Budgeting Templates
So how do you create a budget
Hello and welcome to another issue of this newsletter.
Last week we touched on the reason why you may not need a budget. If you haven’t read it, then please do before you proceed.
We are more likely to repeat things that are easy to do. For this reason, it is important not to overthink your budget, especially when you are starting.
There are different templates of budgets, from the very simple to the most sophisticated. But they are generally based on the popular methods of budgeting.
The popular methods are:
The 50-30-20 Method
Here you take your income and divide it up into 50% for your needs, 30% for your wants and 20% for your investment. Investments here includes, saving, investing and debt repayments. Now depending on your situation, you can change the ratio, but this is usually the rule of thumb. For example, you live with your parents and do not pay rent or feed yourself. This skews your expenses, and you can use this to your advantage.
Needs: things you literally can't live without such as Food, Shelter (Rent), Transport (Private/Public), Clothing, Healthcare (insurance, meds), Utilities (Water, Electricity, Waste, Gas etc)
Wants: the nice to have, the things that make life comfortable (soft and sweet): TV subscription (Netflix, Apple+ etc), Hobbies, Eat outs and fine dining, Gadgets etc.
Savings: This is any postponed or deferred consumption. i.e what ever you are not spending now. This includes emergency fund, Target Savings, investment portfolio, and debt you are paying back.
The Pay yourself First
In this type of budget, you set out to invest, save or repay loans first, then you can now use the rest of your funds s you wish. Now, paying yourself first method assumes a role of placing the needs of future you above the present you.
One could argue that there is no guide on how to spend the rest of your funds.
This is a valid concern, but the rationale is that you have a singular priority, and you attend to that priority first, come hell or high water. The rest, you’d figure it out, but the priority has to be done.
An example will be creating an education trust fund for your child. So you set a portion of your income, say 10% monthly, to go into your child's education fund.
In a situation like this, the first thing you do after getting your paycheck is to save or invest a portion you have already decided into your child education fund before anything else.
It could also be that you want to pay off your loans is your priority. So you set a percentage you want to pay monthly, and you do that first. Then sort out other things.
If you worry about discipline to maintain this, you can, in today’s world, get it automated by using direct debit. No willpower, no problem.
The Envelope Method
This method helps set limits to spending for a specific category, by using an envelope to keep cash for the category.
Say one is overspending on take-outs and does not want to exceed budget. The next line of action is to have an envelope when you put the amount you want to spend on dinning this month. Once the money in that envelope finishes, you’d have to wait it out till next month before spending on take-outs.
In today’s work, you can set up buckets and spending limits on those buckets from your bank apps so you don’t exceed your limit.
These methods can be used in combination or separately, whatever works for you.
Again, these are shorthands on how you should create your budget. The goal is not to create a budget, but to stick to it. It doesn’t have to be fancy, or technical. A budget can be a simple Excel sheet or an app.
See you soon.
PS: read this
How to Guarantee a Life of Misery
If you enjoyed this article, and want some help planning your best financial year yet, my 2025 budget template is the best resource out there. It is based on the 50-30-20 method.