If you’re still trying to use the budget you made four years ago, you have a problem. Your budget is supposed to change as your life changes. So, if you’re still in the same place you were four years ago your very first budget might work for you. Hopefully, things have changed for you and if that’s true it’s time to adjust your budget.
Whenever you experience a life change – a raise, marriage, divorce, new child, child going off to college – you should adjust your budget. That way, it reflects where you are in life. You should adjust your budget when…
You get a raise
If you don’t adjust your budget after getting a raise, chances are you’ll end up squandering the extra money instead of making good use of the money. If you just got a raise, you’ll need to increase your total monthly income. Then, decide how you’re going to spend the extra money. If you were making ends meet at your previous income, it’s a good idea to use the extra money to pay off debt or save for retirement.
You get married
Soon after you tie the knot (and possibly even before), you and your new spouse should sit down together and create a household budget. Decide how the two of you are going to use your incomes to cover the expenses. Even if you don’t completely combine your money, it’s important that the two of you decide who’s going to pay for what household expenses. Each person should continue to have a budget for their separate incomes.
You get divorced
Divorce isn’t always an easy situation, especially if you’ve been depending on two incomes to make ends meet. If you’ve been awarded child support or alimony, add that amount into your monthly income. Similarly, if you have to pay child support or alimony, include the amount in your monthly expenses.
You’re expecting a new child
A new child comes with new expenses. Your grocery bill will increase. You’ll spend more money on clothes and shoes. The baby will need diapers, wipes, etc. Perhaps you want to begin saving for college. As you start thinking about spending money on your new addition, include those expenses in the budget. Otherwise, you could end up spending more money than you can actually afford to.
You get fired, laid off, or you quit your job
Adjusting your budget is crucial when you experience significant decrease in income. Hopefully, you have an emergency fund you can depend on to help bridge the income gap until you find new employment. It’s a good idea to cut back on your spending until you have steady income coming in again. That way, you make the most of your emergency savings, unemployment income, or other income you use in your time without a job.
You buy a new house
This is another type of addition that should be budgeted for. Not only does a new house come with a mortgage and homeowner’s insurance, you also have property taxes and maintenance to think of. Your electric bill could increase if you’re moving to a bigger home than you lived in before. It’s a good idea to set aside some money for emergency home repairs like a leaky roof or plumbing error. When you rented your landlord paid for those things, but now they’re your responsibility
As you prepare for retirement, review your accounts to find out what your monthly retirement income will be. It may be less than your current income and, if so, you’ll need to adjust your expenses to make sure your retirement income will cover everything.
Let Your Budget Change With You
Anytime you experience an increase or decrease in your income or your expenses, you need to adjust your budget to make sure you continue using your money wisely. If you notice that you don’t have enough money to pay your expenses, there’s a sure sign it’s time to go back to your budget. You could have forgotten to adjust your budget with a major life change or you may have increased your spending in certain areas over a period of time. The key is to recognize the problem as soon as possible and use your budget to get your money back on track.