Even if you have a great budget that seems to work like clockwork, it's a good idea to sit down at least once a year to do an annual budget review.
What's an Annual Budget Review?
You and your significant other need to schedule some time to sit down and review your budget for the past year for wins, opportunities for improvement, as well as any tweaks that need to be made for the coming year.
What You Need:
Whether you use software, spreadsheets, or old-fashioned pencil and paper, be sure you have accurate numbers for your budgeted categories as well as all your expenses for the year.
We use Quicken software, so it's easy to do a report for the entire year (as long as I keep on top of categorizing all our expenses). But, you can always just add up the amounts in your spreadsheet or on paper for your annual review.
What Should You Review?
By comparing expenses to budget categories, you can see if you have any categories where your expenses are regularly higher than you budgeted. You'll likely need to adjust your budget higher for that category (which means you'll likely have to adjust another category lower). You might also have budget categories where the cost fluctuates over time (like gas for your car). With the price of gas decreasing lately, our expenses for this category have decreased and we can decrease the budgeted amount (at least until gas increases again).
It can also be a real eye opener for how much you actually spend on various categories over the course of a year! $50 a month for TV might not seem all that expensive, but it sure seems like a lot more over the course of a year ($600). Seeing the annual amount, might cause you to think about which expenses are completely necessary, and which ones you can cut and use the money towards debt repayment or towards a savings goal.
Also, if you received a raise at work and your income has increased, decide how to you want to allocate the extra income. If you can continue living at your previous budgeted amounts, consider adding the increased income to your savings (like an emergency fund, retirement, college savings, etc) or pay extra on your mortgage.
What about you? Do you do a review of your budget monthly, annually, or not at all? What parts of the budget do you reexamine?
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