We recently covered the Worthwhile Benefits from Living on a Budget to highlight what you might be missing if you don’t have a budget.
However, if you are someone who has created a budget and you actually follow it, when was the last time you updated it? I ask because if you are not updating your budget as your life evolves, your budget isn’t going to be very helpful at guiding you towards reaching your goals. In fact, it will be worthless.
Times When You Need to Update Your Budget
When should you be updating your budget? Below you will find four times when you should be updating your budget.
After You Create It
A few months after you create and follow your budget is a great time to take a couple of minutes and review it. Odds are there are some categories you missed completely or others where you under-estimated your spending.
For me, both of these applied. I realized I never made a category for gifts. When it came time to buy a gift for my sister’s birthday, I was classifying it as miscellaneous since I forgot to add that category. At the end of the month, seeing a large number in that category really is concerning.
In addition to that, I didn’t estimate the right amount for tolls. I have an EZ Pass that debits my bank account. I thought it took money every other month but I drive on toll roads more than I thought and it really costs me more.
Make sure you take a few minutes to review your budget 2-3 months after creating it so you can make sure it is correct.
Another reason to update your budget is because life happens. What you think is a set amount one month could change going forward. For example, our cat had some medical issues recently. We used to budget $70 per month for his expenses. But now he is on medication, so that monthly number needs to change. Is Pet Insurance Worth It?
And since he won’t be on the medication forever, at some point down the line, we will have to make the change again.
What has life brought to your table recently that has caused a change in your spending? Did your auto insurance premium change because you were in an accident? Maybe your central air conditioning unit needed repairing or you had a medical issue.
In any of these cases, it is important to stay on top of these things so you can update your budget accordingly.
Maybe there was a change in your daily needs that will make updating your budget important. Did a child go off to college or do you have a new baby? Either of these will force your needs to change and as a result your budget. After all, if you don’t update your budget, you will be going into the red for many categories.
And this takes us back to the whole point of having a budget in the first place. If you are just throwing numbers into your budget as the month progresses, at the end of the month you are not going to have a very clear picture of what happened with your money.
You might spend the next few months trying to change one habit when the real issue is something entirely different. You just don’t know this because your out of date budget is misleading you.
Up until now I’ve been focused on expenses. But what if your income has changed? Maybe you took on a second job? Or maybe you earned a promotion. Either of these will cause a change in your budget.
On the surface, updating your budget might not seem as important but it really is. If you want to get ahead financially, you need to save and invest a portion of your income. If you are only saving that portion based on your old salary, you are going to wake up one morning and realize you haven’t saved enough. Updating your budget when your income changes is just as important as when your expenses change.
Lastly, be sure also to make the changes to your budget if your income decreases. While it sounds good to save more money each month based on a percentage of your income, if your income was drastically reduced you won’t have enough money to pay your bills if you try to save too much.
At the end of the day, your budget is going to constantly need updating and tweaking. It is not a snapshot of a moment in time with regards to your financial life. It is a tool to help you get ahead financially. By taking the time to keep it optimized for your current situation, you can assure yourself that you are making the most of your finances.
More on Budgeting
- What Should Your Financial Pie Chart Look Like?
- How to Get Control of Your Budget
- Manage Your Budget by Tracking Your Spending
- How to Splurge on a Budget
- 22 Free Finance Apps to Help Your Budget
- Manage Your Finances Without a Budget in Two Simple Steps
- You Need a Budget Review
- How to Have a Life While Living On a Tight Budget