Sunday, February 1, 2009

Review Your Budget

Tip # 61 - Review Your Monthly Budget. A month has gone by since the beginning of the year, and it would be a good time to review your budget, especially if this is your first time doing a budget. If you haven't set up a budget for this year, I highly recommend that you do. Setting up a budget is the only way you can get a clear understanding of what your expenses are. Read my post on budgeting if you are just getting started.

So you've had your budget set up for a month and this is your first time doing a budget. Since a budget is just your best estimate, it is a good idea to review it from time to time to compare it to your actual costs. So, let's review your budget. Let's go through each line item on your budget and see how close your actual costs came to your budgeted costs. And if you are trying to save money (aren't we all?), let's see where you can cut back on some of the expenses you budgeted. Let's use the example I used in my previous budget post. You have $4000 monthly income after taxes. Here are your budget categories and amounts:

Rent/Mortgage $1500
Utilities (such as gas, electric, and water) $500
Phone $50
Internet $25
Cable TV/Satellite $50
Food $500
Gasoline $100
Insurance $100
Travel $100
School/Classes $50
Clothes $50
Entertainment $50
Gifts/Holidays $100
Repairs (home) $50
Repairs (auto) $50
Miscellaneous $100
Savings $625

Let's go down the line items one by one and evaluate how you did in spending this month compared to what you estimated you need monthly throughout the year:
--Your rent has stayed the same as your budget allows and you don't expect it to change this year.
--Your utilities bill, was higher in January than the $500 you estimated. Remember, though that January is generally the most expensive month for utilities if you live in a northern climate. So averages are what we need to do here. The spring and fall months will probably be much cheaper when you are not running the air conditioning or heat. So on average you still think $500 is reasonable. Tip: If you wish, you can contact your utility company and have them put you on a monthly average plan. This way your monthly utility bill will be more consistent.
--Phone stayed the same
--Internet stayed the same
--TV stayed the same
--Food was only $400 this month with your careful spending of using bulk buying methods, cooking from scratch and coupons. You budgeted $500. This might be a category that you can cut down on . If so, that's $100 you can use elsewhere. Don't change the budget yet. Try it for another month or two before deciding whether this category can truly be adjusted.
--Gasoline. You spent $110 this month because the gas prices went up slightly in your area and you drove more than expected. You budgeted $100. You decide not to change this budget amount for now since there is so much fluctuation in the gas prices and you hope to drive less and walk more in the nicer weather.
--Insurance premiums should stay the same this year as you expected even though you had no payment to make this month.
--Travel budget is $100 but you did not do any travel this month. That's okay. Again, this is one of those categories that won't be the same or even similar each month. Your one $1200 trip each year is why your travel category is $100 per month.
--School/Classes. You change your mind and decide to cut back on classes this year. Because you budgeted $50 per month or $600 for the year. You change this budget category to $0.
--Clothes. You spent right at $50 this month for clothes but hope to do better when yard sale season rolls around. You keep an eye on this category, hoping to reduce it in the future.
--Entertainment. You only spent $25 this month by doing free or cheap activities. You hope to keep this up all year. Again, this is a category you can keep your eye on for a possible budget reduction in the future.
--Gifts/Holidays. You find out early in the year that you have a wedding, an anniversary party, and a bar-mitzvah to go to this year in addition to the regular holidays you celebrate and the wedding you already knew about. You didn't expect so many extra celebrations and are afraid that $100 per month is not enough in this category. You think about $300 will cover the gifts for these extra celebrations. So you add $25 per month to this category to bring it up to $125.
--Repairs/Home. You didn't have any this month but are expecting some of the appliances to need some work this year and possibly your bathroom sink. You leave this category alone.
--Repairs/Auto. There were a bulb that needed replacing and a car wash for your car this month. The total was $20. But you know that that you will probably need one major repair this year, so you think the total is accurate at $50 per month.
--Miscellaneous category was $100. You spent $75 this month - $40 on some medicine you didn't expect to buy and $30 on a new watch because you lost yours. You also spent $5 for some tolls you didn't expect. You decide that this category seems to have the right amount budgeted for expenses you don't foresee.
--Savings. You put about $420 into your IRA retirement account in anticipation of saving $5000 per year - the maximum allowed per individual. You also put $205 into a savings account for the home you hope to buy in 5 years.

Overall, your budget came close to what you spent or expect to spend each month. You raise your gifts budget by $25 but lower your classes budget by $50. You now have an extra $25 to play with. But after your medicine expense, you realize that you need a medical budget for the co-pays and medications that you will need throughout the year. (Your health insurance is paid for by your company.) You decide that $25 per month should cover it and you add that line item to your budget.

There may be some other minor tweaking in the future for the food budget, the entertainment budget, and the clothing budget. You are also going to keep an eye on the gasoline prices and your driving habits. Now your monthly budget review is done!

Again, if this is the first time doing a budget for yourself, it is a good idea to review your budget amounts a few times per year. Generally, once per quarter should do it unless you expect a lot of fluctuations in income. And after you are a pro or when income is fairly stable, once a year should be fine.

In Real Life (IRL) - I finally got around to doing our budget the first week in January. I was holding off since I didn't know if my husband would be getting a raise. (He usually gets it in December but had not received it as of the end of the year.) The good news is we found out early in the year that he did get a raise! The bad news is, we found out two weeks ago that his company got bought out and the benefits are changing. And for the most part, they are not changing for the better. Our health insurance was always paid for by the company. This was a huge benefit and blessing for us for the past 7 years. By not having any health insurance premium costs, we were able to put away $500 per month for our children's college funds. And now it looks like we may have to pay as much as $600 per month in premiums for our health and dental plans starting April 1.

I don't want to complain because I know we are much better off than most. My sister's husband lost his job and she just took a low-paying one so they receive benefits and earn any money at all. But I definitely feel that this bad economy has finally reached our family. In addition to these new health insurance premiums that we will have to pay, I also found out that I do no have a job at my old office. I was hoping to go back there this September for some part-time work like I did after I had my other children. Unfortunately, my boss told me they expect the workload to be very small this year and they've had to lay off some people. Therefore, they do not need me. She was hopeful that by the following summer of fall they may have some work for me. But I am not going to count on it.

So I had to rework our budget after my initial joy that my husband got a raise. I still want to contribute to my children's college funds. That is important to me. But I am going to cut out summer camp for at least one of my children who really didn't enjoy it that much last year. We also are cutting back our travel budget. We had budgeted $2400 for two trips this year - to the beach and to Florida. But in light of the news on the health insurance costs and my lack of job this fall, we decided to stay at our parents' condos instead of a hotel when we went to Florida last week. That cut out about $700 of expenses. We're also going to try to cut out about $300 off our beach trip by eating in more and doing fewer expensive activities. I am still looking for a part-time job and may do one at night or on the weekends so I don't have to pay for childcare. This way I can also start sooner rather than wait until the fall when my youngest is in preschool. And at least we have 3 months of no insurance premiums. But, it looks like I will need to do some more tweaking of the budget over the next few months until we know for sure what our income will look like this year.

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