DEBT FREEDOM CAN HAPPEN AS LONG AS YOU PREPARE, EXECUTE AND EVALUATE.
A budget audit really is serious stuff not to be missed or forgotten. No excuses. If you don’t care about how your budget is working for you stop reading this post now and get on with your day. If debt freedom is on your to-do list then continue to learn how we audit our budget and the importance of continuing to do so even when you have no debt.
Become a leader and do not simply focus on short-term results or you’ll miss important financial opportunities. Giving your budget the once-over is never enough especially if you are serious about saving money, paying bills and becoming debt free so you can continue to build wealth. This is your opportunity to be the big boss, the one in charge of something so important that it could make or break you financially.
How do you think the rich get richer? Well, not all of them do but when you have money you can build your empire if you do it right. I can assure you the financially savvy rich folk don’t spend money frivolously unless they have so much of it that it becomes chump change. What seems like a fortune to one person is dollars to another. Have a look at fellow Canadian Justin Bieber who is renting a mansion in London, UK for $132,000 a month Cdn.
That’s more money than some people make working full-time for 2 years or more. Sickening amount of money for rent to the average person but no big deal to someone with as much cash as Bieber has. Does he really need a 15 bedroom party mansion?
Probably not but he will because he can.
Just because he can do it doesn’t mean you can. We’re not part of that elite club of multi-millionaires but even they can go bankrupt because they aren’t monitoring how much money they are spending compared to what they are earning. Sounds crazy, but it happens. Everyone needs to do a budget audit no matter how much money you have or don’t have in the bank.
Who is your budget auditor?
You are, unless you can afford to hire someone to monitor your money which doesn’t seem realistic for the average person to do. Hiring an accountant to do your income tax return is one thing but hiring someone to audit your monthly budget is far-fetched and likely to be pricey.
Without being appointed you’re automatically the budget audit director, that is if you really want to know how well your budget has worked for you. Creating a budget doesn’t mean you set it and forget it because with that mindset you’re sure to be disappointed when you realize that you haven’t achieved your goals.
Just when you thought you were on easy street with your money I come along and throw another wrench into the mix. If you thought managing your financial health was going to be simple you’re right it is however if you don’t have the patience nor the motivation it will seem like one of the worst tasks to complete.
The negative energy people give themselves when they are in debt or want to get back on track with their finances can really put a damper on the success rate of using a budget. The need for immediate results because bankruptcy looms or creditors are calling is stressful but you let it get this far and now you have to deal with it.
Either you work for it or you surrender to the finance devil who will take it all away but not without consequences.
Budget from start to finish = PEE
Prepare the budget
The first thing you will do is prepare your budget which takes time because you must follow budgeting steps from start to finish which I’ve explained in earlier posts. Conveniently I’ve also got a free budget excel spreadsheet for my beloved Canadian Budget Binder fans because I care about your money and want you to become debt free.
Below is our 10 step budgeting series that you can click and read. These are not downloadable tools, rather tools that will help you to learn how we designed our budget and how you can too!
- How We Designed Our Budget Step 1– Gathering All the information
- How We Designed Our Budget Step 2– Budget Categories
- How We Designed Our Budget Step 3– Tracking Receipts
- How We Designed Our Budget Step 4- Note-taking and Documentation
- How We Designed Our Budget Step 5– 5S Organization
- How We Designed Our Budget Step 6– Who manages the budget?
- How We Designed Our Budget Step 7– Balancing Our Budget
- How We Designed Our Budget Step 8– Knowing our Savings
- How We Designed Our Budget Step 9– Reading Our Bills
- How We Designed Our Budget Step 10– Projected Expenses <<< Very important!
Your budget is now ready!
Execute the budget
Over the course of the year you track your expenses and net income according to your monthly budget. You may spend more money one month and less the next. It’s important to ask yourself when the best time is to audit your budget is especially if you have a feeling things aren’t quite on track. We like to do this twice a year.
Evaluate the budget
It’s time for your personal budget audit and where you will discover how well or not so well your budget is working for you. If you don’t do this you risk spending more money than you earn even if you think you’ve got a solid budget plan. It’s worth the time and effort provided you’ve documented your budgeting journey appropriately along the way. Without the numbers you have nothing to rate.
