How to Budget: Closing the Month

Introduction:
Face the Data

Even when we are motivated, building habits takes more than hard work—without persistence, long-term change cannot be achieved.

When we don’t track our incremental progress, we can easily believe that we are falling short of the ambitious expectations we have set for ourselves.

At the same time, tracking incremental progress means we accumulate a wealth of data that can overwhelm and distort our perceptions. Too much data and detail can make it impossible to see the forest for the trees. Blinded to the progress we are making, we can become disheartened and abandon the project/skill/habit we were working toward.

For this reason, it is incredibly important that you set aside some time at the end of each month to go over all the data you have accumulated—synthesize the information: celebrate your successes, learn from your mistakes, and shift your approach for the future.

From a young age, we are conditioned at school to associate mistakes with failure and failure with stupidity and incompetence. Reality could not be further from the truth. In fact, every story I have read about people who have achieved financial success in their lives has always featured failures (plural!) as catalysts for their later achievements.

Why is that?

As Ron Friedman (Ph.D, psychologist, and behaviour change expert) points out, “failure seems to accompany greatness.” Successful people from all areas of life (arts, business, sports, you name it) don’t just embrace and learn from mistakes or failures, they actually seek them out!

When practice is effortless, learning stops. It’s by walking the precipice between your current abilities and the skills just beyond your reach that growth happens. Master performers don’t get to where they are by playing at the same level day after day. They do so by risking failure and using the feedback to master new skills.

Ron Friedman in The Best Place to Work: The Art and Science of Creating an Extraordinary Workplace

Practice is not limited to top-level athletes or musicians. Everything that you and I do, as “regular” humans, in our daily lives is practice for whatever we want to achieve.

What does this have to do with finances?

If you planned your finances at the beginning of the month and diligently tracked your expenses every day, that is also a practice, and practice leads to habit.

The takeaway is this: building habits is not a passive activity. And it’s not painless, either. You must own up to the mistakes you make and be encouraged by the mistakes you make because they are opportunities to learn and grow.

As the month draws to a close, review the data you have accumulated before you put the papers away.

The way to move forward in building any skill is to honestly assess what is going well, what could use work, and what did not work at all. Then take that information and modify your system for the upcoming month.

Here is how I reviewed my finances for the month of July and used that information to plan my month of August. (This process does take a bit of time. I would plan for at least an hour, especially if it’s the first time you’re doing it).

Forms mentioned are included for free.

Step 1:
What Went Very Well

Start by giving yourself credit for what you did very well. Forget about perfect. If you’re waiting for perfection before you praise yourself, you will be a sad and miserable person your whole life. And by perfect I include “your ideal expectations.”

Find the form here. To use: “file” -> “make a copy” and save to your google drive.

Be kind to yourself, but be honest.

How did you pleasantly surprise yourself? Where did you do better than you thought you would? Where did you do well where you expected to do well?

Write how you did very well, and then write ideas on how you could do even better (if applicable).

For example, here is my list of what went “very well” for me this month:

✔ I began and ended the month with no credit card debt
✔ I had the necessary money for every fixed expense by their due date and paid each bill on time
✔ I saved a lot more money than I thought I would! All that loose change adds up!
✔ I completed all but one of my weekly “expense reports” one time
✔ I updated my expense tracker overview form every week
✔ I am about 85% pleased with how I tracked my daily expenses
……….🠊 I can be more diligent about updating the balance of each account after spending from it
………🠊 I need to record online purchases immediately upon purchase

Step 2:
What Went Well Enough

Next, what went pretty darn good, but not very darn good—the areas you’re pleased with, but have more room for improvement.

Find the form here. To use: “file” -> “make a copy” and save to your google drive.

Keep in mind: this is all very subjective. There is no right or wrong. It’s all about your situation and your assessment of your own practice. The only other person’s opinion you should consider is a partner or spouse who is handling the finances with you (beware couples: there is nothing to gain in playing the blame-game).

Try to diagnose the problem that made you less pleased with these aspects. Then, provide a solution (or more) that you can apply to move these from “well enough” to “very well” next month.

For example, here is my list for what went “well enough” this month:

Lost or misplaced receipts
……….🠊 Diagnosis: Three weeks or so into the month, I became overconfident and started to ‘bypass’ my method of storing receipts. I started putting receipts in the cloth bag or in my wallet or in my purse or in my pocket. This resulted in quite a few lost or misplaced receipts.
……….🠊 Solution: Pick only one place to store receipts and stick to that place. For next month, I will only use the cloth bag to store receipts until I bring them into the house for processing.


Inaccurate recordings of purchases
……….🠊 Diagnosis: Because I became disorganized, I found that if I waited longer than a day to record my purchases, that’s when I lost the receipt (or accidentally threw them out). When that happened, I had to record the purchase with an estimated amount from memory rather than the exact amount from the receipt.
……….🠊 Solution: In addition to the above solution, I will record the receipts immediately when I get home from town. This takes me about 30 seconds, so I think it is a realistic solution. I will find out in August!


