You made your budget, you agreed on set amounts for each expense, and you did your best to live on it. You ROCK! Good work! But don't pat yourself on the back just yet, you're only half way done.
Don't get discouraged, though, because reconciling your budget is not nearly as hard as you think. It takes some time and some practice, but with diligence it can become the most exciting part of your month instead of a dreaded tedious task. Here's five steps to successfully reconciling a budget:
1. Get your bank account summary/receipts/envelopes
If you used a debit card to pay for your expenses or you wrote a check, the information will be posted to your online banking account. We highly recommend online banking, by the way. Print your bank account summaries from the first day of the month until the last day, this will show you exactly what has been taken out for that particular month. Use this information to help you add up your total expenses.
Take your envelopes (if you used the envelope system) and see if you have any money left in them. If you do, congrats! You went under budget! Don't freak out if you don't, though, because that's what the money was put there for, to be SPENT. You should also be keeping your receipts in these envelopes, which will help you know what you spent your money on specifically. (It's a good idea to keep your receipts even if you don't use an envelope system, that way if you go to a multi-purpose store like Walmart and you buy groceries and clothes you can break them out to make sure your totals come up correct.)
2. Categorize, categorize, categorize!
Now is the hard part (and if this is the hardest part, you should be fine). You will need to separate your expenses by the categories you used to make your budget. This means you go down the list of expenses from your receipts and account summaries and mark everything that was a grocery expense as a grocery expense. All your gas expenses are marked as a gas expenses. All your eating out expenses are categorized (shockingly) as eating out expenses. You may need to take a brief break in between highlighter colors to make sure you don't lose your cool. Seriously folks, this is like first grader stuff.
This is a great time to define what may have been "gray areas" of spending. Was that bag of chips you bought on the way to the beach last weekend a grocery expense or an eating out expense? Does your friend's birthday present come out of the gift fund, the blow money, or the giving fund? Does that oil for your car come out of the car fund or the grocery store fund?
3. DO THE MATH
Get your calculator, your abacus, and take off your socks and shoes, it's time to do some math!
Add up each category for a total. This is easy! Make sure to double check your math if you need to. Take each category's total and put it on your budget next to your expected expense. I.e. if you put that you were planning on spending $300 on groceries, and you actually spent $289, you make your budget reflect that (and you went under). Add up your total expenses to see if it matches up to what you budgeted!
The obvious goal is to have spent less than or equal to your budget. If you spent less than you budgeted, you need to decide (as a couple if married) what to do with the excess money (here's a hint: SAVINGS). Remember, we're doing a ZERO-BASED budget, which means if you have money left over you still have to decide where to put it. If you break even, you did a great job and have learned some great discipline.
PRO TIP: Try not to go over!
4. Compare your Outgo to your Income
Take a quick look at how much you actually pulled in for income this month. Compare that number to your total actual expenses. If you have more income than expenses, you have extra money to put into savings, throw at debt, or spend however you deem fit. However, if you earned less than your total expenses, you have a small problem and need to figure out where that money came from. If you have to pull from savings in order to make the budget balance, don't beat yourself up. Learn from this mistake and do better the next month.
This can be the most exciting part of your month. This is the moment every month where you get solid feedback on how you're doing with your money. At this point in time, if you are doing what we teach and you're gaining discipline, you will start to see your debts go down and your savings go up. This can be exciting! Use that momentum to keep yourself going for the next month's budget, which is of course Step 5.
Step 5: Do it all over again for the next month.
Get yourself into the habit of making your next month's budget after you reconcile this months. This will help you see where you need to put some immediate focus and keep your mind on the task. Remember, it takes about 3 months to really get the hang of this budget thing, so give it time and keep at it.
Another piece of advice: Once you get used to this process, it can be beneficial to do it every two weeks instead of just the end of the month. If you really want to be on top of things, you can do this every week. With practice, this should only take you fifteen minutes per week. If you can just spare a quarter of an hour each week, you will win financially. My wife and I have been doing this for long enough that we mostly only do it at the end of the month, but we have also been known to go through the bank account summaries and receipts multiple times in the month (especially if unexpected expenses happen).
This is not a quick fix to money problems, it's a new way of life that will change you forever. As you've just read: it isn't rocket science, just Common Cents.
-Heath
PS: Let me know if you guys have any questions on any of the stuff I'm writing, because I want to make sure I'm not confusing anyone. Drop me some questions in the
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