A Budget Review will keep things real and keeps your finances honest. Whether you have been staying on track or veering off, a budget review will let you know if your budget is working properly for you and your family.
The best time to start reviewing your budget is after you have been living on it for a month or two. You can’t review systems you haven’t tried!
Why is it Important to do a Household Budget Review?
The importance of reviewing your budget is to make sure that your budget is meeting your current financial circumstances. Changing goals, lifestyle, employment status and family size are all examples of things that change over time and need to be adjusted for in your budget.
Even if things around your home haven’t changed much, reviewing your budget will let you know if you are still on the track you set for yourself and motivate you to keep on going forward.
If your review is showing that you and your current budget are not compatible, it will allow you to make changes to keep your head above water.
Reviewing your budget also helps to keep your paperwork organized:
- Your written goals
- Net worth statement
- Bank and credit statements
- Pay stubs
- Anything else to do with your day to day household financial matters
Having them all in one, locate-able, place saves you time and frustration. It also helps you to feel you have your financial matters in hand.
Step-by-Step Budget Review
Get all your back up paperwork, mentioned in the last paragraph, and a blank copy of your Budget Spending Plan.
On your current Budget Spending Plan, review each line item and find the actual amounts on your backup paperwork. Compare the amounts.
- If the amount is within $5.00 either way, transfer that amount to the new Budget Spending Plan. This means your budgeted amount is on track.
- If the amount between budgeted and actual is over $5.00 to your benefit, mark that amount with a check mark. This means you have amounts that can be utilized else where.
- If the difference is over $5.00 against your best interests, mark it with a question mark. These are the amounts that are off-base and will need to be adjusted in some way to get them on track.
Now look at what you have and ask yourself some questions at this point in the budget review:
- Are there little expenses, such as coffee stops, school fundraisers, increased bus fares, vending machines etc that are unaccounted for in your budget?
- Is your debt load going down? Is it going up?
- Is your current budget in line with your goals and annual lump sum expenses?
- Is your income exceeding your expenses? Just meeting them?
The answers to these questions and others that you come up with will assist you in the next step of the review process – Adjusting Your Budget.
How to Make Budget Adjustments
We will first take a look at the areas that have checkmarks.
If the checkmarks are showing up in your Income area, are these permanent or a result of a one time boost, like a work bonus or bingo win?
If the increased amounts are permanent, transfer them to your new Budget Spending Plan. Otherwise, enter your regular income amounts in their proper place.
If the checkmarks are showing in your expense areas, are they the result of a one off expense decrease or a permanent one?
If it is a one off, transfer the regular amount to your Budget Spending Plan.
If it is a permanent one enter the new amount that is going forward to your Budget Spending Plan.
Write the positive difference in the margin (e.g. +22.18) of your current Budget Spending Plan. These amounts will be added after you have examined all of the checkmarked areas and repeated the steps above.
Make a note of the total positive amount somewhere on your current Budget Spending Plan. This is your newly found ‘Wiggle Room’ amount.
You can also record it on this Budget Review Tally worksheet:
Lets Review the Question Marks
Write the negative difference in the margin of your current Budget Spending Plan (e.g. -22.18) and add up the total amount. Subtract this amount from the positive difference you had come up with earlier.
- If the amount is positive – Great! You can safely increase your savings or take the family out to celebrate (within the left over amount of course).
- If the amount is negative, your expenses are not within your means and adjustments need to be made.
- If the question marks are showing up in your income area, is this the result of a permanent job loss, temporary decrease due to sickness or vacation, a skipped child support payment, or a month that didn’t have a tax credit come in?
When there is a decrease in your income, permanent or temporary, some part of your budget will be affected. You can only payout what you bring in.
- If it is a one time or temporary deficiency, can you cover it with savings to stay on track?
- If it is a permanent decrease, you already know that your expenses will need to be adjusted.
Lets look closer at the question marked areas in your Expenses.
Look at each of the expenses and ask yourself why there was more paid out then you had budgeted.
Is it a fixed expense that has gone up such as an increase in rent or utilities, or an increase in your credit card outstanding balance?
If your fixed expenses have gone up, write the new permanent increased amounts on your Budget Spending Plan. (Why does it always hurt when this step needs to be done?)
Is it Time to Wiggle?
Did the question marks show up in a flexible expense? Let’s really look at these ones.
Flexible expenses are the ‘wiggle room’ expenses, and when negative amounts are showing in this area it’s time to get wiggling.
Because these expenses are also the ones that include the ‘Fun Stuff’ it can be hard to cut some of these back.
