As December gives way to a new year, we often find ourselves reflecting upon the year gone by. This December, make it a point to do a little financial reflecting. The approach of 2011 presents a great opportunity for reviewing your 2010 expenditures. In a previous Topic of the Month we discussed Budgeting the Smart Way. Creating a budget is just half the challenge, though; to get the most out of your budget, you have to review your expenses and make sure you’re staying within the confines you’ve set.

In general, it’s a good idea to meticulously save your receipts and other financial documents. Make it a point to save all your receipts, credit card statements, and bank statements for the month of December. When the month comes to a close, round up all of your December expenditure documents. Next, grab a copy of your previously constructed budget, a calculator, and some hot coffee. Let’s get to work.

1. First, make a new column in your budget beside your “planned monthly expenses” for your “actual expenses”.
2. Go through your receipts and statements to tally up your itemized expenses. For example, put your actual monthly grocery expense in the column beside your budget’s projected grocery expense.
3. Add up your total actual expenses, and compare it to what you allotted for yourself.

Because it’s unlikely that your actual expenses will be identical to your projected expenses, it’s often difficult to analyze whether or not you’re reasonably on track to stay within your means. A handy trick is to take your actual monthly expense and divide it by your budgeted expense. A good rule of thumb is to keep your actual expenses lower than 105% of your budgeted expense.

For instance, if you spent $2,600 last month but budgeted $2,500, simply divide 2,600 by 2,500 to receive a number of 1.04, or 104%. This hypothetical expenditure, while more than what was allotted for in the budget, would be reasonably close to the budgeted amount.

If your actual monthly expenses exceed 105% of your projected monthly expenses, go through your statements and receipts to find the culprit. 

1. Did you buy a large number of holiday gifts this month?
2. Did you suffer a medical emergency?
3. Was there an unexpected automotive repair?

If your budget was blown out of the water by holiday shopping expenses, don’t fret; this is one of the most common budget killers, and you’ve got a full year to plan for the next holiday shopping season. Consider modifying your budget to include a monthly “holiday shopping fund” item. If you begin setting aside even just $10 or $15 a week early in 2011, you’ll be in good shape when the holidays roll around next year. It will also help you avoid placing those holiday expenses on your credit cards. Many consumers who put holiday expenses on their credit cards end up paying for them well in to the next year.    

A one time, unexpected expense may occasionally push your actual expenditures beyond the confines of your budget. However, if your regular expenses, such as groceries, rent, or entertainment, were much higher than you had budgeted for, you may need to make some changes. Take a look at Budgeting the Smart Way for some ideas on ways to cut your regular expenses.