The Importance of Reviewing your Spending
When you create a budget, it’s tempting to “set it and forget it.” However, the most effective budgets are the ones that are frequently reviewed and revised as necessary. You also need to pay attention to your spending and adjust your actions as you go.
Keeping on top of your budget and your spending will help you manage your money more effectively, have a happier lifestyle, and make reaching your financial goals more possible.
Regularly Look at Spending
Your day-to-day spending matters. It may seem like the money you spend each day can’t have too much of an impact in the overall scheme of things, but that isn’t true. Even small purchases can add up. For example, if you spend just $2 extra each day, that’s an average of $60 more each month or over $700 a year. Reducing this spending can leave you with money to put towards your financial goals.
If you track your spending, and take note of every purchase you make, you’ll be able to see where your money is going and where you can potentially cut costs. A lot of the time, people aren’t sure of where their money is going. This can be a problem because, if you don’t know where you spent your money, it’s hard to know what habits you need to change.
Track your spending shortly after you make a purchase. Whether you decide to use an app, a spreadsheet on your computer, or a pen and a notepad, the important thing is to record purchases shortly after you make them. This makes it less likely that you’ll forget to note something.
Reviewing this spending list regularly is important. Look at where your money is going and see if you think it’s being spent wisely. Is there any way you can reduce your spending? Are there areas where you are spending more than you expected? Look at the numbers and see what changes you can make.
Adjust your Budget
It’s a good idea to regularly review your budget to see if it still makes sense for you. When you planned your budget, you may have assumed you’d spend a certain amount in each category, but is that how it actually turned out? If you find that your budget is making life impossible (you can’t make ends meet, you can’t achieve your goals, you can’t stay within your spending limits, etc.) then you’ll need to make some changes. Maybe you’re spending too much in a certain category and that’s making it impossible to stay within your spending limits, for instance.
In the same sense, If your budget is too “easy,” you may want to modify your goals so you put more towards debt repayment, emergency savings, or other financial goals.
Check Your Goals
In addition to tracking and reviewing your spending, you should also review your financial goals. Do they still make sense to you? If your life circumstances have changed, then your current goals may no longer be aligned with reality.
You may end up in a situation where you realize that your goals aren’t necessarily realistic. For instance, if you planned to put aside $200 a month into a vacation fund, but you’re finding it difficult to set aside more than $100 a month, you can either modify your goal or modify your budget to fit reality.
Look at Your Emergency Fund
Another aspect of your budget that you’ll want to review is your emergency fund. Emergencies happen to everyone at one point or another. From having to repair your car unexpectedly to getting sick and being unable to work, to losing your job, you never know when something expected can happen.
This is why an emergency fund is important and why it’s a good idea to regularly review how much you have saved for emergencies. Depending on your circumstances, most people recommend that you have between three and six months of expenses saved for emergencies. This means putting aside enough money to pay all of your bills, etc. for between three and six months. However, if you work in a field where getting a new job would be difficult, or if you do freelance or contract work, you might want to put more aside.
If your emergency fund isn’t where it should be, look at your budget and see if it’s possible to make cuts so you can increase the amount you’re putting aside for a rainy day.