Yes, you need a monthly budget!

I come from the land of Long Ago – a place where monthly checking account statements arrived by snail mail and where we then reconciled said statement to all the little tick marks in our check registers to make sure everything was in balance. I’m pretty certain kids my son’s age don’t have a clue what a check register even is. I’m almost as certain that while many adults do, they rarely use them and they don’t reconcile their bank statements let alone pay much attention to a budget.

It’s not my mission to harp on you for not reconciling your checking account on a regular basis. With most transactions being instantaneous nowadays, if you don’t write checks the balance the ATM spits out is probably close to your true balance. As an accountant, I’d go nutty if I weren’t tracking my expenditures (I use Quicken personal finance software, BTW) and I download and reconcile transactions at least monthly but that’s me.

My bigger concern with never looking at your account statements or online detail is this:

How do you know how much you’re spending and what you’re spending it on?

Let’s get to the nitty gritty here. If I asked you to how much you spend each month and what you spend it on could you do it? Do you know where your money goes? If “yes”, then congrats – you are likely using a budget of some sort!

If you’re not…you should be. Yes, you need a monthly budget.

Budgets can be as simple or as complex as you want them to be. Mine is probably a little on the more complex side and it integrates with an 8-week cash flow I use to verify that there will be cash in the bank before large payments come due, more important now that I’m playing the free-points-game on credit cards. You don’t need to go to great lengths to create a simple budget, however. You could write one up on a sheet of notebook paper.

First, create your monthly budget

Basically it goes like this. List all your monthly cash inflows – things like paychecks, child support, side gigs, etc. Total those up. Now, write down all the things you spend money on and total those up as well.

This is where looking at your bank and credit card information comes in handy. Be sure to take into consideration expenses that are only paid periodically. For example, I may pay $600/quarter for auto insurance. I need to convert that to a monthly amount for my budget – $200. (Side note: I also need to remember to let it build in my checking account rather than spending it so that it will all be there at the end of the quarter when the payment is due.)

Subtract your total expense from your total income and ta-da! The end result is hopefully a positive number. If it is, give yourself a pat on the back. You’ve accomplished Goal #1!

Next, review that budget

Now let’s go a step further. Take time to review your spending categories. Are they all really necessary? What about that online subscription you never use that comes out of your account automatically each month? Sure, it may only be a few bucks but over time it adds up. Cancel it. Stop throwing money away.

Or like me, you may discover your Starbucks habit which seemed so innocent has turned into a significant cash suck (cue photo of vacuum inhaling dollar bills). Reviewing my budget prompted me to make a change in this area several years ago that saved me over $1,000 per year. And I still enjoy my daily cup of coffee.

Another large item that jumped out at me last spring was our HELOC (Home Equity Line of Credit). We used it to finish our basement several years ago and we’re still paying down a sizeable balance. It’s not that our monthly payments had changed but that I realized, “I’m paying a high interest rate on this. I wonder if it would be cost effective to refinance it before rates go up (they were already on the rise).” The answer to that was a resounding YES! For a couple hundred dollars in closing costs, we dropped our interest rate from over 6% to 3.1%. If I continue to pay our same amount monthly, which is more than the minimum due, we will cut over a year off our total payments!

Of course the significant ramp up in gasoline prices earlier this year blew up our budget – likely the case for many of you as well. In reviewing what we “thought” we were spending (the budget figure) with what we were actually spending (the bank account), I realized we were almost $200/month over budget! Were we able to make changes that erased that overage? No way! However, we focused on using our newer car (better gas mileage) for as much of our driving as possible. We also opened the Costco Anywhere Visa by Citi which earns us 4% cash back on all gasoline purchases including those at our local Costco Warehouse where we are already receiving a discount for being members. These changes helped negate some of the pain.

There are other examples as well. Though I’m not a crazy coupon lady…yet…I’m always looking for ways to save money and even more so in these times of sky-high inflation. Reviewing our budget helps me evaluate and make changes that I’d likely not think of otherwise. You know the old adage, “Out of sight out of mind.”

Like Nike says, “Just do it!”

You can’t review or analyze what you’ve not created. The format here is a simplified version of the budget I use. I threw some bogus figures in just to show how it works. The first tab in the workbook is the monthly budget plan. The second tab is a budget-to-actual comparison so you can periodically review how you’re doing. Here’s the link to the Excel template for those of you who might want to download it and customize it for your situation.

Did this article help you appreciate why you need a monthly budget? Feel free to share in the comments any tips or tricks you use for your planning and budgeting or ways you’ve found to cut expenses.