A Simple F.I.R.E. Budget You Can Implement Today

Michael QuanFI / FIRE, Habits, How to, Income, Misc, Saving Money11 Comments

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FIRE Budget

Building Your Momentum

I’ve been asked many times before what were some key distinctions that allowed me to FIRE so early.

While there are many answers to that question, there is one answer that consistently rises to the top of my mind… budgeting.

Yes, it’s not the sexiest topic, but it’s arguably the most important thing on your path to FIRE.

But in order to do that, you’ll need to know where you’re at, so you can figure out where you’re going.

Embracing the Basics

So, how do you do this?  With a Badass FIRE Budget of course!

I promise it’s NOT as bad as you think.  You can figure it out!  In fact, I’ll walk you through my exact process I use personally.

What is a budget anyhow?  A personal budget is a finance plan that allocates future personal income towards expenses, savings, and debt repayment.

In layman’s terms, it’s a plan that shows you where your money is going to so you can control your expenses.  It’s the tool that will give you insight as to if you’re on track with your financial goals, or need to make adjustments.

crystal-ball-32381_640Having a budget is like having a crystal ball into the future.  The better you get at it, the better you’re able to predict your future and subsequently control it in your favor.  We can also call it your FIRE speedometer.

Here’s the good news.  It doesn’t need to be complicated.  In fact, it’s rather easy once you start doing it.  You might even find you become addicted to checking your budget often!

A Critical Best Practice for FIRE

Here’s a big secret to reaching FIRE faster.  Do this budget consistently, by yourself, UNTIL you are comfortable with it.

There are a ton of free and paid tools out there that make this incredibly simple (some of which I’ll share), but don’t shortchange yourself from learning it firsthand.

The Badass FIRE Budget in Spreadsheet

This spreadsheet is something I use personally developed and have been tweaking over the past few years.

In fact, I still use this TODAY well into my own FIRE journey.

This will help you to estimate your monthly income and expenses so you will understand your personal cash flow (how much money you’re saving or leaking).

Don’t get hung up on getting it perfect in the beginning, it’s more important to just get something down so you can begin tweaking it over time.

You’ll notice that I tried to keep it detailed enough to capture all expenses you may have, but also simple enough to understand.

How To Use The FIRE Budget & Cashflow Spreadsheet

So in this section, I’ll walk you through exactly how I use these tools to help create and manage a badass budget.

The reason I believe it’s so important to create and use a budget in a spreadsheet is that it helps your brain to internalize the numbers consciously, and unconsciously as well.  The simple act of doing this gives you power over your prior limiting believes about what you could accomplish on your own.  So, don’t hesitate!  Download and open this now.

FIRE Budget

When you first open the Budget and Cashflow Spreadsheet you’ll notice it’s divided up into 2 main sections.

  1. Income (Green)
  2. Expenses (Red)

As you scroll down through the spreadsheet, you’ll find many more sections to the expenses as we all typically have more expenses than we do income (if not, then you’re my hero!). I’ve tried to capture most types of expenses you may incur, but you can always add additional line items in the spreadsheet as necessary.

Budget-Cashflow 2

Scroll all the way to the bottom of the spreadsheet and you will find two tabs on the bottom.  This is where you’ll find the corresponding year.  Above you’ll see that we’re in “My 2015 Monthly Budget”.  So, when you start your budgeting, remember to start from the current month (eg. Nov. as of today).  For the estimates beyond December, simply click the tab for 2016 and continue your forecasts into this tab.

*Don’t worry about the Savings to Income Ratio having values of “#DIV/0!”  It’ll automatically fill in a percentage once there are real numbers entered into the spreadsheet.

So, just to get your feet wet, I’ll walk you through entering some basic data.

Let’s start in the Income section.

Budget-Cashflow 3

In this example, you’ll see that I’ve added my wife’s income as the primary wage earner.  Since I’m a Stay-at-home-Dad, my wages are $0!  But, we also have some passive income from rental homes, dividend income, and P2P (peer-to-peer) interest income.

The income section should be pretty straightforward, but just remember that we’re entering in wages after deductions.  In other words, this is the monthly cash deposited into your bank from your employer.  If it fluctuates because you earn commissions or bonuses on top of a base salary, you can enter this extra income into “Wages Misc”.

The nice thing is that once you’ve figured out November, December should be a piece of cake!  You can simply re-enter the amounts into the December column, or you can copy and paste the values from November.

Remember, at this point, we’re just entering estimates to get a ballpark figure.

