5 Signs Your Budget Needs Adjustment

How long has it been since you changed or updated any part of your budget? Or, how long has it been since you followed a budget? While making adjustments to your budget may seem unnecessary or too time-consuming, it is an important part of maintaining your finances and seeing the big picture. You should be checking your budget on a monthly basis, and always when a major life event happens, like these examples.

Your Spending Is Getting Out Of Control

We live in a consumer world with constant advertisements for the latest and greatest gadgets and gizmos. It can be easy to fall into an endless loop of overspending. The first step is to admit you are spending too much. Then, come up with a plan to get it under control again. The main reason people find themselves overspending is because they don’t follow their budget, or they haven’t updated it as they have lost/gained income.

You don’t have to completely start over with a whole new budget each time, you just need to make small tweaks by cutting money out of one section or adding money to another. For example, you may cut money in your personal spending section to add money into a debt category you are trying to pay off. Learn more about the ins and outs of creating a budget here.

You Got A Promotion

Congratulations on your new role! As your lifestyle and income changes, adjust your budget accordingly, but don’t fall into “income creep.” Income creep is where your spending habits increase with every raise or promotion. So, even though you have more money, it can feel like you are in the same financial situation you were when you started your job. With every promotion or raise, make sure you increase your savings column first in your budget. Then, spend money on necessities, not things that help you “keep up” with the Joneses.

You Lost Your Job

Life happens, usually when we least expect it. Losing your job or having a change in income is a major life (and financial) change, so your budget will need to be examined and reevaluated. If you have an emergency fund, you can dip into that during this time. If not, it is critical to adjust your budget as soon as possible. While you search for a new job, evaluate where you should spend less and save as much as you can.

Tip: Use the four walls method. This method refers to prioritizing the most essential expenses in your budget, which are food, shelter (which includes utilities), transportation, and clothing. When creating a budget, the “four walls” should be funded first.

Upcoming Holidays

The holidays are a great time of the year filled with lots of joy and laughter, but they are also one of the most expensive times of the year. Everyone can benefit from an adjusted budget at the holidays, but each person’s plan will look a bit different. Some people spend more than others so they might have to cut back more than someone who spends more conservatively. Whatever the holidays look like for you, the main thing to remember is to not change the overall spending within your budget but just change the priorities and what you are willing to cut back on to afford the holidays.

Note: Some financial institutions offer Christmas Club savings accounts to help set money aside all year and have it grow at a larger interest rate than a traditional savings account.

Upcoming Large Payment

Remember, you should always be looking ahead. If you know you have a big payment coming up, it is smart for you to alter your budget temporarily so that you can fund this expense. Some large payments you may need to tweak your budget for include:

  • Down payment on a house
  • Medical bills
  • Renovations
  • Purchasing a car
  • Vehicle insurance

These life events are reminders to take a good look at your budget, even if it’s just a quick simple change. Knowing your spending and savings needs will help you better at manage your money and learn how to budget appropriately in different seasons of life.