Analysing a Personal Budget

Understanding the Analysis of a Personal Budget

Analysing a personal budget involves evaluating your financial plan to review whether it’s efficiently balancing your income against your spending, and to seek areas for potential improvement.
This important second step following the creation of your budget is an ongoing process that enables you to take control of your financial health.
By understanding where your money goes, you can determine whether your money is being spent wisely, if you could be saving more, or if you’re approaching financial trouble.

Your income: Analyse whether or not your income sufficiently covers your expenses, or if you require additional sources to balance the budget.
Your expenses: Review both fixed and variable costs. Consider whether variable costs can be minimised and if fixed costs are still necessary or could be reduced.
Your surplus or deficit: Assess the difference between your income and expenses. If your budget results in a surplus, consider how to best save or invest this. If your budget shows a deficit, devise a plan to reduce spending or increase income.
Your financial goals: Whether long-term (buying a house) or short-term (saving for a holiday), be sure to review whether your current budget supports these goals.

Begin by checking your figures: Ensure your calculations are correct.
Compare projected vs actual figures: This involves comparing your expected income and expenditure (your budgeted amount) with what you actually received or spent.
Identify financial patterns: Look for trends or patterns in your spending. This can help uncover bad spending habits, or show where you are consistently underspending and can potentially save more.
Review financial goals: Regularly analyse whether your budget is helping you achieve your desired financial outcomes. If it’s not, adjustments may need to be made.

Regular analysis helps you stay in financial control, ensuring that expenses don’t exceed income, and allows for proactive management of financial health.
It allows for early detection of issues. Spotting a recurring deficit early can prevent spiralling into debts.
It supports decision making. Based on the analysis, you could decide to cut spending in certain areas, find additional income sources, change your saving habits, or adjust financial goals.

Be patient: It’s important to remember that financial changes may not show immediate results. It often takes a few months for budget adjustments to fully effect.
Use tools: Financial software and applications can assist with tracking and analysing your budget.
Stay consistent: You are more likely to spot trends and make effective changes if you analyse your budget regularly.