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This step is where we reconcile our budgets. For the past month you have been tracking your spending each day to see exactly where all of your money is going. Now you are going to take that list and put the expenses into the categories of the Monthly Budget Worksheet. Once that is done, compare it to the Monthly Budget Worksheet you filled out in the beginning of step two.
You will likely see that you were off in several categories if not more. You need to take some time to figure out why you were over or under your budget estimates. In my first budget I was way under in categories such as dining out and entertainment. We realized the problems came in when we were in a rush, running late from the commute home or just not feeling like cooking after work.
Write down the categories you were off in, and a plausible reason. Then write down how you could cut those expenses. Be reasonable here. Are you really going to cook from scratch every night to cut your grocery bill? If not, then don’t write that idea down, it will only make you hate your budget. In our budget we realized we could cut dining out costs down by making meals in advance or using our crockpot more. We also researched recipes for our favorite restaurant meals. Be creative!
If you found that you don’t have enough income to cover your expenses, you are at least at a point where you now know how much more you need each month. From there you can decide what needs to be done, whether it’s a drastic cutting of expenses, asking for a raise, or getting a second job.
Remember those goals you wrote down in step one? Dig those out so you can start planning on how to reach them! The amounts you decided you need to put aside each month should be included in your budget as an expense. So if you are saving for a vacation that amount should be included under vacation, or if you’re saving for new carpeting it will go under household repairs. To make sure you aren’t spending this money each month you should deposit it into your savings or money market account. This can be done by writing yourself a check at the beginning of the month or even having it direct deposited right into your account by your employer.
As long as you aren’t spending more than you are bringing in, you should have some money left over each month. The fastest way to get out of debt and build an emergency fund is to take half of this money and put it towards each. The first half will go towards your debt with the largest interest rate. This is the bill you identified in your goals in step one. Let’s say you have $100 extra each month. Take $50 of that and add it to your bill you are trying to pay off. Once that bill is completely paid off, take the total amount you were paying on it and apply it to your next debt. Continue this pattern until all of your debts are paid off. With the other $50 extra you have each month you will begin an emergency fund for future unexpected expenses. This can be added to your savings account or you could start a new account for it.
Now you need to follow your budget for the rest of the year with the Monthly Budget Worksheet. As the year progresses you may need to refine some of the categories, break them down further or add some in to help you keep the budget working for you. Your budget should never be written in stone, it’s just a guide to help you accomplish the goals you have.
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