Reviewing and Revising Your Budget
Setting a budget is important. Without a budget, it becomes easy to lose track of your spending and difficult to afford your expenses and reach your financial goals. However, setting a budget isn’t simply something you do once and then forget about forever. It’s important to regularly review your budget and revise it as necessary.
This is because you want to make sure that your budget always matches your financial reality. Otherwise, you could find yourself getting deeper into debt or struggling to reach your goals and not quite understand why.
Reviewing your budget, and making adjustments as necessary, will help you stay on track and in control of your financial situation.
When Should You Review Your Budget?
The question of when to review your budget is a personal one that will differ depending on your situation. However, it’s a good rule of thumb to review your budget at least once a year as well as whenever your life situation or financial situation changes.
For example, if you get a new job, lose your job, or change jobs, you will likely find yourself facing a different financial reality than the one you lived in when you first made your budget. While most people will naturally review and revise their budgets if their income is reduced, it’s also important to do so if your income increases. Why? Because it’s quite common for a person to immediately start spending more money as soon as they start having more money. While this isn’t necessarily a bad thing, you’ll want to allocate and budget your spending to ensure you’re managing your finances in the best possible way.
An income increase can be a great opportunity to pay down debt, save more for emergencies or retirement, or get closer to your financial goals. By adjusting your budget when you get a raise or a new job, you’ll make sure that you continue to spend your money wisely.
If you get married, get divorced, have a child, move into a new home, or make any other major life change, your budget should be adjusted to reflect the current reality as well. Any major life change will also change your financial situation and your priorities.
You’ll also want to review your budget (and make changes) if you recognize that your current budget isn’t working for you. If you find that you can’t pay your bills or you’re unable to afford some important expenses, then sit down and take a good look at your budget. You’ll also want to make adjustments if you’re not paying down your debt as quickly as you’d like to or if you find that you’re not saving as much as you hoped.
Even if you haven’t had any major changes in the past year, it’s still a good idea to review your budget annually. You may find that the priorities and goals that you set initially no longer apply to your current situation. Even if you don’t find that any reason to actually change your budget, it’s still a good refresher to take a detailed look at your budget to see where you stand financially.
Revising Your Budget
When you review your budget, follow a process similar to the one you used to initially create it. Write down all of your fixed expenses, followed by your variable expenses. Then classify your expenses into needs and wants. Once you’ve found a way to pay for all of your needs, it’s time to figure out how to afford your wants. If you can’t fit everything into your budget without going into debt, make some cuts. You can do this by reducing how much you spend on expenses that aren’t necessary (such as entertainment, eating out, clothing, etc.) as well as by reducing costs whenever possible (such as downgrading your cable or cell phone package to one that is more affordable).
Don’t forget to budget for savings and debt repayment. Paying down your debt as quickly as possible is important, because it helps you save money on interest charges. Saving for the future is crucial as well. If you have a healthy emergency fund, you’ll be able to deal with unexpected expenses that come up.
Look at the amounts in your existing budget. Do they still make sense? Or have your priorities or income changed? If they’ve changed, make sure your budget is modified to reflect this.