One of the most important skills you can learn in life is how to manage your money better. Money management is not only about earning more, but also about spending less, saving more, and investing wisely. Money management can help you to:

• Achieve your financial goals, such as buying a house, starting a business, or retiring comfortably.
• Avoid financial stress, such as debt, bills, or emergencies.
• Enjoy your money, such as spending on your hobbies, traveling, or donating to causes you care about.

But how do you manage your money better? Where do you start and what do you focus on? In this blog post, we will walk you through the second and most crucial step of your money management journey: reviewing your budget.

Why do you need to review your budget?

A budget is a plan that shows how much money you earn, spend, and save each month. It helps you to:

• Understand your cash flow, such as how much money you have left after paying your expenses.
• Control your spending, such as how much money you spend on your needs and wants.
• Boost your savings, such as how much money you save for your goals and emergencies.

Reviewing your budget is not a one-time activity, but a regular habit. You need to review your budget at least once a month, or whenever there is a change in your income or expenses. Reviewing your budget helps you to:

• Check your progress, such as how well you are sticking to your budget and meeting your goals.
• Identify problems, such as overspending, under-saving, or unexpected expenses.
• Make adjustments, such as cutting costs, increasing income, or reallocating funds.

How do you review your budget?

Reviewing your budget is not hard, but it does require some time and attention. Here are some tips to help you:

• Gather your data. You need to have a record of your income and expenses for the past month. You can use a notebook, a spreadsheet, an app, or a bank statement to track your transactions. Make sure you include all your sources of income, such as salary, bonuses, or interest. Also, make sure you include all your categories of expenses, such as rent, food, utilities, or entertainment.

• Compare your actuals with your estimates. You need to compare how much money you actually earned, spent, and saved with how much money you planned to earn, spend, and save. You can use a simple formula to calculate the difference: actual – estimate = variance. For example, if you earned $3,000 and planned to earn $2,800, your variance is $200. If you spent $2,500 and planned to spend $2,400, your variance is -$100. If you saved $500 and planned to save $400, your variance is $100.
• Analyze your results. You need to understand why your actuals and estimates differ, and what that means for your budget. You can use some questions to guide your analysis, such as:
  • Did you earn more or less than expected? Why? For example, did you get a raise, a bonus, or a pay cut?
  • Did you spend more or less than expected? Why? For example, did you have an emergency, a splurge, or a saving opportunity?
  • Did you save more or less than expected? Why? For example, did you have a surplus, a deficit, or a balance?
  • Did you meet your goals? Why or why not? For example, did you save enough for your emergency fund, your retirement fund, or your other savings?
• Make changes. You need to decide what actions you need to take to improve your budget and your financial situation. You can use some strategies to make changes, such as:
  • Increase your income. You can look for ways to earn more money, such as asking for a raise, getting a side hustle, or selling your stuff.
  • Decrease your expenses. You can look for ways to spend less money, such as using coupons, canceling subscriptions, or switching providers.
  • Reallocate your funds. You can look for ways to optimize your money, such as paying off high-interest debt, investing in low-cost funds, or donating to charity.

Reviewing your budget is the second and most crucial step of your money management journey. It helps you to monitor your performance, identify your issues, and make your adjustments. By following these tips, you can review your budget effectively and efficiently. Good luck!