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Your first step is complete- you’ve created a budget (and if you haven't created a budget, what's wrong with you? Create one now). Now what? I suggest verifying the monthly amounts in your budget. At this point, those amounts you entered in your budget are really just educated guesses (I’m talking about the discretionary amounts in your budget). To verify those amounts, you need to keep track of every single dollar. Period. There is an updated Budget Template form here, including fields for you to input what you’re spending so as to keep track of it.

Step One- Keeping Track: For one entire month, every time you spend anything, write down how much you spent in the ACTUAL AMOUNT SPENT column provided in the Budget Template. Keep updating that number every time you spend money in each category to reflect the total amount you’ve spent on that item up to that point of the month. If you spend money on something that there isn’t a category for, then write the category name in one of the blank boxes provided at the bottom. It’s helpful to keep receipts and other documentation to refer back to.

Step Two-Compare: At the end of the month, add up all of the columns, to include the PREDICTED AMOUNT and the ACTUAL AMOUNT SPENT columns, as well as the predicted and actual income columns. Take the the total amount of income you actually received for the month, and subtract from it the total actual amount you spent for the month. If the number ends up being negative, then you miserably fail at life and should probably just give up (Disclaimer: Financial Highway does not endorse suicide). Put that negative number in the OVER BUDGET BY box. If however, that number was positive, give yourself an "atta boy!" and put that positive number in the UNDER BUDGET BY box. This is your surplus for the month.

Step Three-Adjust:  Look at the individual categories whose budgeted amount doesn’t really match the actual amount spent.  On the categories that have gone past the amount budgeted, consider adjusting the amount, and compensate by cutting back on other categories, or by supplementing from other categories you didn’t spend as much in as you thought you would.

Step Four-Review: So basically now you can see where each and every one of your dollars goes on a monthly basis. Did it open your eyes a little bit, to see once and for all exactly where all of your money goes? For those really ambitious ones out there, you could take this concept to the next step and track your expenses for a full year like I’m doing, at the end of which you could average out what you’ve spent and create a new budget for the coming year. There'll be an upcoming post on this very subject later.