Tuesday, July 23, 2013

Budgeting 101: Reassess

It's July and you're probably wondering about that budget I set back in January.  And apologies to any of you on the edges of your seats just ripping your hair out wondering, "WHEN will she let us know about her spending?  I'm just DYING to know whether she's under- or over budget!"

...It's long overdue.

Fortunately for me, it's only the writing about budgeting that has stopped.  I haven't stopped tracking my spending and trying to stick to the budget, and (un)fortunately for those with whom I have any kind of contact, I haven't stopped talking about it, either.


The biggest news is that I'm really proud to say I've been able to save 16% of my income since January, something I haven't been able to do in years (or, let's face it, probably ever).  Every day I relish my little routine of sitting at my computer, coffee in hand, visiting each of my banking websites, inputing the previous day's spending, and watching charts like the one below tick ever-so-slightly upward or downward.

It makes me feel really secure to know that I'm on (or even off!) track -- because just knowing is half the battle.  Here's a look at my spending (as compared to budget) through June:


Now that I'm half way through the year, it's important that I reassess -- to take a good, hard look at how I've been doing, and change things up if need be.  In accounting we call this a variance analysis, but the term doesn't matter.  No matter what you call it, reassessing how you're doing against your budget is crucial to sticking with it. Here's how:

  • Step 1: Compare your spending to your budget.  You can do this in a lot of different ways, but I find that it's best to visually see the over- or under-spending by using a chart like the one above.  (I made the chart above within my Excel budget workbook using conditional formatting.  I like the way I can just glance to see which items I'm going over budget on.)
  • Step 2: For each line item, ask yourself:
    • "Does it make sense that I'm over- or under budget in this category?"
    • "Given what I know about my spending for the rest of the year, am I still on target to come in under budget?"  This is where you can ask yourself, really ask yourself, if you're on track.  For example, using the above chart, I'm 5% over budget on clothing.  But since buying clothes for myself is totally optional, I consider myself still able to meet this goal.
  • Step 3: Reallocate.  Now it's time to change up the budget.  If your answers to the above questions conclude that you will not be meeting your budgeting goals this year, you've got to change it up.  The only rule: The total must stay the same.  For example, if I realize I'm spending too much on transportation, I then have to:
    • ...ask myself if transportation is something I can cut back on.  Since I use my car on a pretty much as-needed basis, the answer in this case is no.  
    • ...figure out how much more I need to add to my budget.  The cool part here is that I now have data from the first half of the year to help me figure this out.  I may now see that I buy two tanks of gas per month, rather than one, as I had planned.  And within reason, I can estimate how much more money this budget would need to stay on track.  
    • ...add those $$ to my "transportation" budget.
    • ...subtract those same $$ from elsewhere.  Yep, it's the sad part.  Need more money for gas?  Goodbye manicures.  Or a new jacket.  Or eating out.  Figure out what category can take the hit, and make the cut.  Then really -- don't get that manicure, don't buy that jacket, restrain yourself from Restaurant Weeks.  I believe in you!
  • Step 4: Pat yourself on the back.  You've successfully performed your first variance analysis, and you're on track to sticking with your budget through the year!  Woohoo!

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