23, Jan, 2021

How to Evaluate Your Budget

Budget Evaluation guide for business

How to Evaluate Your Budget

Are you planning a significant purchase – a house, a car, perhaps? Such major moves call for financial discipline. Creating a budget is the first step to attaining your financial goals. However, it’s not a one-time activity. Because your objectives and needs are prone to periodic changes, there’s a need to create a budget and periodically evaluate it to ensure it corresponds to your financial goals.

Evaluating your budget involves comparing your budget to your anticipated spending. Note this when you create your monthly budget, using it to create the next. It’s also vital that you sit down and assess new income and expenses yearly. Budget evaluation is a less demanding process compared to setting your first budget.

1. Comparing Actual and Planned Spending

Use a spreadsheet, online apps, or software to track your monthly spending after creating your monthly budget. This is something you should daily. With the budget and expenditure record, analyze to ascertain if you under-spent, stayed on track, or exceeded the anticipated monthly spending.

If the expenditure exceeds the anticipated amount, find out the categories demanded more than their allocation, and reduce them if possible. If you spent less than you budgeted on, you might consider increasing the allocation for categories with lower than your budget by increasing the expenditure for the next month for groups that received less than what you budgeted.

Even if you spent exactly what you planned for, you could still make possible accounting adjustments for the next month.

2. New Income Vs. Expenses

A budget represents how much you plan on spending in a specific month. You must ascertain your income and expenses for the next month at the end of every month. They could be different or the same as those of the previous month.

A slight difference in your lifestyle can cause an increase or decrease in income and expenses. Your budget for the next month should always reflect these changes. For instance, unfortunate events such as job loss or failed investments could cause a drop in your monthly income, whereas welcoming a new baby or getting married could increase your expenditure in such categories as food and personal care.

Your budget could also suffer a temporary hike due to one-time purchases such as holiday shopping, wedding gifts, et cetera. To counter this, set aside money for such expenses. You can also use, such as an incentive to stick to your budget.

3. Review Your Financial Goals

Apart from the periodic changes in your income and expenses, your goals are also subject to occasional changes. For instance, in the event of a cleared debt, you can spend extra money to distribute it to other categories in your budget.

If you’re looking to create an emergency fund, you can opt to increase your savings from the next month. Setting a goal isn’t all; you still need to incorporate it in your budget to achieve it. If you’re doing it as a family, purpose to hold regular meetings weekly to ascertain the progress and areas that might need fixing, this will encourage a sense of responsibility and instill financial discipline to all family members.

4. Always Modify Your Budget According to Your Needs

Once you’ve established what your expenses are, and set financial goals for the preceding month, restructure your budget to reflect the changes. In some instances, this could only involve cutting down on specific expenses and moving the extra to another spending category.

Eliminate such expenses as expensive gym membership, satellite subscriptions, magazine subscriptions (especially those you no longer read). If you have an extra car you’re not using, you might consider getting rid of it to cut down on servicing, gas, and insurance costs. Moving to a cheaper neighborhood, or a house closer to your workplace could save you some cost.

However, when there are drastic changes in some expenses, you might need to review all the allocations. For instance, if you clear your mortgage, you may decide to divide the extra among different categories or direct all of it to a specific group according to needs.

5. Identify and Eliminate Budget Leaks

Through the process of evaluation budget and adjusting your budget according to your financial status, you may unearth problems in your spending patterns – budget leaks. Solving them involves putting an additional stretch on your spending.

For instance, to correct over-reliance on credit cards, or resist the temptation of dipping your hands into your savings account, you might need to adopt the following self-discipline measures;

  • Switch to cash-only transactions.
  • Avoid walking with your credit card or confiscate it, at least for some time.
  • Use a Certificate of Deposits as a way of saving.

If assigning money to different spending categories is too difficult for you, consider adopting the envelope system that allows you to divide cash into separate envelopes marked according to what the money is meant for.

An extra tip for those who won’t stop overdoing online shopping, avoid keeping your credit card information with retailers. The little time and effort you use to key in your details is enough to help you decide if the purchase is essential. Take your time to decide whether or not to make the purchase.

6. Monthly or Annual Budget Reviews

Assess your budget regularly to see if it reflects your changes and if they’re working as intended. These routine financial check-ups take up a little time and will help you to use your budget in the long run effectively.

Annual budget reviews are equally important. You’ll have the chance to answer evaluation questions and analyze your yearly incomes and expenditures, and use the same to set up a budget and plan your spending for the preceding year. Annual budgets take into account irregular expenses such as medical bills and vehicle insurance, revealing broader spending behaviors, unlike monthly budgets.

With this kind of budget, you’ll be able to track down where your money goes overtime, hence prioritizing your spending to reach your long-term financial goals.

7. Build Emergency Funds

Creating a budget is essential, but protecting the money you’re trying to save is vital. Set aside funds in your budget that could bail you out when caught up in a major emergency financial need. A tip to getting this right is setting aside enough amount to take care of six months’ personal needs.

Reevaluate your separate budget to ensure funds set aside for emergencies can be enough to meet unexpected costs—device ways to maximize savings into the emergency funds. For instance, cut down on other expenditures and create a monthly budget that reflects the same.

