If a budget is going to help you reach your goals and live financially well, it must be realistic. Periodically revisiting and (if necessary) revising your budget will help keep your budget realistic so you can rely on it to build your financial well-being. Although keeping tabs on your finances can feel like a pain at first, the sense of financial well-being it brings makes it worth it!
When should I review my budget?
You should review your budget at least once a year, though most people find it useful to revisit at least every six months. There are also 5 other times you should revisit your budget.
1. If you discover you’re living paycheck-to-paycheck
If there’s nothing left to save at the end of the month – or if your debt has grown due to charging monthly expenses like groceries – that’s a sure sign you need to revisit your budget. Take a close look at where your money is going and see where you can cut back on expenses that are wants rather than needs.
Entertainment, dining out and clothing are three common spending categories where it’s easy to go over budget. It’s all about trade-offs. If you love going out to eat with friends because you enjoy hanging out with them, suggest a less expensive restaurant or host a potluck at your house. If you love buying trendy clothes, consider buying from a second-hand store or website instead of buying new.
2. If your income rises or falls
Got a raise? Now’s not the time to treat yourself to extra shopping trips and increasing dining out. Instead, set the extra monthly money aside to pay down debt, increase savings, and achieve one of your financial goals. On the other hand, if you’re lost your job or taken a pay cut, take an honest look at your budget and adjust your spending according to what you really need and can afford.
3. If your expenses have changed
If you’ve given birth to a child, purchased a home, changed to a job with a longer commute or paid off a loan, your monthly expenses have probably changed. Take a look at where your money is going now and adjust your budget accordingly.
4. If your goals have changed
Have your goals changed for the year or the season of life? Maybe you want to pay off your car this year, begin saving for a child’s education, or plan a dream vacation. Any time your financial goals change, take an honest look at your budget. Saving an extra $20, $50 or $100 a month will make a difference to these goals.
And if you’re accomplished a goal, like paying off your credit card debt – good for you! Now you probably have a little extra cash on hand each month. Be responsible with it, and ask yourself how you can use this extra money to reach your goals.
5. If you’ve inherited money or received a bonus
Large sums of money don’t come along very often. Be smart and resist the temptation to blow it on something major like a new car or a luxury vacation. Having a large sum really empowers you – to pay off debt quickly, make a down payment on a home, or invest in your retirement savings. Allocate the money towards a goal you had before you received the lump sum.
Questions to ask to better manage my budget
When it does come time to revisit your budget, there’s 5 questions to ask yourself that help determine whether your budget is realistic.
- Has my income changed?
- Have any of my expenses gone up or down?
- Do I have more or less debt?
- Have my goals changed, and how does this budget help me meet my goals?
- Is this a budget that I can really stick to?
Are you thinking about creating a budget? Read How to Budget to get started.