Having a budget is a great way to take charge of your financial health. In fact, people who track their spending are more likely to owe under $5,000 in debt than those who don’t. A budget can help you stay on track toward achieving goals like a secure retirement, but as your life changes, your budget may require updating from time to time. So, whether you’re planning for your dream home, a vacation or a debt-free future, it’s important to make sure your budget reflects your current financial reality. Here are some common reasons you might need to reassess your budget.
Changes in Income (Up or Down)
If your income changes, adjust your budget accordingly. With a raise, you might want to allocate more money to savings or retirement accounts or pay down debt more rapidly. On the other hand, if you lose a job or face a pay cut, you may need to reduce a few discretionary expenses, such as eating out, until you’re able to recoup the lost income.
Major (and Minor) Life Changes
Major life changes, such as moving or purchasing a home, a serious illness, starting a family or getting married tend to significantly impact household budgets across several spending categories. But even less drastic changes, such as a costly home repair bill or a car purchase, will often require budgetary adjustments. In the event a complete overhaul is needed, it may be wise to seek out assistance from a qualified financial professional.
Inflation (and Other Changing Economic Realities)
In early 2023, the average price of eggs was 70% higher than in 2022. While eggs have become the poster child for inflation run amok, many other household expenses have also increased significantly. And taken together, these changes have stressed the financial health of American households and likely contributed toward soaring consumer debt. But by reworking your budget numbers, you may be able to avoid burdensome credit card bills in the future.
Evolving Long- (and Short-) Term Financial Goals
As your financial goals change, so too should your budget. If you once thought you’d retire in Akron but have now decided you want to spend your golden years in Malibu, you might need to sock more away to make that retirement dream a reality. Rapidly increasing mortgage rates are changing the calculus for would-be home buyers; a budget can help you make adjustments based on shifting economic conditions. Consider your near-, mid- and long-term financial goals as you reassess your resources and needs.
Changes in Credit Card (and Mortgage, Car Loan) Debt
If you take on increased debt, whether it’s a new car payment, mortgage or medical bill, your budget will need to adjust to incorporate those payments. On the other hand, when you pay off a debt, it presents an opportunity to put more money toward paying down other obligations or putting more funds aside toward your retirement or other financial goals. What once was spent chipping away at a credit card balance could now be put toward your vacation fund or building up emergency savings for a rainy day.
A Budget Is a Living Document
Establishing a budget that works for you is an important step toward building a healthy financial future and securing your retirement readiness. But it will likely require several updates along the way. A midyear budget check is a great way to make sure your plans stay in step with all your life circumstances. If you need assistance, a financial professional can help you.