A little over 10 years ago, I was stuck in an infinite loop. I’d pay off some credit cards. And just when I thought I was gaining ground, I’d use my credit card again to make ends meet. I either had to make some more money, or eliminate more expenses. Or was there another way? (Read to the end for a free blank budget spreadsheet with formulas and recommended budget percentages.)

The Dreaded “B” Word

Creating a budget is the most important thing we did to win with money. We reasoned if we don’t know what was coming in and going out, we wouldn’t know how much money we have left to knock down debt. And not knowing where our money was what kept us on the hamster wheel.

1. List Income

This was simple enough. My wife and I each had one main source of income. I was a teacher, and she was a nurse. Although I have side hustles, they were variable and not significant sources of income back then.

We started with net pay at first. You can mess around with payroll deductions after getting some traction. But we still start with net pay today.

2. List Expenses

Although daunting at first, the simple process of listing expenses provides clarity. Using some super-nerd spreadsheet prowess, I designed a spreadsheet that enabled us to see exactly where our money was going.

We listed everything that was constant each month. This included mortgage payment, car payment, utilities (e.g., gas, water, electric, etc.). Then we listed irregularly occurring expenses (e.g., insurances, auto registration, etc.) Divide by those totals by the number of months between these expenses (3, 6, or 12) to get the monthly amount for the budget.

Total all the expenses to…

3. Subtract Expenses from Income

This number was positive number, yet we still felt strapped. We should have had up to this difference to apply to debts. What was going on?

This told us we were spending too much somewhere else. So we decided to keep a composition notebook to record the amount of everything we spent each week. We start our financial week on Friday, since we get paid on alternate Fridays. This seemed to work, because we found our leak!

We were overspending on “non-budget” items like the grocery store, gasoline, and entertainment among other things.

4. What’s the Next Level?

Over the months and years, our spreadsheet has expanded to include a monthly net worth statement, liquidity ratio, wealth index, mortgage amortizations, asset allocations, etc.

But we still hand-write daily in our “black book” for weekly cash-flow items. This was (and still is) the absolute key for monitoring our spending.

So our spreadsheet tells us how much we can spend each week after all expenses, and the black book is how we avoid overspending. No matter what, we do not spend more than the spreadsheet says we can spend.

Here is the simple spreadsheet we used for about a year to get started all those years ago. To see our actual spreadsheet and black book in action, subscribe below. I am releasing a free budget course at marknoldy.teachable.com.