Making a budget is easy. Sticking to it is the hard part. Have you been overspending and running out of cash before the next pay cycle? You’re not alone. It’s an easy state to fall into. Fortunately, there are ways to break the habit and help you assess your budget before serious damage is done.
Firstly, let’s discuss what a budget is. A budget is a detailed document highlighting your income, expenses, savings and investments. Each category in your budget should have an allocated percentage. For example, the 50/30/20 rule dictates there be 50% of your income going to your expenses. That would be all the major ones like rent/mortgage, utilities and groceries. Other expenses to include are transportation costs whether it’s a car lien payment.
The 30% goes to your savings and investments and the 20% is where you get to treat yourself with some spending money.
Budgets can be constructed monthly or at any interval best suited to your lifestyle.
To learn more about budgeting and the best practices, visit The Ultimate Guide to Budgeting.
Once you’ve formulated a concrete budget, it’s time to tackle the problem of sticking to it. A good way to start sticking to your budget is to assess whether it serves you well. Taking the time to carefully look at the strong points and loopholes in your budget can set you up to successfully maintain a strong budget.
If you are struggling to stick to your budget by paying yourself first, budgeting to zero or finding an accountability partner here’s why you should consider a budget reassessment.
Why you should routinely assess your budget
Limit impulse spending
You may have found the right balance of spending money on savings & investments but are you spending money on things that are truly worthwhile to you or are you impulse spending on things you don’t love and will have to find a new home for? The best way to keep a lid on impulse spending is to track your spending. This gives you a chance to evaluate the purchases you’ve made for a week or a month, therefore, allowing you to confront your habits.
Account for additional income
Got a raise or promotion recently? Started working with a better-paying client? You should be reassessing your budget. Your income has changed and your budget should with it to account for the additional income. Now, this does not automatically equate to you spending more. Instead making changes to the budget will maintain the balance of your budget. New money can easily fall through the cracks if not accounted for. We’ve all had moments when we’ve received money and before we knew it it was close to gone and we had no idea how and where. Avoid that happening to you now by carefully planning for where you’d like your new increased income to go.
Note debt changes
Much like additional income, you should also account for changes in your debt. Whether you’ve acquired new debt or completely repaid a loan, these are key changes in your expenses that must be noted. The new debt will heighten your expenses but should still remain within the defined limits for expenses in your budget. For example, if you earn a monthly income of $100,000 JMD and use the 50/30/20 rule your monthly expenses should be no more than $50,000 debt payments included. Conversely, if you’re no longer making monthly debt repayments you’ve liberated funds that may go towards affording better living arrangements in the expense category or
Stay familiar with your budget
It’s always a good idea to check on your budget and see if it matches your account statement. Banks are busy places with many customers, mistakes can happen. Decide on an interval that works for you. Monthly, quarterly or bi-annually? Whichever works for you these checks should be done to ensure your finances go where it is intended.
According to bethebudget.com here are some important questions to ask yourself when assessing your budget:
- What worked
- What didn’t work
- How can you improve
- Has anything changed
- Did you increase your net worth
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