Analysis will build a better 2013 budget

The new year is almost here! Over the past few months, we’ve been working toward preparing your finances for 2013. Now we’re at the final step: updating your monthly budget for the year ahead.

Your 2012 Monthly Budget

After the New Year celebrations are over, pull out your monthly budgets from 2012. Over the year, it’s easy to relax on your budget items from month to month, and automatically pay your expenses without giving them much thought.

Your annual review gives you the opportunity to look more closely both your overall financial situation and at each line item. We’ll start with the overview:

Have I been overspending? In your budget at the start of the month, you have projections or estimates of how much you will spend for the month. Your fixed expenses won’t change, but you may overspend or underspend on your more flexible budget categories, such as groceries, entertainment, transportation, etc., by the end of the month.

Now it’s time to review the past twelve months, and figure out if you have a pattern of overspending, meeting your budget, or spending less than you projected.

If you have been overspending consistently, it’s a sign to work on a deeper fix, especially once you add your 2013 goals to your budget. If you have been meeting your budget, check to see that you have a comfortable margin for unexpected events and emergencies that will trigger spending. (You may already have this covered with an emergency fund.) If your budget has been working well for you throughout the year, celebrate! It’s not easy to create a solid budget, and a reward now will help you maintain your good behavior.

Am I happy with my budget? Your budget is a reflection of your financial needs and wants. Take the time to ask yourself if it is an accurate reflection. Have you been spending too much or too little in any of your larger budget categories? Are you happy with the way that your budget is divided between your monthly spending and your larger goals?

The answers to these questions are different for everyone. Take some time to have an in-depth discussion with your spouse or partner, and keep notes.

Once you’ve analyzed your budget from a big-picture perspective, it’s time to look at each line item in turn. Here are some questions that you can use in your analysis:

Do I (or we) need this? This is an important question to ask at least once a year. Take each item, and think about your family or your use of the item over the past year. Does that usage justify the expense? Is that item crucial to your daily life, or can it be cut in favor of a larger goal?

Can I find a more basic or less expensive version of this budget item? Once you have established a need, you may still find opportunities for saving, by asking your service provider for basic options or taking time to comparison shop.

Your 2013 Budget

Your analysis of 2012 will naturally lead into to a revised budget for 2013. Once you’ve covered your expenses, add your 2013 goals, split out into monthly increments. Total your expenses and goals to make sure you are spending less than your monthly income. After you are done, make sure to reward yourself for completing your review, and have a Happy New Year!

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years experience in retail banking and with financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at


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