Budgeting software has its uses, but individuals should not feel hindered because they don’t have access to an official budgeting tool. Using paper and pencil or Microsoft Excel is equally valid and gets the job done just the same. In fact, Excel users may find that creating and working with a personal budget in Microsoft Excel is much easier than using budgeting software. Others simply like the idea of the low-tech pencil and paper method.
Doing without Budgeting Software: Income Categories for Microsoft Excel Budget Spreadsheets
A budget must first begin with a realistic picture of income, taxes, and other withholdings. To that end, here are suggested income categories (note that deductions in the income category are denoted with “less” to indicate that the amount should reduce income):
- Income before tax. The gross amount should be listed if tax is going to be shown separately on another line. If not, then this could be net income.
- Less: income tax. Reduce income by an estimated tax rate based on last year’s tax returns (combined federal and state rates) and adjust for any expected changes to the current year.
- Less: retirement contributions. These may be before or after tax, depending on the retirement plan.
- Less: other pre-tax contributions. This category may include items like child care, parking, or health care reimbursement plan contributions.
- Annual or other bonuses. This area may be difficult to pinpoint, but last year’s amounts should make a good starting point.
- Less: tax on bonus(es). Estimate this based on the prior year.
- Gifts received. This may be zero for some people, but others may receive annual gifts from family that can be quantified year after year.
- Interest or dividend income. Include any income from investments.
- Other income. Create extra categories as needed to capture miscellaneous income not noted above.
For estimated amounts, put down conservative numbers until actual figures are known. Conservative estimates work out in an individual’s favor in the long run if this budget is used to forecast spending limits; it’s a nice treat to have excess left at the end of the month instead of vice versa if the estimates are materially incorrect.
Other Budget Categories: Considerations for Divorce, Marriage, Senior Status
The list above is not exhaustive, but should be a good starting point for most personal budgets. Divorced individuals may need to include child support or alimony payments in a Microsoft Excel budget spreadsheet. Married people should add in any spousal income and related reductions. Older individuals may have retirement income, Social Security or non-U.S. government benefits.
Once the income side of the equation has been nailed down, move on to the expense category portion of the budget. Income categories are likely easier to define than expense categories because income is finite while expenses are unlimited in the sense that they can be defined broadly or narrowly and can also be incurred at will.
Related articles:
Personal Budget Expense Categories - create a budget in Microsoft Excel, separated into mandatory versus discretionary costs
How to Save Money by Cutting Back on Spending - learn how to stop spending money unnecessarily
Frugal Shopper Spending Habits - learn how to limit purchases and change spending habits
Lena Gott - Lena Gott is a Certified Public Accountant who gives practical financial advice to her readers.
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