When to revisit your monthly budget
Thousands of people made a new year’s resolution to get their finances in shape. After fitness goals, financial goals are the most common resolutions, but for many people, setting a monthly budget falls by the wayside as life gets in the way. Creating a monthly budget is the first step to financial freedom, but to achieve your financial goals your budget will need regular check-ins and tweaks. We have identified four different milestones that will require you to check back in on your budget, and adjust your spending.
Your Income Has Changed
Income can change for a variety of reasons. Maybe you’ve received a raise or switched jobs. Perhaps you took on more hours, or your hours were cut. Maybe you’ve added a part-time job to your income. Whether your income swings up or plummets down, you’ll need to assess your budget and change things around. At its very core, a budget is merely a list of the money you are bringing in, versus the money you are putting out. If your income is raised, you may want to change the amount you pay towards credit cards or the percentage of your income that you put towards savings. If your income has been lowered, you’ll want to assess your extra spending to make sure you can make ends meet while things are a bit lean.
You’ve Taken on New Debt
Whenever you take on new debt, you will need to look at your monthly budget and reallocate funds to accommodate for your new debt. Financial gurus suggest looking at your budget before you take on new debt, but if you do it afterward, you can still make the numbers work, within reason. A new car loan, a suddenly active student loan, or a mortgage payment can make a massive dent in your budget, and you’ll likely need to pull money from discretionary spending to accommodate for your new payments. Make sure you continue to make payments towards savings accounts and first pull extra funds from your discretionary pile when adding new debt to your budget.
You Reached a Financial Goal
Reaching a financial goal feels great. If, for example, you pay off a credit card, or finish paying off school loans, you’ll suddenly find yourself with extra money. It is essential to make sure that money is working for you, and not being lost in the wonderful feeling of having extra cash. Go back to your monthly budget and move the funds earmarked for your now defunct payments into different buckets. You may want to add extra money to your savings account, or up the payments on other existing debt to reach your additional goals quicker. You can choose how you move the wealth around, but it is imperative to go back to your budget and alter your numbers to reflect the extra cash in your checking account. If you fail to do so, it is likely you’ll find yourself spending that extra money on non-essential items just because it is there.
A Major Life Event
Major life events are often emotional, and people tend to focus on the emotion of those events before considering the financial implication of changes. Major life events may include: the birth of a child, adding a partner to a household, taking on a roommate, changing jobs, or dealing with a death in the family. Each of these events can have financial implications that warrant a review of your monthly budget. Consider how the event will change your finances and set off to realign your budget with the new change.