Posted by Mike Smith :: December 4, 2007 @ 7:18 am

You might think that the best time to do an end of year budget review would be, well, at the end of the year. Let’s consider why you should do a yearly budget review at all and then look at why performing your end of year review a few weeks early does have some advantages.

An end of year budget review is a good idea, regardless of the exact timing you choose for it. While most budgets have monthly spending and savings criteria, it’s often more insightful to look at your budget over the course of an entire year. Doing so gives you a more accurate picture than monthly reviews, which can be skewed by one-time purchases or events such as paying a bill twice in a month.

The latter can occur if you happen to pay a bill early (or late) one month relative to your normal payment schedule. I have a particular bill due on the second of every month. There are times when I pay the bill on the 1st of the month and then again on the 30th or 31st for the next month. Looking at that bill from a monthly budgeting perspective would show one month when I spent double what I expected and the next month would show no payment activity. Looking at my budget from a yearly perspective eliminates such monthly imbalances.

As I said earlier, performing your yearly budget review before the end of the year has a few advantages. For one, the last few weeks of the year and the first few weeks of the next tend to be very hectic. Budget review is likely not high on your priority list at that time. So you’ll have more time to do your review if you do it a few weeks early.

The major advantage of an early review is that you still have time to adjust spending and saving based on how you’re doing relative to your budget. Depending on whether your spending is over or under budget for the year, you may adjust the amount that you intend to spend on holiday gifts.

You may choose to invest in a P2P loan portfolio from Lending Club if you have a budget surplus. The earlier you start, the earlier your money would start to earn interest. Another budget category, charitable giving, is also tied to the calendar year for tax purposes. All of these situations would benefit from an early year-end review.

You should certainly consider an end of year budget review and you may want to do it early enough that you can act on your findings before the New Year. Doing so will also give you a head start on next year’s budget and should make your financial resolutions a little easier to keep.