Those who budget properly know how high their monthly costs are and how much money should be left at the end of the month. There are no surprises on the bank statement – such as forgotten subscription charges – and all insurance policies have been checked for their usefulness.
1. When budgeting, you include all your income and expenses in one document.
If you don't know exactly how high your expenses are, it's best to go through the last few years of your bank statements. You can find excel spreadsheets here: https://buymeacoffee.com/minimalsusi/extras Enter your monthly target expenses. The annual values are added automatically.
2. Go through last year's bank statements
When you are summarising your total expenditure for the first time, you should definitely look at last year's bank statements, but preferably those from the last three years, and go through them all for the new budget year. This is tedious and takes time, but it is a useful pastime on dark winter days. Looking at a period of three years gives you a very good sense of your average annual spending, and you can no longer talk about outliers if the average is roughly the same for all three years. It's easy to convince yourself that some expenses were only one-time occurrences, but you'll soon realise that this isn't the case. If you make a lot of cash withdrawals from your account, you naturally have to treat these as expenses and assign them to categories.
3. Divide your expenses into categories
So that you don't lose track of things and stay motivated, summarise your expenses into rough categories. Over time, you will see which expenses you need to summarise for yourself. Categories can be: household, eating out and take away, car expenses, clothing, subscriptions. If you want to reduce certain expenses, you will keep them in a separate category, e.g. clothing.
4. Be honest
There is no point in leaving out expenses to create a better picture and ease your conscience. If you have spent an average of €3,000 on clothing each year for the last three years, even though you thought it would be much less, then it is time to face up to it, take past expenses for granted and plan realistically for the future.
5. Make a budget for the past year
Once you have found and categorised last year's expenses, write them down in an Excel spreadsheet (you can use my Excel template for this). This will give you a better idea of your future budget goals.
6. Set yourself budget goals
You have summarised and written down your expenses from last year. Where do you want to go in the future? Do you want to spend more or less in a particular category? Do you have a holiday planned? Do expenses such as rent or insurance premiums change? For your new budget, you have to take all this into account and enter it. Consider how much you spend per month and enter the monthly values in the Excel sheet.
7. Consider how you will achieve your goals
Let's stick with the example of clothing from above. You decide to only budget 1,200 euros per year for this category from now on, i.e. 200 euros per month. You enter this value in the target columns each month. How can you achieve this goal? What behavioural patterns do you need to change? How did your expenses develop in the past? If you want to drastically reduce your expenses, you have to think about how to do it best. A good start can be a No Buy Challenge or a Project Pan, you can compare insurance and electricity providers or make other considerations.
8. Do a target-actual comparison
Once you have entered your target expenses, it is important to record your actual expenses and review them monthly. You can keep this in a separate document (I prefer Google Sheets for this, as you always have the data available) or you can pay almost everything by card and then copy the expenses from the bank statement.
9. Reward yourself for achieving your goals
If you reach your budget goals, reward yourself. Either you have already created a wish list and can finally treat yourself to something from it, or you can give yourself a bit more budget for next year. Celebrate your successes!
10. Analyse major deviations from the budget
If you have completely overshot your target with your actual expenditure, analyse why your target was so inaccurate and why you spent so much more. This will help you plan for next year.