Reviewing 2010 and 2011 Financial Strategies

Posted by Jill on January 5, 2011

As we move into 2011, I’m spending some time looking back at my actual spending over the past year and how closely it adhered to my plans.

As I’ve mentioned before, I set a monthly budget for categories like food, clothing and entertainment. I also set an annual budget for travel and gift giving, and save a fixed amount for those items each paycheck.

Finally, I use SmartyPig to help me save for very specific goals – in 2010 those included flights home for Thanksgiving and Christmas, Christmas gifts, and the costs associated with two separate friends’ weddings.

Reviewing 2010

I use a combination of Bank of America’s My Portfolio tool (which itself appears to use some version of Yodlee) and my own Excel spreadsheet to track my spending and current account balances. As 2010 wound down, I spent some time examining where I came out ahead of my plans and where I fell short.

To start, I calculated a simple average of my spending in each of my major budget categories. I had budgeted a certain amount for each budget category, and hoped that my monthly spending in each category would fall at or below that amount.

I also compared numbers at the start of 2010 versus the end of 2010 for my student loan balance, my savings account balance, my retirement account balances and my total net worth. I had budgeted set payments/contributions to these accounts but did my best to contribute more when possible. My hope was that the account balances would increase (or decrease for my student loan) by an amount greater than I had planned.

My 2010 Lessons Learned

Here is what my brief analysis of my 2010 spending/savings taught me:

  • I underestimated travel costs: Every time I budgeted for a specific trip, I came up just a little short. Things happen – you take a few more cabs than planned, you realize your clothes just won’t fit in a carryon and you have to pay checked luggage fees (if you aren’t flying an airline with a bags fly free credit card), etc.
  • Life happens: When I moved into my cheaper-but-much-less-nice apartment, I saved a ton of money in rent – and spent a ton of money adjusting to my new space. When you go through a major change that will impact your budget, you might need a little breathing room before your spending returns to normal.
  • The market matters: Partway through the year I had made my planned contributions to both my 401(k) and my Roth IRA – but my 401(k) was ahead of where I wanted it to be while my Roth IRA was lagging. Now, things have reversed – my Roth IRA has rebounded while my 401(k) has fallen a little short. These accounts are invested differently for a variety of reasons, and so it makes sense that the market would have a major effect on their account balances. Since I’m years away from retirement, I decided to be content with the fact that I was meeting my planned contributions, and ignore the account balances for now.
  • Small gifts add up: I have always lumped charitable giving and actual gifts (birthday, wedding, etc.) into one budget category. I realized that $10 and $20 donations here and there add up, bringing my total charitable giving much higher than I realized, and sometimes forcing me to pull from other areas when a planned birthday or other gift came up.

2011 Budget Strategies

Going forward, I’m going to employ the following to help me keep a better hold on my finances:

  • Set a charitable budget: I realize that the time has come to separate gifts to families and friends and gifts to non-profit organizations. Someday I’ll itemize deductions, and it will be good to be in the habit of tracking donations!
  • Inflate travel budgets: I’m going to try to do a better job of estimating trip costs, and then save an amount 5-10% over the total. If I end up with money left over, I can always throw it into savings.
  • Budget month-to-month: I tend to use a pretty static budget each month, but the reality is that my spending is not smooth over the course of the year. I spend more on clothes at the start of each season, spend more on entertainment in the summer, and spend more on eating out around the holidays. In 2011, I’m going to try to create a new budget each month to allow myself more flexibility and account for spending fluctuations.
  • Use automated tools: Since I really like to have a handle on my spending, I track everything in my own Excel spreadsheet. But I want to use either Bank of America’s My Portfolio or my dormant account to track my spending at a lower level – rather than know what I spent on food, I want to separate it to restaurants, fast food, and grocery stores so that I can see where I might need to cut back.

2011 and You

You can do the same thing I did by calculating your actual progress towards your 2010 goals versus your planned progress. Use your lessons learned to help create/adjust your 2011 budget.

If you’ve never had a budget, there are tons of resources online to help you find the method that works the best for you. Use your 2011 budget to help set goals for the end of 2011, or use your goals as inputs to your budget.

If you plan to contribute $100/month to your savings account, your balance should increase by at least $1200 by the end of the year. Conversely, if you want to max out a Roth IRA ($5,000 in 2011), you need to contribute just over $416 each month.

And don’t forget to add the extra money you’ll get from the payroll tax cut into your budget.

What new financial strategies are you employing for 2011? Tell us in the comments and we’ll check back next year to see how everybody did!

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Comments to Reviewing 2010 and 2011 Financial Strategies

  1. I’m hoping to set up a traveling budget and stay under it this year. Also, staying as automated as possible this year.

    20 and Engaged

  2. Hi, Jill,

    Congratulations on realizing that the balance of your retirement accounts have no relevance. They will go up and down with the stock market. You can only control your contributions. Do put in as much as you can afford.

    In fact, although it’s counter-intuitive, it’s better for younger people saving for retirement for the market to remain low. That’s because you are still making contributions. The lower the market, the more stock shares your contributions are buying.

    When the market goes up you look at your account balance and get a warm, fuzzy glow — but stop and realize that really means that your next contribution will buy you less stock.

    More is better than less.

    But in the end, you can’t control its ups and downs, so do max out your contributions.

    You also need to budget some money and time to invest in yourself.

    I don’t know what would improve your job or career — get a higher degree, learn to be a public speaker, etc — but do it. Or learn how to send more traffic to your blog to increase your Adsense income. Whatever specifics apply to you, do something to prepare yourself for a higher level of income.


    Hammerson plc

    Richard Stooker

  3. So true on the travel costs. My wife (and baby) and I make a fair amount of “quick” weekend trips, but they end up adding up in terms of $$. Gas, public transportation, eating out every meal, entertainment, etc…Nice post!


  4. I agree with the importance of separating charitable giving and gift giving to friends/family. I have a set amount that I automatically deduct from my checking account at the beginning of each month that goes to my predetermined charity.

    Jacob @ My Personal Finance Journey

  5. Thanks for sharing your ideas. I have never accounted my expenses since I started working (almost 10 yrs now). I care less when I realized I overspent at something not planned or when I have saved at something cheaper than I expected. I always believe that money will just come and go. But now, since I got married, I have learned how to track records of my expenses, even at the smallest cents. It’s better to have financial strategies rather than spend whenever you can and whatever you like.

    Seed Capital

  6. Hi,

    I’m quite curious. What is the motivation behind your desire to keep track of your spending?

    Also, I admire that you have a charitable spending budget. Why do you give?




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