One of the most rewarding financial accomplishments a young adult may experience is paying off their student loan. In January 2016, five years into my student loan repayment, I received a letter in the mail “Congratulations! Your student loans are paid in full.” I still have the letter.
In early 2012, I learned that by paying the monthly payment on my student loan, almost ⅓ of the total amount borrowed would be paid in interest by the end of the loan term (114 months). I was determined to reduce the interest paid on the loan as much as possible.
A popular reality TV series ‘Til Debt Do Us Part’ hosted by Gail Vaz-Oxlade’s was also aired weekly on Slice, in 2012. The TV series helped couples learn about their finances and set a budget and work towards becoming debt-free. I followed the steps on Gail’s website, downloaded the resources, and began my first ever budget workbook. Gail’s budget helped me pay off an $18,000 loan in under five years.
Many years and a dog, a mortgage, and a brand new business later, we’ve recreated Gail’s budget worksheet to understand our current spending habits. The budget will also help pay off debts, prepare for unexpected expenses, and simply plan ahead.
Gail Vaz-Oxlade retired in 2018, and although her website and helpful resources are no longer available, she held a monthly master class in 2020 on Twitter. The Money Master Class Twitter archive is linked here.
She has written multiple books, including Debt-Free Forever: Take Control Of Your Money And Your Life, Money Rules, and It’s Your Money: Becoming A Woman Of Independent Means. They are available on Amazon as paperback and Kindle and audiobook.
In this post, we will go over the process of how to set up a monthly budget. The blog post includes Gail’s spending analysis and budget spreadsheets as downloadable resources.
Disclaimer: We are not financial advisors! We are sharing an experience that was helpful to us, in hopes that you too, may benefit from this process.
If you are interested in creating a budget for yourself, you will need;
Access to your spending history
A notebook or excel sheet to keep a spending journal
Envelopes or transparent binder sheets and a binder (or five glass jars)
A Pen/Marker
Download Gail Vaz-Oxlade’s Excell Worksheet to begin.
If you do not have an excel program, you can download each excel and open them in a Google Sheet.
To do that click here, open a blank document, go to file and click on open [Ctrl+O] and click on the upload tab and select the XLS files you just downloaded.
STEP #1
Track your spending.
If your purchases are made using a debit or credit card, this will be easy to track. Ideally, you will export your debit card and credit card statements and record all your fixed and variable expenses for the past six to 12 months in The Budget Worksheet.
This exercise will determine how much you spend in each category of Housing, Transportation, Life, Debt and Savings, per month.
Most banks allow you to export your monthly transactions or view your online banking history for up to 12 months.
Going through months of transactions is a time-consuming process, but it is necessary. Understanding your purchase patterns will help you set a budget that will truly work for you.
If you do not have access to your previous months’ spending, track your expenses for the next three months by using Spending Analysis Worksheet.
STEP #2
Understand your habits and set goals.
Once you have entered each transaction into your expense worksheet, review and understand your expenses. Review your average monthly expenditures [that appear in the S columns] add the new average expense to the Web Budget worksheet.
Write down your financial goals for the year.
What are some of the things that you would like to achieve in the short term and long term? For example, paying off a debt, saving up for a home improvement project, or simply not overspending.
Review the monthly budget you have set for yourself and evaluate your overall spending.
How are you currently spending your money?
Is your current budget allowing you to achieve your financial goals?
Which expenses are necessary, and what items can be reallocated?
You will find the Life Pie section at the bottom of the Budget Worksheet. After inputting all your expenses, it will calculate your overall spend percentage next to each category and an ideal spend percentage.
The Life Pie
How is your life pie divided? Are you within the ideal range?
Take some time here and adjust your budget if possible.
Fixed Expenses:
In your Web budget worksheet, your fixed expenses can look like this
Mortgage + Property Tx OR Rent:
Electricity
Gas & Water Heater
Water/Waste
Cell phone
Internet
Insurance house
Car payment
Car Insurance
Childcare
Insurance: life & health
Add remove or re-name the categories on the Web Budget worksheet based on your expenses.