Some questions to ponder to get your creative wiggling juices flowing:
- Does your library lend movies or board games to help cut some of your entertainment expenses?
- Can you wear something from the back of your closet instead of buying new clothes?
- Can you cook some foods from scratch, rather than from pre-made?
- Can you go shopping less often with the kids?
- Can you go shopping less often, period?
- Where did you put your travel coffee mug and lunch kit?
- Can you consolidate any debt payments or get a lower interest loan to pay your outstanding balances? (Talk to your Financial Adviser or Bank about this, if it is a possibility)
- Can you change banks to one with lower or no fee accounts?
- Can you negotiate new utility, cell phone, or internet rates with your provider?
- Can you take the bus to and from work on days you have no sales calls scheduled?
This is just 10 sample questions. Your flexible expenses suit your individual situation and you know which questions you should best be asking to yourself.
Start transferring your adjusted amounts to the new Budget Spending Plan as you find your answers and determine your new budget amounts.
If the question marks are sitting in your savings area, it may be a grace.
Can you find some room within your expenses to add even the smallest amount to your Emergency or Goal savings. Wiggle your flexible expenses around a bit and see what you can come up with.
Are You Being Honest?
I believe the toughest part about reviewing your budget is being honest. Honest with your self, with your family and about the truth of your financial situation. Especially when things are going tough.
It takes discipline to determine which expenses are truly needs and which are just wants. Is there bad spending habits that need to be addressed or great ones that can be built upon?
Have you been using credit to cover any shortfalls or as a supplement for wants? Though this can be easy to justify when you have a points card, is it realistic for your current financial situation?
If the goals you are working towards are honestly what you want to achieve, the discipline required to stick to a budget and maintain spending under your income is much easier.
Having said that, I know from experience that your income can sometimes be far less than what even just your fixed expenses are. Your Budget Review will let you know if it is time to jump out of your situation and can motivate you to make needed changes.
But what if you are doing everything you honestly can do to make the budget work, and it feels like the rest of your family is working against your efforts?
Family Finances are a Family Responsibility
You may have a budget put together that adjusts your income to your expenses, but there doesn’t ever seem to be a month where your family co-operates to let it happen.
Unfortunately this is a reality for many households.
The family finances are the responsibility of the whole family and not just one person out of the bunch.
Each person in your family may have different priorities, define needs and wants differently and have different spending habits. It takes some courage to be open and honest about the family finances so everyone is on the same page.
However, it needs to happen. Especially if you are digging your way out of a hole.
Hen Pecking on Finances with the Girls
I recently talked about family finances with some ladies I know – most of the girls are in charge of the household finances, two whose husbands take care of the finances and two who share financial responsibilities with their spouses.
*** Please Note *** The following tips came from that discussion and are not to be taken as professional financial advise.
As an aside – 3 of the couples do not have kids, the other 4 and myself do.
- Be smart about when you have a family discussion about finances. When hockey or football is on, or when the kids have just started a video game is not a good time. Schedule the meeting in advance and put it on the calendar.
- Show everyone the numbers. It doesn’t sound like Blah…Blah…Blah, when they can see it for themselves.
- Give each member of the household a ‘Fun Money’ allowance. When it is spent, there is no more until the next ‘payday’.
- If you don’t have a joint account for your household bills, write the name of the person responsible for paying certain expenses right on your budget and post it on the fridge.
- When it comes to buying a ‘Want’ agree to an amount, like $200.00, where the purchase must be discussed.
- Keep your financial records somewhere the family can locate them.
- Let your kids give you financial advise. You don’t have to follow it, just actively listen to it.
- Answer questions about the finances honestly and be prepared to back up your answers with proof.
- Show your kids how much they have in their RESP. They seem to like watching how their money grows.
The main take-away from this friendly advise is communication and openness. Thanks to the Girls for their advise and a fun afternoon.
After Your Budget Review is Complete
Now that your budget has been reviewed and a new Budget Spending Plan is in place, it’s time to live with your new financial plan for a month or so and see if it is working for you. Don’t forget to do a budget review on a regular bases to keep yourself on track.
How often do you review your household budget? Do you involve the whole family in the process? Got any tips for getting the Family involved? Enter the conversation in the comments below.
I will pass on your tips to the Girls.
Please Note: I am not a licensed finance professional. The information in this post is for reference and entertainment purposes only. If this post inspired you to try something new, please speak to a licensed professional or financial councilor first.
Title – A Digital Dreamer – cc0
Quotes + Did You Know – Fancy Crave– cc0 – Thanks Again Igor!
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