Friday, May 29, 2009

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.

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