8. Manage Your Debt Load

Unpaid debts are recurrent financial problems and will keep getting more significant over time. Whether you’re servicing student loans, mortgages, or any other debts, serious budgeting evaluation will help to pay off these loans effectively. First, determine how much your total loans are. This will help you decide on your financial strength.

Consider these as a priority and let your budget reflect that. Cut down on other expenditures and use the extra to clear off these debts. This way, you’ll enjoy improved financial well-being.

The consolidation of different types of loans will help decrease your monthly interests. Consolidation also simplifies the repayment process, hence making easy the process of tracking down your debts. This way, you rarely miss on any repayment.

9. Align your Investment Strategy to Your Situation

Setting up your first budget and sticking to it is vital. Building a substantial amount for your emergency fund is also critical. One more thing: invest, if you’re not doing so. However, before settling on a specific type of investment plan, consider the following factors:

Risk tolerance – Assess new income and expenses and determine how much risk you can take. Maximize on such things as stocks if you’re going for long-term investment opportunities, and you are risk-tolerant. If you’re risk-averse, it might not be a good idea to maximize capital.

Your funds should be in correspondence with your goals and values – In this, the high-risk high-return rule applies. Are you willing to invest in risky yet highly rewarding companies or established companies with guaranteed returns yet low in value and could deter your growth? The business of the company you invest in is also worth considering.

The goal is to attain the maximum level of investment. However, an evaluation process of your business budget will play a significant role in achieving this. Ensuring funds go to the right place – profitable investments with relatively low risks and a higher return on investment are critical.

Identify what your investment goals are, both short and long-term. Make the necessary adjustment in your budget analysis to allow one more item. You can maximize your savings and use the same amount for investment.

Wrapping It Up

Financial health, just like physical health, requires proper care, which translates to regular check-ups. Budget evaluation is a continuous process of consistent planning and adjustments when it comes to spending and earning.

Financial wellness aims at minimizing expenses to fit an individual’s net worth. The above information will guide your steps to financial wellness. Give them a shot.


What is a high level budget?

First of all, establishing a high-level budget allows owners to have full command over all expenses  A top-level budget is indeed the widest model of a funding plan for an agency. This highly depends on managers or company owners possessing a proper picture of each piece of the company’s costs and relative value. In other words, the budget process may also assist a newly established business to review its costs accurately and to analyze in detail where the actual cost of a business lie. In brief, setting a target budget will show strong indicators to managers and workers on how vital an organisation is to key functions.

How to link project and programme evaluation?

A functional programme budget monitoring and evaluation system is a crucial component of good capital projects for any organization. A timely and reliable M&E process provides information that can:

  • Inform project or programme implementation with evidence-based and accurate reports. These provide data to management and decision-makers to guide intervention, impact evaluation, and improve performance budgeting results.
  • Contribute to organizational learning and knowledge dissemination by sharing and reflecting on experiences and lessons learned so that we can get the most out of what we do and how we do it.
  • Ensure responsibility and compliance by demonstrating whether we have performed our task as agreed and in accordance with established performance evaluation.
  • Provide programmes opportunities for stakeholders, and in particular beneficiaries, by being critical and expressing our desire to learn from experience and to adapt to changing needs; to encourage and commend our objective work by emphasizing our achievements and results, strengthening morale and contributing to the mobilization of a resource.

What should be some budget goals?

The main objectives are the integral and systematic planning of the activities that a company has to develop in a determined period. The capacity to approach, control, and measure the quantitative and qualitative results, and to fix responsibilities in the different dependencies of the company to achieve the fulfillment of the foreseen goals. Then, there are many specific objectives, such as ensuring the timely supply of internal demand for raw materials, materials, consumables, and inventories for sale. Also, obtaining adequate acquisition prices, which would include maximum use of prompt payment discounts and volume bonuses. As a result, over-investment in inventory should be avoided, since one of the fundamental objectives of a budget is to determine the income to be earned as well as the expenditure to be incurred.

How do you prepare a cash flow budget?

When a critical scenario impacts a corporation the first thing to do is a significant move is to create or reformulate the original budget. We can surely have assumptions when a company will be short of cash by formulating cash flow projections months ahead of time, act swiftly in advance, including certain special offers or amending employees’ allocations. Moreover, the budget preparation is indeed a budget most frequently requested as a method of measuring by a bank or other financial institution.

When you prepare a cash flow budget you must: 

  • Determining the cash flow timeframe.
  • An estimate of sales groups.
  • Assessing the timing of revenue.
  • List and add expenses.
  • Compute the surplus or deficit for each time period.
  • Overview of sales orders, profit, income, and expense schedule.
  • Finalize budget.

Why is budget prepared?

It is prepared to allow control of income and expenses, in order to estimate in an approximate way the financial statement of a company and to be able to undertake future investments that, otherwise, would not be possible. The budget also represents a challenge of constant business improvement for the entrepreneur, who tries to balance income and expenses in an optimal way. Without the elaboration of one, it is very possible to see a lack of control in the income and expenses of daily business activity. In the same way, preparing one with unrealistic estimates or poorly defined priorities can result in imbalances in a business. For all these reasons, it is of vital importance to prepare the budget for a company.

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