are paid on a different schedule, opt not to maximize a 401(k) or HSA, are contributing to an HSA as a single person rather than for a family, or are making catch-up contributions to any of these accounts

To adjust based on pay schedule, follow the same pattern as the salary examples in the previous section. The 401(k) numbers provided maximize the 401(k) contributions for 2024. This is calculated by taking the 401(k) maximum contribution of $23,000, and dividing by the number of paychecks throughout the year, 24 for semi-monthly payment. For a monthly paycheck, divide by 12, and recognize you will only have one monthly contribution. For a bi-weekly payment, instead divide by 26 to determine what is coming out of each paycheck. For weekly earners, divide by 52 to figure your per-paycheck deduction. The same method applies to the HSA, whether you are maximizing a family contribution at $8,300 or an individual contribution at $4,150.

Alternatively, you can simply decide to contribute less than the maximum amount allowed. If this is your choice, either (a) type in the numerical amount that you plan to contribute each paycheck or (b) calculate a percentage of your gross paycheck. To calculate a percentage of your first paycheck to contribute to your 401(k), use the following formula into H3:

=B3*[Contribution Percentage as a Decimal]

For example, if you want to contribute 12% of your paycheck to your 401(k), enter the following formula in H3:

=B3*.12

You can use the same logic for H5 and for the cells that pertain to the HSA (H4 and H6). (Remember that the first paycheck is B3, and the second paycheck is B4.)

**Yellow Cells: Building Your Budget**

The yellow cells are probably the part of the Sample Budget Sheet that remind you of a typical budget. This is the space where you list your actual expenses. Start by listing out your monthly expenses in Column B, cells B11 through B30, next to the appropriate categories in Column A. I usually start by listing the large expenses like “Mortgage Payment” or “Rent.” These large, fixed expenses are a bit clearer to work through before you get to smaller or more flexible payments.

For whatever housing payment(s) you have, you likely know the amount you pay each month and can easily complete the “Cost” section in Column C. Just type in how much you pay in rent or a mortgage. If applicable, also include an “HOA” line and a line for “Utilities” that are not included in your rent or HOA payment.

Moving to Column D, I consider these “Fixed” costs because not having them the next month would require work: For me, I would have to sell a home. If you are a renter, you would still need to coordinate a move. Anything that would require work and more money to shift is a “Fixed” cost because you would have to take a hard look at your budget to consider whether changing it was worth it. Alternatively, flexible payments can easily be removed from a budget without issue: These are the money you spend on clothes, dining out, Netflix, or investing in future vacations.

The last yellow column (column E) is “Payment Method/Account.” While this column is optional, I like to track how I pay different expenses as well as where different money ends up to fulfill its purpose. This includes information about whether I use a credit card or debit card to pay an expense, if this money is automatically transferred to be invested, or if it is automatically transferred to a high-yield savings account to be saved for future spending. Here is an example of a hypothetical “Payment Method/Account” section as I use it:

In reality, you can use this section however you see fit. This is for personal organization. This section can also be helpful to note whether you pay for an item from your first or second paycheck if you are paid semi-monthly or bi-weekly. Use this to organize yourself!

As you go through your budget items, you will probably notice more of the small “Flexible” costs end up a bit squishier and less predictable. For your priorities where you enjoy spending more money, make sure to have designated categories. However, it is okay to have a small amount sent to a high-yield savings account each month to cover the miscellaneous expenses that inevitably all occur at once in any given year. Pinpoint an amount that makes sense for you to contribute monthly so the weird miscellaneous expense that hits in May is not too difficult to pay.

**Blue Cells: Categorizing and Tracking Your Spending**

To get an idea about how much you are spending on different priorities, the blue cells in Column A and Column G let you categorize your spending categories. You can categorize your expenses however you want. There is only one rule: Every category you use in Column A must also be written in Column G exactly as it is written in Column A! This allows the Google Sheets formula to work to calculate all spending in that particular category.

The categories listed on the sample sheet are some general categories that I use. Your own categories may be completely different. The “Home,” “Transportation,” “Food,” and “Health” categories tend to be ubiquitous, but the others may completely differ for you. In reality, my “Health” category is “Health & Rugby” because that is a big enough spending priority for me to name, and I have an independent category for “Baseball” because I attend enough baseball games to make that its own spending category. I also do not have a “Clothes” category because I am not a shopper and generally only replace clothes when it becomes necessary, and I can cover that with my “Miscellaneous” category. If you are at all into fashion, you should not follow this strategy. In short, make categories that honestly reflect your lifestyle.

**Analyzing Your Budget**

Once you fill out the entire budget, look at the “Spending Breakdown” section. Do you like how you are spending your money? If not, it can be worth considering whether to change your spending habits in the “Flexible” categories so you feel better about where your money goes. If you really do not like how you are spending your money, you may even want to reflect on the big “Fixed” items: Is it worth moving to open up space in your budget? Are there better methods of transportation besides what you currently use? Only you can decide if it is worth considering these big budget questions, but creating a budget shows you where your money goes so you can see if you need to ask them at all.

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