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| Checking the Compass Don Mize © 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 budget categories. 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 correction. 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. |