How To Stay On Track With Your Monthly Budget

by Hank

Once you have started making your budget on a regular basis, the next step is to start managing it properly. Here are a few simple steps that can really help you manage your monthly budget properly and make full use of this excellent exercise to control your personal finances in a better way.

Compare. At the end of each month, take some time out to compare how you did in reality with what you had planned. The military calls this an after action review (AAR). They talk and digest what happened on the battlefield. What went right? What went wrong with the operation? Think about your monthly budget the same way. Think about the excesses and shortfalls that you had last month. What caused the excess spending on a particular item, and how can you avoid that from recurring next month? And, what was the reason behind the shortfalls and should you allot a smaller chuck of your budget to these items for next month?

Divide and Rule. If your budget is worlds apart from what you actually end up spending and you are finding it hard to identify the problem, do not wait until the end of the month to do the math. My boss always tells me that problems do not get better with time. You have to identity a problem right away and not sit on it. Check at the end of each week or every two weeks on how you are doing for the month and if there is anything you can do to make the situation better. This way you can start mending the problem during the month rather than just moping over it at the end. You might have to really watch your budget closely if this is a first time trying it out or sticking to it.

Be Flexible. Do not be too hard on yourself when you go astray. Everyone will eventually drift back and forth around your set number, but do not drift too far. If you are 10% off on your budgeted number, then you did not have the right assumptions to start with and need to relook at your number all together. For example, I budget $150 per month for my family’s electric bill. Some months I am off and some months I am right on the money. But, to help my budget stay on track, I had better not be too far off. (That’s why I signed up for my electric company’s budget smoothing plan.) With time, conditions change, and it is normal to find out that your actual expenses differ from what you had thought. So, do not take it out on yourself if you have not been able to keep up with an outdated budget, but spend some time to reconsider the main assumptions.

Do Not Be Too Flexible. Be wary of the risk of fitting your budget to changing assumptions and on-the-whim expenses each and every month. The purpose of the whole exercise of making the budget is to have a greater control over the spending every month rather than chasing after rising and changing patterns each month. Dave Ramsey talks about how in your budget, every dollar should have a duty description. Every dollar should know where it is going before you even get paid. Every dollar should be written down on the budget and spoken for leaving nothing to guess work.

Do Not Forget Fun. Do not forget to plan in a little spending money for yourself or a little bit of money to go out to eat. You will be more inclined to stick to your budget if you have a little bit of mad money or spending money built into your budget.

Keep Your Eyes on Details. If you are keeping a budget of your personal finances, make sure that you are not missing any details. Understand what the expenses mean in terms of the choices you made throughout the month. For example, the extra $30 spent on gas as a result of taking a trip outside of the city and the extra $100 spent on food for the family dinner you hosted this month have to come out of other portions of your budget now. Where will you get unscheduled expenses from in your budget? Will you do without something else that you had budgeted, movie night for example? Or, will you just rack up the extra expense on your credit card?

Comments on this entry are closed.

{ 1 trackback }

Previous post:

Next post: