Number of participants: 2-3
Includes: You, your significant other (if applicable), and your budget
Time: A 30 minute meeting near the beginning of the month
Goal: Determine if last month had a surplus or shortage
Step #1: What happened last month?
– Print out checking account and credit card statements for the last month
– One participant reads aloud the transactions, the other records them in the appropriate category on your budget. How you keep track of your budget is really a personal preference. Whether it’s a piece of paper or an Excel document, it just needs to work for you.
– Get over the cringeworthy moments. Is reading your bank statement out loud to your partner your worst nightmare? You’re not alone. But, you need to get over it. Budgeting isn’t comfortable. Neither is it easy. But those aren’t excuses. Look at it this way, if going through your transactions for the month is uncomfortable you can bet you seriously need to work on your spending habits. This open airing should prevent future unnecessary or excessive purchases.
Step #2: Things to look for on your bank statements:
– Bills you forgot to pay
– Loans/debts you finished paying in the previous month
– Places where you might be able to reduce your monthly spending
– Budget projections that were far off-track (whether positively or negatively)
– Strange spending habits.
– Discrepancies you can dispute with your bank
– Proper credit for a returned purchase
Step #3: Things you can adjust:
– Price targets (I’ll discuss this further in a post next week, but basically it’s a mini-budget within your bigger budget)
– New expenses you need to add
– Items that have been paid off and need to now be removed
– Savings deposits that are affected by money you’ve freed up after paying off a loan or other debt
– Surprise bills you didn’t add previously
Step #4: Determine if there was a surplus or a shortage
By going through the first three steps you should be able to determine if you did well this month (surplus) or if you have more work to do (shortage).
Surplus: Your income has to cover a lot. Your income pays your bills, covers any other expenses, goes toward retirement savings, an emergency fund, investing, and other savings. If, after you’ve met all those obligations you have money left over, it’s a surplus. This surplus gives you the ultimate opportunity to accomplish financial goals. Here are few options:
– Pay off debt
– Save the money for an upcoming “expensive” month.
– Put it towards long-term savings
Shortage: A shortage is pretty simple. Your income didn’t cover your spending. Maybe it’s because you spent too much on groceries or maybe it was a surprise vet bill, whatever it was, the shortage sets you back. This budget meeting is a time to reassess your budget and plan for the coming month. How are you going to stay on track this month? What’s your plan for surprise expenses?
Those are the four basic steps every budget meeting should go through. I could go through each and every point and discuss them in minute detail, but it wouldn’t necessarily help you. Like most things in life, starting is the biggest obstacle you’ll face.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.