Variable Expenses:
Add your variable expenses and savings into separate categories. You will be using a CASH ONLY method to keep track of your variable expenses. The categories and the amount will be different based on your spending habits, your priorities based on your income and your life stage.
The categories can look like the following:
Food/Personal Care:
Groceries
Toiletries
Transportation:
Gas
Car maintenance and License plate fees
Toll, Parking and Traffic tickets
Entertainment:
Dining out/Restaurants
Hobbies & interests (Books, arts, subscriptions, plants)
Sports and Gym
Clothing/ Gifts and Family:
Birthdays (Gifts)
Christmas
Clothing
Pet:
Food and Toys
Vet & Meds
Children:
Toys and Activities
Education
Everything Else:
Miscellaneous/Spending money
Savings:
Medical/ Emergency funds
Short term savings
Vacation savings
STEP #3
Create an organization system.
Now that we have created a budget, it’s time to organize your expenses and ensure you stay on top of the budget you have created for yourself.
The Five-Money-Jars System:
Gail’s method has five glass money jars for organizing weekly variable spending.
Label the jars into the following categories: 1. Transportation 2. Food 3. Entertainment 4. Clothing/Gifts 5. Everything else.
Add the amount calculated in your ‘Web Budget – Money Jar section’ for the period to each jar. You only spend the money that you have at hand in each jar for that period.
The Envelope System:
I prefer to use a binder and envelope system and divide the categories into smaller subcategories for immediate and short-term savings. You still have the five main categories in this method, but you allocate an envelope for each subcategory. For example, the food and personal care category have three envelopes 1. Groceries 2. Toiletries 3. Cleaning supplies.
The binder is easier to carry around in the house, and you can add new envelopes/subcategories to the binder as you see fit. You may find that you save more money because each subcategory has a purpose, and if the amount in the envelope does not get spent that week, it will remain in the envelope for future weeks.
You can decide which method works better for your lifestyle, five main categories/ jars or 15-20 subcategories/ envelopes.
Whichever method you decide to organize your expenses and the number of categories and subcategories is dependent on your financial goals and lifestyle. The important point is to only use the money you have in each specific category.
You can buy specific items to create your budget jars or envelope system or use items you currently have in the house. It’s best to see what items you have and can re-purpose for your binder/envelope system. An old binder and protective sheets are a good start.
Here’s a Pinterest board with some ideas.
STEP #4
UsE Cash and keep track.
This step is the most exciting part of the budget. You will handle CASH.
To ensure you stay on track with your spending, keep a spending journal of your purchases.
Start by adding your income for the period, record the automatic deductions first, and then deduct your savings and debt repayment. What you have remaining is your envelope/jar money for the variable expenses. Withdraw the exact amount required for the period from your bank and say goodbye to your debit card for the week. You can now add the cash to your envelopes/jars for each category and subcategory. Keep the receipts for your weekly cash transactions and add them to your spending journal at the end of the week.
Setting up a budget that will work for you will require time and effort upfront. We dedicated an entire weekend to figure out our budget. After that, it will only take an hour or so each week to review your budget, add to your spending journal and make minor adjustments based on your financial goals.
Here are a few tips from someone who’s been using a budget system for almost 10 years:
Review your budget bi-weekly and stay on top of your expenses.
Plan ahead for big expenses.
Take advantage of months where there are three paychecks. Use the extra pay towards your savings and debt repayments.
Look for bank accounts that waive monthly fees based on the account balance.
Start with cash for your variable expense for at least 6 months. Using cash will motivate you to save more, and create new spending habits.
Learn about debt snowball and avalanche methods, here’s a quick explainer video.
If you have any savings tips and helpful resources, please share them in the comments.
Additional Resources: