Why would a budget need a makeover? One reason for this is that it takes awhile to create a truly functioning budget. We have to look at our yearly expenses. Typically people make budgets for monthly expenses and forget to include the bills that pop up annually, semi annually and quarterly such as membership renewals, property taxes, insurance etc…We also tend to forget about our other non-monthly expenses like gifts, homewear/household items, and my favorite… hair salon visits.
Makeovers can range from a tiny adjustment to a complete overhaul. What is important is that we take the necessary action and make the changes. Typically I prefer the kaizen approach, small continuous change however, some situations, such as loss of a job, demand a complete overhaul.
So how do you know when it’s time to revisit your budget? Below are 6 signs
1. Your budget doesn’t seem to be working – You’ve made a budget and it works out on paper, when you run the numbers it looks great! Yet each month you find yourself borrowing from your savings to pay the last couple of bills and you notice that you aren’t able to put it back into the savings account the following month. Now there is an ongoing leak in your savings account. Oh No! Big sign you need a makeover! One of two things is happening (1) the budget isn’t accurate, you may be missing some expenses, or (2) you need help with the discipline part of sticking to your budget, perhaps you need to play Zero Dollar Day, daily.
2. You have had a decrease in income – oh so many of us have experienced this, myself included. With companies downsizing we see layoffs, furlough days and pay cuts so we have to adjust our budget. This situation may need a complete overhaul rather than a few small improvements. Ignoring this change and keeping the previous budget can dangerously deplete the savings or increase debt.
3. You have had an increase in income – Congratulations, you’re making more money. This is a great time to review your budget and see what would be the most beneficial change. It could be taking a portion of the extra income and paying off a chunk of debt or investing it. Maybe, just bulk up your savings. Just be sure to allocate the extra cash otherwise you may end up spending it and feeling like you never had the increase.
4. You have a new additional expense – It could be a new insurance premium, a new family addition such as a baby or live-in relative, or it could be a new car that isn’t very fuel efficient eating up more dollars in gasoline. You need to make the adjustment for the new expense. Be sure to add it in and run the numbers. If we don’t add it into the budget it may surprise us with an over draft fee on the months that we have those larger bills.
5. You’ve paid something off and no longer have that monthly payment – This could be paying off a credit card, car payment, student loan etc…This means more cash flow. In your money make over, you might start a separate account for this cash flow if you are saving for something big or you might decide to get involved in new investments or just bulk up your savings. When we don’t make an adjustment for this new cash flow it seems to disappear. Find a new home for this dollar amount in your budget. Go on, give it a spot on the spreadsheet.
6. It’s been 6 months or more since you last reviewed your budget - Yes, it’s time to dust it off and see how it’s doing. In six months we may have forgotten about a couple new monthly expenses, perhaps gas or groceries went up and you didn’t realize it. Maybe you’ve got an extra minute to research different investments options and can revamp what you’ve got going on. Perhaps you want to move some dollars from a savings account to a money market account.
We cared enough to make a budget and research where to save and invest, isn’t it worth keeping that work updated? Same as a wardrobe, just because we had a complete wardrobe in 1989 doesn’t mean we don’t have to update it periodically. Fashion trends recycle and retro is in, but do you want to take the same gamble with your financial life? I’d rather a hole in my T-shirt than a hole in my budget.
Budgeting isn’t just to keep us out of debt trouble or just to keep us living within our means, it’s about creating our financial future. All too often we feel if we pay our bills on time then we don’t need a financial facelift. Truth is, the more we keep up to date with our cash flow and pay attention to it – the more we can do with it. The better we can grow it. Financial makeovers keep our budget looking it’s best and being it’s best.* The author is not a financial advisor and no information found on this site should be construed as financial advice. This is for entertainment purposes only.