My family is making good progress on going from negative cash flow every month to cash flow positive.
One of the things I did earlier was create an annual budget of all our expenses. For next month I am going to go one step further. I have taken that budget and divided by 12. This will be my first rudimentary attempt at a monthly budget.
I have learned from my managerial accounting class having a budget is a good start. How do you know how well you did? You can look at the total and say my budget was 1000, I spent 900, and I had 100 left over at the end of the month. That’s a simple analysis. A more complicated analysis has more spending categories. My goal in September is to track my actual costs versus my budgeted amounts for individual spending items. I will then perform a variance analysis. A variance analysis simply takes your budgeted amount and subtracts actual costs. Were you spot on or did you underestimate certain costs? It helps you focus on the areas you did well and areas you can improve. I plan to add a small description on what happened if I exceeded my budget in a certain category.
My goal is to look for patterns and take advantage of the insight gained. It’s a bit tedious, I am hoping the level of detail and knowledge gained will make it worthwhile.
Vijay @ smilingdad
2 thoughts on “Actual spending vs. monthly budget”
Great explanation of how a budget works!
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