Home > Money Management > Budget Basics #6 – Monitor Your Spending

Budget Basics #6 – Monitor Your Spending

I’m assuming that you created a monthly budget, which means you have decided what budgeting tools and technology you are going to use, created a budget and are tracking your expenses.   All of this work has been laying the foundation for you to really maximize the benefits of your budget. 

To start, you should be tracking your expenses and monitoring your budget at least on a monthly basis.  As close to the end of the month as possible, input your actual monthly income and expenses into your budget.  There should be a column which compares the amounts you budgeted with the amounts you actually earned and spent.  Budget software, templates and online services will do this automatically for you.  If you are using Excel or a similar spreadsheet, create a simple formula that calculates the difference.

Look through the categories and review the large discrepancies, positive and negative.  Significant variances can be an indication of an error, or they may have resulted from a change of events (i.e., an unexpected car or home repair).  Your primary objective is to have a reasonable understanding of the variances so that you can consider the implications for your future spending.  Was it an anomaly or something that will be recurring?  For example, if you spent $200 more on food, did you underestimate your food budget, or did you have a birthday party for one of your kids which accounted for most of the extra expense?

Having completed a complete budget cycle, you’re in a great position to prepare your next month’s budget.  Start preparing your budget for the coming month by looking at your budget and actual income and expenses for last month.  Give some thought and analysis to how your spending for next month will compare to last month.  If you know you’ve got to get new tires for the car or have a scheduled medical appointment, include these amounts into your budget.

There will always be something that is unknown and unexpected.  However, the more you work with your budget, the smaller the variances you should have each month.  Remember that your budget should be based upon your goals and priorities. By monitoring your spending and comparing it to your budget, you’ll be able to evaluate how well you’re spending to achieve your goals.

Controlling your budget and spending will be the next budgeting principle we address.

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  1. July 27, 2010 at 7:51 PM

    Wow this is a great resource.. I’m enjoying it.. good article

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