Next Up, the Expenses

Budget-Cashflow 4

A couple things to note here.  You’ll see a couple red arrows pointing to “+” and “-” symbols.  This is where you can open and close the details for a particular subsection.  For example, I have the subsection “Primary Home” expanded so I can fill in the details accordingly.  But, at the moment, we don’t own a second/vacation home.  So, I’ve gone ahead and collapsed the details for this subsection just to keep things easier to read on the screen.

Under the “Primary Home” subsection, you’ll see I added our monthly mortgage payment for our primary home.  (If you don’t own your own home, simply use this field for “Rent”).  I filled in the other applicable expenses like electricity, water, trash service, cable, cell phone, etc. and the total for this subsection is automatically calculated.

Budget-Cashflow 5

I also need to fill in the subsections for each Investment Home I have too, followed by all other daily living expenses, transportation, healthcare, etc.

When all is completed and filled in, you’ll find a comprehensive total of all Expenses calculated for you at the bottom, as well as at total CASH SHORTAGE/SURPLUS calculation.

The CASH SHORTAGE/SURPLUS is a key number we’re after.  It tells us whether or not you’ll be profitable in a given month.  If not, don’t worry about it yet.  It’s more important that you begin to internalize your spending habits before trying to make drastic changes right away.

Finally, on the bottom of the sheet, you’ll find two ratios which will tell you how much you’re saving in a percentage, as well as how much you’re spending in a percentage relative to how much money you’re making.

Budget to Actual

Once you’ve got all the details filled in for a given month, try to this for the next 11 months.  This will give you an entire budget for the year.  You’ll find the subsequent months will be very similar, but don’t forget about large expenses that come along once or twice per year (eg. auto insurance premiums).  You’ll want to make sure to add those in also.

After creating your budget for 12 months out, you’ll want to begin tracking your actual monthly expenses and income to see how accurately you budgeted for.

What I like to do after each month, is go back and enter in the actual expenses and income realized for that particular month.  This process helps me to see where I over or underestimated, gives me insight as to what I can update in future upcoming months, and helps me to internalize my cash flow.

Automating the Process

Okay, I’ll let you in on a little secret.  Once you’re comfortable with budgeting and determining your monthly cash flow, it’s time to begin automating the process and take back some time for other things.

We’re going to supplement this process by using the FREE tools at Personal Capital to do the heavy lifting.  To see details on how I do exactly that, jump to this post – PART 2 (<— now live).

Readers, what do you currently use to budget?  How has it helped?  Were you able to keep up with it at least until you were comfortable with the concept of cash flow?

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11 Comments on “A Simple F.I.R.E. Budget You Can Implement Today”

  1. HI there, just tried to download your spreadsheet but the link goes to your subscribe page. I subscribed thinking that would allow me to download the spreadsheet but it just continues to ask me to subscribe. Would you send me the download link? Thanks so much.

    1. Hi! Once you’re subscribed, you will receive an email from me with the link to the spreadsheet. Let me know if you didn’t receive it and I can assist. 😃

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  3. Such a badass man! Hope you don’t mind my profanity (although downunder) this word isn’t considered a swear word 😉 ha..

    It’s a very involved spreadsheet you’ve got there.. I do something similar and it’s great as in most cases the numbers don’t lie

    Nice that you were a millionaire by 29 too! Didn’t know what the double comma club meant initially although thought a bit harder then I got there haha.. I’ll be interested to get to your net worth posts to see if that includes you real estate assets too, I’d say it would

  4. Just downloaded your spreadsheet. Very impressive Michael. I have a similar sheet, just a little bit more narrowed down and simpler. Seeing your sheet got me kind of inspired to look more into having more of an extensive and more detailed “bad ass” budget spreadsheet.

    It does give you a complete overview of absolutely everything. I kind of love it, although I’m a little afraid to go overboard with it. It can also be very intimidating at times when you have a hard time actually budgeting everything.

    When I first started budgeting that happened to be the case. I barely made enough money while living in an expensive neighborhood to make ends meat and it was just a little too intimidating. Definitely inspired to get a little deeper into it.

    Looking forward to part 2!

    Peter

    1. Thanks for diving in Peter. Yeah, when I first created the sheet, I didn’t have the toggles to expand or contract the expenses, so it was super long! (And depressing that there were so many more expenses than income – haha)

      Anyhow, I just posted Part 2. Hope you like it. 🙂

    1. Part 2 is the easy part, but combining it with Part 1 is priceless. Truth is, once you’ve done it enough, it becomes like riding a bike and all you have to do is pedal forward!

  5. Hi Michael. This is a badass post! Super thorough and helpful. I’m not big on budgeting, but you’ve inspired me to consider it all over again.

    Thanks!

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