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|Checking the Compass
© 2005, Don Mize
Past articles outlined the Net Income Budget and explained how allowances
help the budget work. While many emotional and practical issues remain,
our focus now is the necessity of checking our budget plan. We must stay
within our monthly budget total. For example, grocery spending may higher
than budgeted one month, but the gas bill may be lower than budgeted,
allowing us to stay within our budget total. The problem comes when we
exceed the monthly budget total.
If the budget plan is our compass in a financial wilderness, the compass
must be checked to prevent us from becoming lost. Once a month you
must take care of certain tasks, like checking your bank statements, your
credit card statements, paying bills, and posting the bills to your various
Our budget plan ($200 per month for groceries, for example) must be
checked against what actually happened (i.e., we spent $250). Thus, we
must have a workable system to keep up with our expenses. Before
computers, one would buy a ledger at the local office supply store, write a
category at the top of the page (groceries, $250), and list each expenditure
(check or cash) for groceries. (See Example) At the end of the month, the
total would reveal how much you actually spent on groceries.
Today many people prefer a computer software program. Be aware that a
computer software program formats gross rather than net income. In other
words, your gross salary will appear without deductions. The deductions
will appear in the expense section of the budget (various taxes, insurance,
and other items automatically deducted from your check). You must go to
the report section to see the monthly breakdown by categories (grocery
expense, for example) and compare it to your budget plan. Whether you use
paper or a computer program, you must check up at least once a month to
see how your plan is working out.
If you consistently spend more on a category (groceries, for example), you
must face reality and adjust your budget plan. In addition, a part of the
checkup is to balance your bank statements, your credit card statements,
and any other statements that come in (usually once a month). The quicker
you catch an error or a miscalculation, the quicker you can make a
Granted, few people want to set aside time for family bookkeeping.
However, someone in the family must take on that task and do it on
schedule. In my work with couples, I tell them that one key to a successful
marriage is to figure out who does what better and assign tasks accordingly.
In one person is lousy with numbers, or undisciplined, then hopefully the
other person is more self-disciplined and can add and subtract. In most
situations, bills can be written around the 1st and 15th of the month. When
those dates come up, it is absolutely necessary to set aside bookkeeping time.
Why do I harp on a monthly budget? Many people receive pay checks once
a month, most statements and bills come due once a month, and a month is
thus a workable unit is managing your financial affairs. Usually a week is
too small a unit, actually taking more time, causing more errors, and
preventing an overview. Longer than a month means an error or
miscalculation causes excessive damage.
While few people are of the temperament to want to sit down and do
bookkeeping, a monthly checkup is absolutely necessary. The alternative is
a poor credit rating, people calling you to collect, late fees, and other charges
that rob you of your hard-earned money. If you spend more than you take
in, you are headed for trouble.