This article is the 4th in the series Creating and maintaining a real budget:
In the last three articles “Know what you spend”, “Organizing your expenses” and “Creating the budget” we’ve covered the importance of knowing how much you spend, on what you spend it and when you spend it. We’ve taken all the steps to create a comprehensive budget. Learning from your past expenses you are able to make educated decisions about your future expenses.
Now that you’ve created your budget, you’ve taken one giant leap towards taking control of your finances. Having a budget however doesn’t mean much if you don’t act on it. The additional work starts with actually keeping track, live by and maintain the budget. This means a near real-time tracking of your expenditures and categorizing them according to your budget. I recommend sitting down at least once a week and seeing where you are with your expenses.
Updating your expenses against your budget will allow you to plan accordingly. If one week into the month you find you have already spent half your dining budget (been there) then that is a signal for you to slow things down. Maybe by skipping some restaurants until you get back on track. Maybe you can adhere to the budget again by choosing a cheaper restaurant or ordering less spirits .
Also don’t forget to roll over any overages or left overs on your budget from one month to the next. Maybe you didn’t dine all that much this month and have $50 left for this month’s budget. Roll it over to the next and enjoy it then. Maybe you spend way more than the allotted budget for this month. Roll over that overage and reduce your budget for next month to try to catch up.
If you find that you are rolling overages (you spend more than you allotted for) all the time and simply cannot bring the expenses back in line, it means you probably budgeted too optimistically. Adjust your budget accordingly. If you find you have left over money on a certain category months in a row, you probably budgeted too aggressively. Now you can invest that money, save it, pay off debt or you could relocate it to another category (maybe one of those categories you have you planned for too optimistically).
Adjust where needed and every twelve months go back to steps 1, 2 and 3 and plan for the next 12 months. If you track your budget in near-real-time mode (daily or weekly) you’ll know where you are spending your money which takes care of step 1. Step 2 really just becomes a matter of updating the spreadsheet. If you’re using tools step 2 (organizing expenses) will literally be taken care of every time you download transactions. Step three (creating a budget) will mean adjusting your budget, forecasting changed expenses (gas prices dropped drastically) and in some cases adding new categories (a new car loan that wasn’t there before).
When done with that you can move on to step 4 again for the next 12 months.
Remember a budget is never done. It requires attention and care and in some cases a whole lot of tweaking.
Good luck reaching your financial goals.