My number one rule when it comes to budgeting and creating a successful financial plan? The fortune is in the follow-up! Creating a financial plan is one thing, but actually sticking to it? That is an entirely different piece of the puzzle.
The hardest part of making a spending plan (or budget) is figuring out how to create something that actually works for your lifestyle. When it comes to money management, a lot of us associate “proper” budgeting as being super restrictive. This is definitely not the case, but it can totally feel this way if your spending plan doesn’t actually work for your life.
This part takes some trial and error, but the key is scheduling regular check-ins with yourself to understand where your money went, whether it aligned with what you planned, and what needs to change in order for it to do so.
Part One: Where Your Money is Going
This portion of the audit is mostly about self-reflection. The point of creating a spending plan is to track where all your hard-earned cash is actually going on a regular basis. Knowing exactly where your dollars are going will help you plan and understand how much money you spend in certain areas of your life on a regular basis. We all have regular expenses, like living costs, food, and necessities. Those are generally fixed each month, so we can plan pretty easily. However, the hard part comes down to the variable expenses we have each month, which would be money spent on eating out, going out with friends, entertainment, travel and the like. These are the areas where it is most important to track because without having an idea of how much we spend each weekend eating out or going to the bar, there is no way to accurately set aside money to do those things.
One of my most commonly asked questions is about how much money I allocate to these categories every month. The answer? It doesn’t really matter and it shouldn’t impact how you choose to spend your own money. Knowing how much money to put towards certain areas of our lives comes down to two things: our priorities, and trial and error.
Our priorities dictate how we choose to spend money, and the ultimate goal is to really only be spending money on things that are in alignment with where are priorities are. However, month-to-month, priorities can change and there are factors out of our control that dictate where we spend. The key here is to experiment, and see when and why you spend in certain ways so that you can plan for it.
Part Two: Did You Stick to The Plan?
This is the fun (or not so fun.. depending how the month went) part! This is where we see how much money we planned to spend in certain areas, and how much money we actually spent in certain areas, and how they align (or not). personally, I check in on my plan more frequently than just at the end of the month so I have an idea of which categories I am tracking close to and which I am either way ahead or way under. This helps me adjust more frequently, but we’ll get into that in part 3.
During this part of the audit, there are a handful of questions to ask yourself to get an idea of why you spent how you did, where you need to look closer, and what will need to happen next month to align with your goals:
Which categories did you stick to?
Which categories did you go way over, or way under? Why?
Did you spend money on anything that you didn’t plan for? What was it, and why?
Were you realistic with your spending plan?
Was there anything you forgot about?
Going through this list of questions accomplishes two main goals: Where exactly did your money go, and why did it go there? Knowing your why is key, because it will help you make proper adjustments next month for more success.
Part Three: The Adjustments
It’s time to look back through the areas where you either over or underspent, and understand why. The why is what will dictate any changes you need to make going forward. For example, if you planned to spend $100 on groceries last month, but you actually spent $250, you need to know why you spent way over. It could be because you were unrealistic and can’t feed yourself on $100 a month, so you will need to plan to spend more going forward. Or, it could be because you were slacking in the meal planning department and had to make a couple unplanned grocery runs. Ask yourself this:
Is the reason I spent differently to my plan within my control?
Is it something I can change through planning or behavior?
Is it something I need to just add more money to going forward?
Your answers to these questions will guide you towards knowing how much you need to spend and where. The adjustments are critical because if something isn’t working, this is where you change it. The changes ultimately lead you to creating a plan that works, and one that you’ll ultimately stick to.
Ideally, it is a good idea to go through this process on a monthly basis, towards the end of the month so that you can plan ahead for the next month. While the entire process may not need to occur more frequently than each month, there are pieces of this exercise that can help you be more accurate about your spending if you do them weekly. I check in with my spending plan every week, on Sunday evenings. Those weekly check-ins include updating my plan based on how I spent during the week, as well as taking inventory of where I am trending in each category. Sometimes, I will make minor adjustments that are better aligned with how my month is going, and this helps me stay on track.
If you’re struggling to save more money or reach your financial goals, remember that the fortune is in the follow-up. You can’t give directions without a starting point, so you need to know where you are at. Start with monthly check-ins and add in more if you find that you aren’t able to stick to the plan!