by John Huntinghouse, VP Marketing
A personal budget is an incredibly powerful tool. It gives you deep insight into your income, spending and debt, empowering you to make good financial decisions now and in the future. The time you spend creating a budget will pay off over time as it continues to inform your financial choices.
However, a budget is only valuable when it's current and contains correct information. While you don't necessarily need to constantly update your budget - an average of how much you spend on utilities or groceries is often enough for good budgeting, even if the exact amount changes from month to month - there are certain events that should lead to a review . Let's look at how you can make the most of this valuable personal finance tool by making sure it is as accurate as possible.
If you don't already have a budget on hand, you'll need to make one before you can think about updating it. The good news is that if you build a budget from the ground up based on your current circumstances, you can make occasional adjustments as time goes on. Invest a few hours and a little effort into some basic math now and you'll be ready for budgeting in the long run.
For help building yours, check out our "How to Build a Personal Budget" eBook. You can also bookmark this article and check back in on it occasionally to see if it's time to reassess things and make updates to your personal budget.
Although not an exhaustive list, the examples below are some of the most common reasons to review your budget and make changes where necessary. In general, if you have significant changes to your income, spending or debt, you should take a look and adjust the relevant numbers.
A change in the amount of money you bring in each month can have a major impact on your ability to address a variety of financial needs. Although you can't change your spending as it relates to consistent bills like your rent or mortgage payment, there are many other areas where you can make changes that maximize the value of your income.
If you've moved to a new job where you earn less or have scaled back on your hours on the job, whether temporarily or permanently, you can review your budget to find areas where spending can be reduced. Variable expenses like groceries, entertainment, clothing and a number of other categories can likely be cut, sometimes modestly, without having a major impact on your daily life.
Similarly, if you're received a raise or have moved to a new position with a higher base pay, you want to be sure your capacity for additional spending can be directed toward the best possible areas. Updating your budget allows you to make sure you're putting money toward vital considerations like retirement planning and investing, while also seeing how much more room you have to increase spending in more fun categories.
If your income changes from month to month, like in situations that involve payment based on commission or freelance work, the Everything Finance blog suggested making multiple budgets. This approach can require additional work, but it keeps you better prepared for fluctuations in pay.
Perhaps you've just purchased a house and you need to address closing costs in the short term, as well as a new mortgage payment. Maybe you have a new addition to your family and want to start saving for college and other expenses. You might be dealing with something less eventful that still changes you budget, like moving to a new cell phone provider and contract. When your expenses change, be sure to add them to your budget. With everything updated and tracked, you can make more informed decisions about how to adjust spending across your budget when a new obligation arises.
Depending on the specifics, long-term debt can be an excellent tool for purchasing a large asset that you can't simply buy outright. Whether a house, car or something else, this debt helps spread the total price tag across several payments. When you take on a new debt, you need to build it into your budget and adjust the other spending categories as needed. Similarly, when you make the last payment on a debt, you should be sure to remove it from your budget and allocate that spending to a new category.
Having dependable savings and checking account, along with options for accruing interest on your savings, makes budgeting and paying bills that much easier. To learn more about options from TAB Bank, check out the Personal Banking tab on our homepage.
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