How to Simplify + Improve Your Budget in 8 Easy Steps

steps to review and revise spending plan

A better way to budget: a Spending Plan gives you a framework for how and where to spend your money in order to achieve your goals and live your life in alignment with your values.

Want some background on what a Spending Plan is (hint: it’s better than a budget!) and how to create one? Read this post, Spending Plan 101, which discusses:

- The top 2 reasons to create and follow a spending plan (one is definitely not what you think!);
- A step-by-step guide on how to make a personalized spending plan;
- Questions to ask yourself as you create your spending plan; and
- Tips and tricks for making a spending plan work for you.

Revising Your Spending Plan

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A spending plan helps you ensure you’re putting your money towards your priorities (including the fun stuff!). That’s why reviewing your spending plan in preparation for a new year is a great way to revisit your old goals and set new ones. A freshly revised spending plan that takes into account your financial and personal goals is a solid way to start a new year.

Adapting your spending plan from year-to-year is an art and a science. The more you do it, the easier it will become.

At the end of each year, I review my plan, and see where it needs a few tweaks – or sometimes, a major overhaul, if something has drastically changed. Sometimes, I even learn a few good lessons. Here is the thought process I go through for my year-end spending plan review and revision.

Questions to ask yourself when revising your plan for the new year:

1. What made it difficult to track and compare your spending to your plan?

Look for ways to make it easier to track your spending and compare it to your spending plan each month. I’d also recommend finding ways to make this process faster (without losing the necessary detail!).

Personally, I had to remove “take it as it comes” (TIAIC) as a category value because it became too difficult when I was trying to track my percentage spent towards my overall budget. TIAIC was supposed to be for categories I found difficult to predict my spending in. Initially, I had decided to just evaluate monthly whether I thought the amount I was spending was too much. This left too much wiggle room in the spending plan for my taste. My final spending amounts helped me decide on hard numbers for my previously TIAIC categories.

2. Did any money mysteriously disappear? How can you track it better next year?

For some people, any money spent in cash is immediately forgotten about and comes up as MIA when you do your tracking at the end of the month. That’s what it’s like for me. Apparently, I spent $250 on who-knows-what last year. Entirely in cash, which is hard to track if I don’t keep the receipts. I am setting a goal for next year to have less than $10 a month “disappear” like this, and I plan to keep better track of cash expenditures by immediately entering them into my YNAB (budgeting software) app when I spend cash.

Or, it could be money you’ve spent but you aren’t sure what card you spent it on. For this issue, using a program like Mint to automatically pull in your credit card spending info is quite useful.

Another problem is not being sure what category the expenditure was for. I find I have this difficulty with Walmart receipts because the line items are absolute gibberish. My solution was downloading the Walmart app and scanning the receipts in – then it shows me exactly what the items on the receipts were for so I can split the expenses appropriately among my spending plan categories.

In all of these cases, having a way to automate your tracking is key to reducing the amount of “missing” money in your spending plan next year.

3. What did you spend too much on?

Change Your Habits (or the Price!)

When you realize you are spending too much on something, do something to change either your habits or the price! Depending on the expense, you can cut certain spending patterns out of your life (such as buying unnecessary clothes – seriously, why did I overspend on clothes I literally deemed “unnecessary”?), or negotiate a lower rate (such as for your phone or cable bill).

Negotiating is a key skill to cultivate in order to live a rich life. You can negotiate pretty much everything from your cable bill to your car insurance rate. I changed my car insurance this year for a savings of over $300 a year!

When you realize you are spending too much on something, do something to change either your habits or change the price!

Accommodate Higher Spending

Sometimes, you have to adjust your spending plan to accommodate higher spending. For example, I spent more than planned on Food & Alcohol pretty much every month last year. I decided that for alcohol, I can reel in my spending by changing my habits (i.e. we will only drink when either 1. the booze is free or 2. we have friends/family/guests over). For food, however, I am going to increase the budgeted amount in the Spending Plan to $135, the equivalent of a “low cost” food budget according to the USDA Cost of Food Chart (which the food stamps program is based on).

Another example is that I overspent on gifts by over $150 for the year. As an aspiring minimalist, I’ve decided I am going to stop buying people stuff. We already called off Christmas this year – at least the gift-giving and receiving portion. Instead, “our presents will be our presence,” aka spending quality time with people we love! Therefore, I’m decreasing the budget to $100 for incidentals, such as flowers on Mother’s day and experiential gifts.

