Skip to main content

Why You Should “Close Out” Your Budget Every Month

Published June 18, 2020

4 minute read

Devon Taylor

By Devon Taylor

You hear it a lot. You absolutely need a personal budget. Every financial expert will tell you. There are multiple articles on this very site that help guide you towards building and maintaining a successful budget. You can even download multiple apps to help you out. It’s important! How will you ever feel in control of your money if you don’t have a clear idea of where it comes from and where it’s going? Having a budget is an important (and necessary) first step to having your finances in order. However, it doesn’t end there. Once you have your monthly budget habits running smoothly, you should take it one step further. We recommend that you take the time to “close out” your budget at the end of every month. Or, at the very least, once every year.

Wait, What Does It Mean to “Close Out” My Budget?

Most people understand the concept of a budget. For example, you might allocate $300 per month for groceries, $250 per month for driving expenses (gas and insurance), and $100 per month for your cell phone bill. And so on.

However, life isn’t always that perfect. When was the last time your grocery bill came to $300 on the dot? It was probably more like $293.17 or $311.78. Same with your driving expenses or phone bill — especially if you put on some extra miles last month or went over your data limit. Life happens, right? It’s not always predictable.

To close out your budget simply means to compare the amounts you expected to spend against what you actually did spend. Each line in your budget will end up having a surplus or a deficit. Maybe you’ll have a few categories with a close out number of zero dollars too. If so, great job with your budgeting!

Analyze Your Close Out

The ultimate goal of closing out your budget is to determine where you might be over- or under-spending. For example, you may budget $300 a month for groceries but actually spend an average of $350. Then you wonder why you’re short on money at the end of every month. If you’re running a deficit in too many areas, your budget isn’t going to be very useful at all.

On the other hand, you may discover a surplus is some categories. That means you can adjust your budget accordingly. You can add the surplus dollars to a category with a deficit. Better yet, you could allocate them to something even more beneficial — paying of debt, adding to your savings, or use it for investing. This might help you avoid the pitfalls of thinking you “found” extra money and spending it frivolously.

Other Benefits

Consistently closing out your budget doesn’t just allow you more control over your money. It also helps you notice any discrepancies or mistakes. For example, maybe your internet bill is automatically paid every month with a credit card or a direct withdrawal from your checking account. It’s so convenient that you probably don’t even think about it. But would you notice if your provider suddenly increased their prices? Or made a mistake on your bill and overcharged you? What about if you went over a bandwidth cap or ordered a few too many on-demand movies while stuck at home?

When you close out your budget, those types of discrepancies will stand out like a sore thumb. You can then use that information to solve whichever problem needs fixing. Maybe you need to contact your internet provider about a cheaper plan. Or ask them to fix a billing mistake. Perhaps you just need to do a better job of managing your data use or PPV movie habits. Whatever the case, closing out your budget will show you exactly where you money is going.

The Last Word

Be diligent with your budgeting. Yes, that $5 you spent at the Starbucks drive-thru counts. So does that cute shirt you ordered online to “treat yoself.” The more honest you can be with yourself, the more you’ll know about your financial situation. When you close out your budget, you’ll get a clearer picture of where you’re overspending and where you’re not. Use that information to tweak your budget.

After a few months of closing out your budget, your monthly ledger should be in top-top shape. Sure, you still won’t ever spend exactly $300.00 at Whole Foods. But you will know if your grocery budget is more-or-less accurate. Same goes for all your other expenses too. Every successful business makes a point to close out their budget on a regular basis. You should too.

Woman Working on Budget at Desk

Shutterstock

Devon Taylor

Managing Editor

Devon is an experienced writer and a father of three young children. He's simultaneously trying to build college funds and plan for an eventual retirement. He's been in online publishing since 2013 and has a degree from the University of Guelph. In his free time, he loves fanatically following the Blue Jays and Toronto FC, camping with his family, and playing video games.

Explore Budgeting

Calculating overhead costs Budgeting

Overhead Costs: What Are They and How Do You Calculate Them?

Overhead costs are ongoing business expenses that are not directly attributed to creating a product or service. Calculating and keeping track of overhead is important for any business. Not only does it make budgeting easier, but it’s also used to determine how much they should charge for their products in order to turn a profit. […]

Read More about Overhead Costs: What Are They and How Do You Calculate Them?

5 minute read

Budgeting

Effective Ways To Practice Self-Care on a Budget

Self-care is defined by the World Health Organization as “the ability of individuals, families and communities to promote health with or without the support of a healthcare provider.” More broadly, self-care is described as an individual nurturing their spiritual, emotional, and physical health. It’s an important part of keeping your mental health in a healthy […]

Read More about Effective Ways To Practice Self-Care on a Budget

7 minute read

See All In Budgeting

More from WalletGenius

stock market crash Investing

Moves To Make If You’re Worried About a Stock Market Crash

We wouldn’t blame you for being worried about a potential stock market crash right now. The Delta variant of COVID-19 is currently ripping through the United States (and other parts of the world). Chinese real estate behemoth Evergrande is tanking, threatening to take portfolios around the world with it. Then there’s the issue of the […]

Read More about Moves To Make If You’re Worried About a Stock Market Crash

6 minute read

Flipping Houses Home Ownership

How to Start Flipping Houses (And Actually Make Money)

House-flipping is often portrayed as a foolproof path to quick riches. While this inaccuracy can create unrealistic expectations, flipping houses can definitely be profitable if you do it right. And that’s the trick: the people most successful at flipping houses are generally the most experienced. That said, they all started somewhere. There’s nothing like completing […]

Read More about How to Start Flipping Houses (And Actually Make Money)

6 minute read