If you haven’t done so already, December is the time to review your budget and plan ahead for the coming year. If you set aside an hour or two in the next couple of weeks to review 2010 and plan for 2011, you won’t regret the time spent away from the busyness of the holiday season.


Review 2010

Look back at you finances from 2010. If you had a budget, compare what you actually spent to your budget. Did you track close to your target? Don’t get too caught up over a few dollar here or there, but if you see any major discrepancies (spending hundreds of dollars more than you planned for), those are the areas that will need some tweaking for 2011. If you’re on target with your budget, that’s great!


While looking back over 2010, think about any changes you would like to make. Is there something that you’re currently paying for that you no longer want or need? Has something changed in your life that makes a new expense important? These are the things you will need to decide while planning for 2011.


If you have never set up a budget for yourself before, now is the perfect time to do so. Please read our previous post on some ideas on how to get started.


Planning 2011

If you hit your budget for 2010 and don’t feel the need to make any additional changes, before finalizing the same budget for 2011 you should still consider any cost that you may not have accounted for (i.e. potential higher rates for utilities, insurance, etc.). Then, if you feel comfortable with how everything looks, you have a plan for your 2011 budget that you can feel comfortable with.


Unfortunately, this often isn’t the case. Budgets are very much a “best case scenario” and your actually expenses don’t always come in very close to target. So, if this is your situation, you’ll need to make adjustments.


If you have a non-essential expense coming in at more than you budgeted, like your entertainment or hobby allotment, make it your goal for 2011 to cut back to hit your targeted number. It can be a simple matter of paying closer attention to your expenditures on a monthly basis so you don’t over do it.


If you are spending more then you budgeted on the must haves, it’s possible that you were unrealistic in your amount (you thought you could get by with $40 a week in fuel but you actually need $50). If this is the case, then readjust the numbers to a more realistic target. Then, if you have to, compensate by taking that needed amount from elsewhere (often from non-essential expenses).


It’s also possible you came in under budget in a category. If you spend significantly less than you budgeted, and you are comfortable with what you spent, shift those dollars elsewhere where you need them.


If your situation is uncomfortable and you feel like your expenses are too high, you may have to consider reviewing your cash flow and deciding if you need to make any major changes or cutbacks in your expenses.


Again, December is a great time to do this whether you have a previous budget to review or you are starting from scratch. Start the New Year off with a realistic plan to help you make decisions throughout the year.


When working out your budget, how do you handle your monthly spending money? Not the money used towards bills or savings or debt, but the money you actually allot yourself for entertainment, shopping, hobbies, etc.


We like the idea of giving yourself an allowance. Actually withdraw your spending money is cash so that it doesn’t get mixed in with the money budgeted for other things. You can manage that however you like, whether you want to take cash per paycheck or one amount for the month.


This way, you have the cash in hand to use for whatever you want, and when you have a finite amount of cash, you are much less likely to go overboard. If you use a credit card, or even a debit card, it can require too much tracking. You may go to the store and think “I couldn’t possibly have spent my budget yet” only to find out you actually had and the thing you just bought put you over. If you have the cash, you will know exactly how much you have left.


We don’t think it necessary to budget within your allowance ($30 for entertainment, $30 for shopping, $30 for hobbies, etc.). If you find it helpful you can, but that just adds an extra layer of tracking you probably don’t need. However, it could be helpful to plan ahead of time. Say there is a movie coming out later this month and you know you will be going to see it and going to out to dinner beforehand, along with the cost of tickets and concessions. It may be best to put that money aside so that when the time comes, you still have it. Also, if you have something expensive you want to do in a few months, like buying concert tickets or a new electronic gadget that you want to pay for out of your spending money, but won’t be covered by one month’s budget, you can put some of your cash aside in the months leading up to your purchase.


Some may say it’s better to use a debit or credit card instead of cash because otherwise how can you track your spending? Our point would be as long as you’ve budgeted for your spending allowance, you shouldn’t have to track what you spend it on. Even if you’re paying down debt, saving for retirement, and everything else in between, it won’t hurt you to have an allowance where you can spend the cash without feeling guilty or worrying about where the money is going. Just be sure to stick to your budgeted amount and make sure you can afford it!