A project budget is a list of every expected cost, a total you are allowed to spend, and a way to compare the two as work goes on. This guide shows how to build one in Excel and read it. You can also start from our free project budget template.
Updated November 2026
Step 1: Set the total and the reserve
Start with the approved budget. In the example it is $30,000. Add a contingency reserve, a share you hold back for surprises. At 10 percent that is $3,000, which leaves $27,000 to plan against. In Excel: =B5*B6 for the reserve and =B5-B51 for what is available.
Step 2: List every cost
Write one row per cost with a category, an owner or vendor and an estimate. Group costs into a few categories such as labor, materials, equipment, software, contractors and permits. In the example nine lines total $25,550.
Step 3: Record actual costs
Type the real cost when the invoice arrives. Variance is estimate minus actual: =D9-E9. A negative result means the line is over. In the example, project manager time ($6,200 against $6,000) is $200 over and site materials ($7,850 against $7,200) is $650 over.
Step 4: Flag problems automatically
A status formula keeps you from scanning numbers by eye: =IF(E9="","Not started",IF(E9>D9,"Over budget","On budget")). Add a conditional rule that colours Over budget lines red. Microsoft explains the feature in its guide to conditional formatting.
Step 5: Summarise by category
A SUMIF adds up each category: =SUMIF(B9:B48,A8,D9:D48). Microsoft documents it on the SUMIF function page. In the example Materials are estimated at $8,000 with $7,850 spent, and Contractors at $7,000 with $4,500 spent. Add a drop-down for the category so spelling is always the same; see data validation.
Reading the result
Six lines have actuals totalling $21,750, so $8,250 of the $30,000 is unspent. Three lines still have no actual. Their estimates total $4,500, so the remaining estimated spend is $4,500 against $8,250 left. That is the check that matters: remaining estimates must fit inside remaining budget.
Common mistakes
- Leaving out small recurring costs such as permits, licences or delivery.
- Mixing contingency into line items so it gets spent by default.
- Updating actuals only at the end of the project.
These are illustrations to help you plan, not financial, legal or tax advice.
Frequently asked questions
What goes in a project budget?
Every expected cost, grouped by category, with an estimate, an actual and a total you are allowed to spend.
How much contingency should I include?
There is no fixed rule. Many teams use a percentage that reflects how uncertain the work is. The example uses 10 percent.
How do I calculate variance?
Subtract the actual cost from the estimate. A negative result means over budget.
Is there a free template?
Yes, the project budget template on this site has all of these formulas built in.