Shortage of daily expense forms
……….🠊 Diagnosis: I printed the forms as I needed them, and that was a mistake. It wasn’t always convenient for me to print the forms when I needed them, and as a result, a few purchases did not get recorded.
……….🠊 Solution: In July, I ended up needing 5 daily expense tracking forms. For August, I printed 6 forms (3 pages double-sided). Whatever I don’t use in August can be used in September.

Step 3:
What Did Not Go Well

Here you can list the aspects you were really not pleased with or that did not work at all. In my opinion, the difference between “well enough” and “not well,” is a matter of intent.

Find the form here. To use: “file” -> “make a copy” and save to your google drive.

For example, I decided I did “well enough” collecting receipts even though I lost some because I honestly thought I was capable of managing receipts stuffed in various places. I was not. If I had done the same despite knowing or feeling like I was making a mistake, I would have listed it in “not go well” instead.

It’s a subtle distinction, I think, and it hinges on your assessment of your habits, abilities, and intent. You are assessing yourself. No one is judging or evaluating you. The point is to learn, not to blame or belittle.

Where applicable, diagnose the problem and suggest a solution. Note that to decide to stop doing something that clearly did not work is a possible solution!

For example, here is my list of what did “not go well” this month:

I overspent in my “fun” subcategory
……….🠊 Diagnosis: For several reasons, summer is the time of the year that my husband and I work the most. As a result, it’s also the time of the year where we drink and go out to eat the most. I accounted for this in my budget, but we still spent way more money in this category than I had anticipated!
……….🠊 Solution: We are going to try and go to restaurants less often. As much as we love going out to eat, a single night out for two people is a minimum of $40, and we just can’t afford to do that long-term. Also, we will try and drink a maximum of twice a week.


I overspent on food/groceries
……….🠊 Diagnosis: As I was shopping, I knew I was spending money on things I didn’t really need and on things I wanted but am trying to quit.
……….🠊 Solution: For the month of August, I am going to try to limit my grocery shopping to only once per week.


The total for my “misc/other” subcategory was artificially inflated
……….🠊 Diagnosis: I had a nagging suspicion when I was planning my month of July that this would happen, but I did not react to the thought, and now here I am! My husband is a self-employed mechanic, and he pays for customer’s vehicle parts upfront with our money. I recorded these purchases as household expenses, even though we get reimbursed down the line. This was not reflected in my weekly expenses overview.
……….🠊 Solution: I am creating two new subcategories. 1) “customer parts”: not recorded in my daily tracker or monthly expenses overview (my husband handles the finance tracking for the jobs he does). I will simply update the balance of the account used to pay for the parts. 2) “shop parts”: recorded in my daily tracker but not monthly expenses overview. Purchases made on shop tools and parts for our vehicle. 3) “misc/other”: recorded in both my daily tracker and monthly expenses overview. Household purchases that don’t fit in the “food/groceries” category.

Step 4:
Monthly Expense Recap +
Guidelines for Next Month

After I have assessed how my monthly budgeting process went, I fill out my monthly expense recap form. I will use these numbers to plan the details of my variable expenses for the next month.

My financial guidelines for next month:

🠊 Food: Maintain budget of $75/week. Go shopping only one day a week.
🠊 Smokes (cigarettes): This budget is beyond my control (I’m not the smoker in the family). Increase budget of $120/month to $240/month, as it is more realistic.
🠊 Fuel: Increase budget of $60/week to $100/week. Fuel prices are rising, and public transport, walking, or biking are not possibilities for us (we live in a rural location).
🠊 Dog Food: Maximum I will put aside next month is $20.
🠊 Fun: Increase budget from $55/week to $70/week. Hopefully, we won’t go over (by too much) this time!

Also, as a reminder. Here are the solutions I detailed above to improve my budgeting skills:

🠊 Save receipts in the same place every time.
🠊 Record purchases immediately (for online purchases)
🠊 Record purchases immediately upon returning home (for receipt purchases)
🠊 Print off all daily expense tracking forms at the beginning of the month (extra > shortage)

…And that’s it! I am now ready to fill out my Monthly Bill Tracker form for the month of August!

Find the form here. To use: “file” -> “make a copy” and save to your google drive.

Conclusion:
Moving Forward

The ‘failing is bad’ mentality we were conditioned to believe in at school is counterproductive in real life. Instead, there are things that work and things that need work. That’s it.

Don’t get caught up in the mistakes you make. Acknowledge them, understand them, and devise solutions to avoid repeating them in the future. Then, move on.

If anything is not working and you don’t want to improve on it, drop it and move on to something else. There is no room for feeling like a failure or a bad person. That’s a waste of time and it doesn’t help you or anyone else.

If you beat yourself up for not being perfect and not having flawlessly executed a new habit or skill, then you will never learn a new habit or skill.

I know this because I have been learning this lesson for years. I write these words just as much for myself as for you.

The good news is that it is possible to move beyond this avoid-mistakes mentality. But it’s not possible to do so without hard work and humility.

As this month draws to a close and you must plan your finances for the next, take a long look at how you acted this month. Congratulate yourself where you can and calmly correct your course where you must.

In all likelihood, you actually did better than you thought you would or would have given yourself credit for had you not dissected the process in this way.

I know I did 🙂


Head over to the series masterpost to start the series from the beginning or to find a specific article within the series.

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