Getting through the month within your budget can be a struggle. Living within your budget doesn’t always have to be so tough and the way to simplify it is to compare your performance and adjust both your expectations and your behaviors on a regular basis.
Comparing planned and actual performance and making corresponding adjustments is all part of the Success Cycle. Starting a budget from scratch takes time to perfect and over time can go from a list of expenses and income to a working budget that fits you and your lifestyle.
The Success Cycle includes four steps:
This cycle is for both your big goals, your smaller goals, and your daily and weekly efforts. Within a month, you can go through this many times before you ever sit down to look through your budget and see what you can change for the next month.
You have so many different financial needs. A lot goes on with your money and if you can’t sit down and plan ahead of time you’ll be be spending your time figuring out what to do in the moment.
To create a plan, include your income, expenses (both monthly and periodic), saving goals and debt payments. Plan on paying those and taking whatever money is left for your everyday expenses. The most important part of planning is putting every dollar to use.
If you can’t plan a place to put your money, you won’t know what you’ll be spending it on. Your miscellaneous funds will be spent on unplanned and probably unimportant items.
This plan is a first step and probably won't be pristine and perfect for the first few months. It should be a starting point that helps you understand what you have to work with. In creating your budget, you might already see a few steps you can take to improve. That means it’s already working.
With a plan set up, you just need to make sure you’re following it. Each day you can make a difference by knowing how much you have to spend that day and reviewing what you actually spent. The Mvelopes app makes this very easy.
Tracking your purchases (and income) keeps you updated on how much money you have and whether you have overspent or not. It will also serve as the warning light when you’re about to spend more than you budgeted.
Tracking provides a way for you to make changes on the fly. If you don’t know you’re in trouble you can’t make any changes. If you only budgeted a certain amount for eating out and your $4 left won’t cover your lunch then you’ll need to find money for lunch and for the rest of the time period from somewhere else in the budget, but that’s the next few steps.
Going back to the hypothetical lunch, you have compared your actual purchases to your planned purchases and have already spent most of it. In order to make it through the month you’ll have to take money from somewhere else.
Other comparisons you’ll make include: Did I save how much I was going to and then did I keep it in the savings account all month and not take it out? How much debt did I pay off compared to my plan? What categories did I spend more than I expected? Where did I stay within my budget?
After you have compared, either in the moment or at the end of the month, the next step is to adjust your plans for the next time. In the lunch example, you will have adjusted your budget for the rest of the pay period or month, whatever it may be. For the bigger picture comparisons, you’ll adjust your plan going forward. Should you save more? Pay off more debt? Is there more room in your budget to find even more savings?
Also look at your behaviors and what adjustments you can make to create a little extra room in your budget. It may be as simple as using a $20 bill instead of cards for small purchases or just not carrying credit cards any longer. Whatever you think can help, put it to the test.
Once you have finished the Success Cycle, that means it’s time to start it all over again. You have your adjusted plan and are ready to start once again.
Create or keep a written plan and begin tracking transactions daily.
To get started today improving your finances, download Mvelopes.