As we enjoy the first fruit of our labor in January of 2020 ( first pay check for us that earn a salary), I would like to remind you one key thing to get your budgeting process work for you. Just like with the review of goals we covered sunday, one also need to reflect on the budget that was set. This process in business as well a personal finance is called, variance analysis.
A variance is simply the difference the between what you thought you would get and what you ended up getting or what you thought you would spend and what you ended up spending.
Today my last debit order went off and most of my fixed costs were settled and hence I thought it was a good point in time to do this analysis. If I received more money than expected or spend less money than budgeted, the difference “variance” is favorable. If I received less than I expected or spent more than budgeted, then the difference is unfavorable.
Here is the summary from my exercise:
- The salary that came in was slightly higher than anticipated as we received a short term incentive bonus which I was not expecting. This is a favorable ( good) variance.
- I was budgeting to collect money owed by a friend which I have not yet received as of to date. This could be because out of sight out of mind. So I am short hence unfavorable Better luck next month else I am writing it off.
- My municipal account was higher than planned but luckily I had a credit from other months. This could be because I started a bigger garden the last few month of the year so I should have considered this. With the credit from the previous month, I only went over budget with N$30.
- At this stage, the Jeep is still in the garage and I have only paid half the costs and hence although still within budget, I am expecting more money to go out.
- Then I kind of bought something that I always wanted but hardly found at home so I have a new category of “shopping” that was not in the budget. N$661 unfavorable,
- I also had to pay for DSTV that was not in the original budget , that is also unfavorable. This I was hoping to defer to the end of Feb but now I have people at home so I needed to bring this forward.
- I however saved on money that I was budgeting for my sister’s allowance however she did not need the money this month. Favorable
- There is still a fair amount of money from my daily allowance as I now set a limit instead of just going with whatever I feel like eating that day. So I might end up in a favorable position here.
- lastly, my pension contribution was N$50 more than planned as my annual escalation is in January. This I completely forgot despite getting a notice from Old Mutual that it is due for an increase.
That is my story , how is yours looking? Things will not necessary be the same but some of the key principles hold:
- Assess where you are standing at least after the peak spending season is over. This can range from a week to two for many people. For some it is even just a few days after pay day.
- Look at what expenses were not in the budget that came up ,that you should either consider postponing or including in the budget next month.
- Also consider to save more if you get more money than expected. It is easier to find an additional expense than to save more.
- Keep in mind annual escalations and non recurring costs. My Jeep’s roadworthy disc is due for renewal in Feb and that is something that was not in my January budget that need to be in my February budget.
Your budget is only effective as you make it to be. If you never go back to it will remain just that, a plan! Take charge of your finances by facing the harsh reality, it is the only way to find where your money is going.