What is the purpose of a personal budget audit?
Don’t just march past the numbers in your monthly budget and assume that your budget is doing what it is supposed to be doing. Many people forget how easy it is to spend more money than they earn even when they are using a budget.
Don’t play mind games and trick yourself into believing that everything is going to be worry-free with your finances because you’ve set up a budget. No, No my friend it doesn’t work that way. You could use a budget and STILL spend too much money if you’re not conducting a budget audit at least once a year.
The direction of a personal budget audit is to make sure you are in compliance with what you’ve set forth at the beginning of your budgeting journey. If your budget isn’t working your budget audit will tell you so. This means you will need to ensure you’re filling out your budget every month with all the critical data that you can review when your budget audit time comes around.
Mrs. CBB and I do a mini budget audit at the six month mark and a full year personal budget audit at the end of the year so we have data for our future budget the following year. It’s not as hard as you think provided you’ve played the game right and did your homework every month.
You can’t slop a budget together, half-ass use it and expect it to tell you your fortune. Work for debt freedom my friends because it doesn’t stop at your front door-step and let itself in. If anything it’s harder to get rid of debt that you’ve created out of “wants” than it is to reward yourself for a job well done.
Have I effectively used all of my budget categories?
Give your categories a second-look and see if you can reduce the amount of categories you have if they are no longer relevant. The less clutter you have in your budget the easier it is to review. It’s important to evaluate the budgeting process every step of the way even if you make notes for future review. You might not want to make any significant changes right away unless they are hurting your numbers badly but will consider it in the future.
Example: If you notice that you are spending more money on your groceries than you had budgeted for month after month make note of it so you work to reduce expenses. You will also keep in mind that you may have to increase you budget come the new year.
Am I spending too much or too little money every month?
Distinguish any abnormal use of money in your budget during the audit by reviewing your monthly expenses over the course of the year. You should also know this simply by keeping this in the back of your mind at the end of every budget month. You’ll either have savings or no savings whether you pay yourself first or not.
If you find you are spending too much then you may need to increase your budget amount or work harder to spend less. If you are spending too little maybe you can transfer the extra money into savings, retirement investments, another category or to debt repayment.
Is my budget realistic and effective?
Am I managing my money and obtaining my goals? If you find that you aren’t reaching any of your budgeting goals then something has to change. There’s no point continuing with the same budget. I’ve said it once before and I’ll say it again, it’s not the budget that’s faulty it’s how you spend and save your money.
Changing to a new budget format might be easier or downloading another budget might look prettier but that still doesn’t change the outcome. The numbers never lie. Review and revise your budget accordingly and set realistic goals that you can achieve.
For example: If your savings goal every month is $500 but you have $5000 worth of debt consider reducing your savings expectations, pay down your debt and then focus on building your savings once again.
What areas of my budget require revisions or changes?
This should be straight-forward however it’s not always staring you in the face. This is why it’s important to run numbers and understand where all of your money went. If you document your expenses in detail as you’ll notice in our free budget you’ll be able to look back to see what you spent your money on.
What are my yearly totals for my future budget?
This is a vital step in your budget audit because without these numbers you have nothing to rate. You won’t know how much you spent overall in each budget category for the year, how much money you earned and how much debt you paid back and for what companies.
Document, Document, Document and always remember to ask for receipts wherever you spend your money. Those receipts are like gold to your budget so don’t lose them and put them in an envelope or folder as soon as you get home. This way you can input the data into your budget when you choose to do so.
At the end of the year you’ll be able to see what your final numbers look like so you can revise your budget for the upcoming budget year. Your final tally may surprise you especially if you’ve saved money, paid off debt and are used to the budgeting process. It does get easier so don’t give up on writing the financial book of your life.
How often do you audit your budget? If you don’t will you now consider auditing your budget?
Share your comments below.
Please Note: If you have a question you’d like me to read and answer please email me at firstname.lastname@example.org or use my contact form on the blog. Send me as much detail as you can about your situation preferably as above so I can properly respond. I will contact you if I’d like to hear more about your story.
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