How Did We Do?
The Smiths Review Their Budget

Home Money Budgets & Budgeting Tips The Smiths Review Their Budget

John entered the last check into the computer just as Mary entered the room. "Well, so how did we do?" she asked. Mary knew that at the end of each year John would assemble totals of their income and expenses for the entire year.

"Don't know yet, I haven't run any of the totals." John clicked on an icon and Quicken did the math for him. He thought back on the first year that he had assembled the state of the Smith family budget. At first all he had was a calculator and a notepad. He went through the checkbook and the credit card statements one by one and put each expense into the best category. Each category had one page in the notebook. Once he had listed all their expenses, he totaled each category. Then he listed their income and taxes. John remembered how surprised he was that first year to find out that they were spending more than they were making. It was right then that he and Mary had decided to take control over their family finances.

John began by looking at the bottom line number. Did they spend more than they made in this year? He was happy to inform Mary that they spent about 5% less than they made.

Next John would check to see how their total spending compared to the plan that they had made way back last January. What he found confirmed what he had expected. During the year he had thought that they were spending more than they had budgeted. Sometimes with unplanned expenses it's hard to tell, but John was getting a pretty good feel for their spending patterns by now.

John found that over-all they had spent about 2% more than they planned and about 4% more than they had last year. Rather than get mad at Mary and start an argument, John knew that he had tools available to help solve the problem. He was also glad that there was no need for finger pointing and the unhappiness that went with it.

He began by comparing the subtotals in each category. He noted with satisfaction that in some areas their actual spending was remarkably close to the plan. But, more importantly, he was also able to quickly identify the areas where the plan had not held up.

It was at this point that Mary rejoined her husband. Both John and Mary knew that solving any family finance problem was not a me vs. you thing. Solutions would require that they both participate in analyzing and executing corrective action.

They quickly spotted one problem. Utilities were far higher than they expected. A little further research found that they had anticipated the rise in fuel oil costs, but hadn't expected electricity to be so much higher. John made a mental note to compare how many kilowatt hours they had used this year compared to last year. If they had used more, as he suspected, he would have to see what was causing the increase. It could be that the old air- conditioner just wasn't as efficient any more. But it could be that he needed to check the weather-stripping and caulking. Of course, it might be that huge new stereo that Junior bought was a black hole for electricity!

They also found some things that they could identify, but couldn't change too easily. Gasoline was one. The increase in gas prices last spring had had an effect. John and Mary would have to consider what options they had to reduce this expense. John knew that he could be more diligent about keeping tire pressures up. But the only answer might be to consider that carpool that the neighbor had suggested awhile back.

After about an hour of discussing the different categories, Mary and John had a clear idea of how to proceed. They had found four specific areas that would require some further research. In each of these they would try to go from the general to the specific. As they got more specific they would be able to find the actual item or activity that was causing their spending to be higher than planned.

Next came the hardest part. Some expenses could only be decreased by changing behavior. Both Mary and John knew from past experience that changing the way you live, work and play wasn't always easy. But they also had a clear idea of what would be accomplished if they did change. And they knew that having that goal in mind often made the sacrifice much easier to endure.

John flipped off the computer. As the monitor went blank he said, "Well Hon, that wasn't too bad. We didn't hit the target dead center, but whoever figured we would!" Mary gave her man a playful squeeze. "I can't wait to see what targets you come up with for next year. Just remember that food comes before new tools for that workshop of yours..."

Gary Foreman is a former financial planner and purchasing manager who currently edits The Dollar Stretcher.com website and newsletters. You can also follow Gary on Twitter or on his blog.

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