Identify One-Time Overspending

In other cases, you can realize that this overspending won’t happen next year due to changing circumstances. I spent double the allocation on household non-consumables because I was nesting in our new place. I highly recommend this – nesting, not overspending ;). Now that we’re settled in and it looks amazing, I’m not going to spend nearly as much in this category.

4. What did you wish you spent more on?

Maybe you seriously underspent in a category high on your list of priorities. Maybe you passed up on some opportunity that you later regretted. Now is the time to reflect in order to avoid these mistakes in the coming year!

You may regret spending more on stuff than on experiences, or more on consumable items than on self-care. Honestly, I could have – and should have – spent more in my “Enjoying Life” category last year. Seeing as this is my top priority, I’m a little disappointed that I spent less than 80% of my planned amount. Next year I intend to make the spending in this category match more evenly with my plan.

Frequently people also regret not spending more on charity, donations or tithing. Personally, I didn’t donate any money last year. Looking back, I regret this. There was no specific opportunity that I turned down, but I feel I need to do more to give back financially. Next year I will donate at least $100. Even if monetary donations don’t fit into your financial plan, you could choose to donate blood or donate your time to a worthy cause.

5. What did you budget too much for, but never ended up spending that amount?

Maybe you overestimated, or perhaps you didn’t need a certain category at all. For example, I put a TON of money in my “Sports” category, but it turned out that I opted for more free exercise than I thought I would. It was nice to have the option to go back and spend that money at my boxing gym, but in the end, I didn’t end up using it for sports. Instead, the money in that category ended up organically moving to be used in the food category, which experienced quite a bit of overspending.

Or perhaps you didn’t need a separate category for a certain type of spending. I had a “Household Consumable” category which went completely unused. I realized this was because we always bought those items at the grocery store, and so they ended up going in the grocery category (a shared expense). This year, I upped the grocery amount to include the household consumables and to be more realistic (as noted above).

6. What did you buy that didn’t have an appropriate category?

Typically, when I buy something new halfway through the year, I’m not keen on adding a new category to my spending plan, since I feel this complicates my tracking. Instead, I try to jam it into a category that it kind of fits in, and then adjust the following year’s spending plan with an appropriate category.

Last year, I made some purchases related to self-improvement and cultivating new habits. For example, I bought a 5-minute journal, a goal tracking journal, and some books to read for the new year. Since I didn’t know where to track them, I threw them in my Personal Care budget (which had a ton of room for spending). Next year, I am adding a Self-Improvement sub-category in Enjoying Life.

If you noticed that you had to stretch one of your categories to fit something that could clearly be its own independent category, add that stand-alone category to your spending plan next year.

7. What new categories do you need next year? What planned expenditures do you have in existing categories?

Add a new category for any known expenses you will have next year that you didn’t have this year. Do you already know you’ll be buying a new phone in the coming year once your upgrade rolls around? I do, so I incorporated it into the gadgets portion of my spending plan.

Maybe you’re going gung-ho with your new year’s resolutions and need a self-improvement budget for all the books and journals you plan to buy. I’m personally creating a self-improvement category for purchases that support good habits and personal development, or otherwise assist with or propel me towards my goals for this year.

Set your goals for the coming year before you finalize your spending plan. Then, be sure to align your financial goals with the other things you wish to achieve.

Give yourself permission to invest in yourself, an important project, or a critical tool that will help you reach your goals.

8. What categories will you no longer use and can be removed from the plan?

This might be for one-and-done purchases that were completed last year or activities/hobbies that you are no longer keeping up or no longer need to spend starter costs on (i.e. my motorcycle category). Or maybe it’s categories you never used last year (see #5), debts you’ve paid off, savings goals you’ve already met, or categories that can be merged to simplify (like putting “junk food” in with “dining”).

Reflect on the categories that you didn’t feel compelled to put expenditures in, for whatever reason. Then, let them go.

Remember, simpler is always better.

Final Thoughts

The longer you use a spending plan to make sure you’re putting your money towards your priorities, the easier this revision process will get. You’ll get a better feel for the difficulties you had with tracking and what makes your money disappear so you can create systems that will simplify and automate your tracking. You’ll also refine your understanding of what you overspend and underspend on, and begin to develop flexibility when it comes to spending. Finally, you’ll get a yearly opportunity to look forward and plan your financial future.

What’s Next?

Now that you’ve evaluated your previous year’s spending plan, you’re ready to put the finishing touches on a new one for this year! Read Cheat Sheet for Creating a New Spending Plan for a straightforward guide to setting up that new spending plan.