Lesson 3 - Statements and Budgets - Part 16

Budget Performance

Now that we have our Master Budget and Monthly Budget finished we have a plan that will help us achieve our Financial Goals now and into the future. As we’ve said before, our lives are constantly changing, events occur, life unfolds and we must be ready to adjust our Financial Plans as we can foresee.

With this in mind, we must continue to evaluate our performance.

To evaluate our Performance, first we must have a method of recording Income and Expenses. Most people will use free online financial software or download software for their computer that will keep track of Income and Expenses. We would advise you on a monthly basis to examine what you actually had in Income and Expenses verses what you had planned for in our Monthly Budget.

Performance monitoring is essential to our Budget. We need to know if we are not making enough Income or we are spending too much money. There are also instances where what we thought something would cost was actually higher. In any case, we need to evaluate what is occurring every month. We might need to adjust our Master Budget and Monthly Budget now, or take in consideration higher expenses or less income for our future Budgets.

Effective Record keeping will also play a critical role in determining if we are within our Budget. We tend to agree that staying away from Cash is a good idea. We advise to use checks, debit card or credit cards whenever possible. Every time we use one of these methods of payment, there is a record that is automatically generated. If we pay with Cash, it is up to us to remember to record the expense, if we don’t then we have no way of knowing what we spent the money on or how much.  In terms of theft or loss, recovering money from a credit card is possible, while if we lose cash or it is stolen, the chances of getting that back are slim to none.

When we have an expense, we should make sure to use some form of payment that will give us a receipt or at least a way of tracking where we spent money and how much. If we go out to get a haircut, we should have a receipt saying how much it cost us. We also need to make sure that we know where on the Monthly Budget that money comes from. Having the right category is also crucial, we don’t want to take money for a hair cut out of the Health Insurance category on our Budget. Otherwise it will show we over spent in one area and underspent in another. What’s the big deal you ask? Well if we over spend in one category and underspend in another, we will make the appropriate adjustment for the next Budgeting year or next month. It will throw everything off as time continues. So let’s make it easy for ourselves.