If you can’t remember the last time you conducted a budget review, it’s probably a good idea to take immediate action. It’s not good enough to assume that your budget is in order. You need to be 100 percent certain that this is the case.
Here are five of the most important steps to take to conduct a successful budget review:
1. Compare actual spending vs. planned spending
You plan to spend a certain amount of money, but as you know, this doesn’t always happen. There’s often a big difference between actual spending and planned spending. Your actual spending is your real budget. This is the money that’s coming out of your pocket, thus making it the most important.
2. Focus on your monthly income
Before you can decide how much money you can afford to spend, you must know how much you’re bringing in each month. Review your last six months of paychecks for a clear idea of your average monthly income.
Note: if your income varies, as is often the case if you work as a freelancer, it’s even more important to keep close tabs on your income.
3. Outline your monthly expenses
Once you know your income, tally your monthly expenses. And this means all of your monthly expenses. Don’t leave anything out as doing so will cause you unnecessary stress and anxiety in the future.
4. Modify your budget as necessary
A review is a good start, but you may find it necessary to modify your budget every now and again. Don’t delay in doing so, especially if major changes — such as an income cut — have come to light. Review your income and spending at the end of every month with an eye toward modifications.
5. Set short and long-term goals
What are you trying to accomplish with your budget in the short-term? How about the long-term? Don’t create a budget just to create a budget. Do so with the idea that it will help you reach your financial goals.
Tip: be realistic with your goals. Unrealistic goals will catch up with you over the long run.
The way you conduct a budget review won’t be the same as the next person. The steps above should serve as a basic guide. Don’t forget to address the specific wants and needs associated with your financial circumstances.
When was the last time you conducted a budget review? Did you like what you found? Were you forced to make some changes?