How to Evaluate Whether Changes in the Budget Are Necessary?

If there are large variances, or your surplus/deficit is not what you would like, you need to analyze your budget. Examine the variances and study where the amounts spent are greater than the budgeted amounts.For example, if your actual utility bills are consistently greater than the amounts budgeted, then you need to either reduce your utility usage, if possible, or increase the amount budgeted for this item.When you increase planned spending, you will need to find items where you can make corresponding cuts to compensate for the increases. If you don’t, the amounts set aside for personal goals or savings will be reduced. There are certain expenditures over which you have some degree of control. These are your variable expenditures, such as entertainment and miscellaneous expenses. Entertainment and food are the most common areas of overspending, particularly when they involve eating out at restaurants. By contrast, fixed expenditures such as rent, mortgage payments, taxes, and insurance premiums cannot be easily trimmed without undue consequences. Deficit spending may be more difficult to remedy when you have already reduced many of your unnecessary and variable expenditures. It then becomes more difficult to cut essential spending items. If spending still exceeds income after revising spending amounts, you need to reevaluate your entire budget. Perhaps you have created too tight a straitjacket for yourself.Revise your goals and set aside amounts to attain them before allocating the rest of your income to your expenditures. You may need to prioritize your expenditures to see which are necessary and which can wait.
The purpose of a budget is to help you plan the use of your resources so that you can fund your goals and set aside more of your money to savings. Following your budget will help you achieve what you want most from your resources.

How to Record Actual Income and Expenditures for the Period Budgeted?

Actual amounts earned and spent are not always the same as those projected. By recording the actual amounts and comparing them with the budgeted amounts, you can immediately see the differences, called variances. Spending more than a budgeted amount for one item can be offset by spending less than the budgeted amount for another item.
Similarly, if actual income exceeds actual expenditures, there is a surplus, which means additional cash. The opposite is a deficit, which means that cash will have to be withdrawn from cash savings or other assets in order to pay for the deficit spending.

How to Determine Whether There Is a Surplus or a Deficit?

If budgeted amounts for income exceed expenditures, there is a surplus. Expenditures and the amounts needed to fund personal goals added together equal the total expected expenditures. It is a good idea to incorporate goals into a budget so that monthly or periodic income is set aside to address them. When projected income exceeds projected expenditures, there will be additional amounts of cash, which can then be added to savings/investment plans or used to pay down liabilities.
When projected expenditures exceed projected income, there is a deficit. This means additional amounts will have to be withdrawn from savings/ investment plans to pay for these additional expenditures. In such a case, it may be necessary to review projected expenditures and reduce some of them, or look for ways to increase projected income.