A Bowl Full of Lemons

You’re following a written budget – fabulous! You are totally on the right track.*

But one of the facts of life is that nobody’s financial situation is static. There are fluctuations in income, new expenses, expenses that end, and changes in monthly bill amounts. Plus, children are born, children leave home, jobs change, gas prices go up or down, health problems occur, people move to a different house or city… These are all factors that require periodically evaluating and reworking your budget.

Some people do this monthly. Currently, that’s what my husband and I do for a number of reasons. Others rework it quarterly or a couple of times a year. It should definitely be done no less than yearly, though that’s usually not the most effective option. (It’s better than never, though!) And it should certainly be done in anticipation of or immediately following any significant life change.

If you think it might be time for a fresh reworking of your current budget, here are some general steps to guide you through the process.

1. Gather your paperwork from the previous few months. This includes pay stubs, bills, checking statements, and purchase receipts.

 2. Start with your fixed income and expenses since those are known amounts. Using your current budget worksheet, spreadsheet, or app, compare your existing budgeted amounts with the current actual amounts. Make adjustments where there are discrepancies.

Example: Our comfort level billing amount for water & electricity was $105, but it recently increased to $131. I immediately changed the amount on that budget line since it’s a fixed expense that will stay that way indefinitely.

3.  Once all your fixed amounts are up to date, subtract your expenses from your income to see what you have left to work with for variable expenses.

4. Now use whatever records you have to take a look at what you spent on average in those variable categories, compare them to your budgeted amounts, and see where you need to adjust, either up or down. This part is a little trickier since it requires being a bit subjective. You’ll probably have to do some tweaking later, and that’s okay. You just want to have a reasonable plan in place.

Example: Let’s say your budgeted amount for groceries for the past 6 months has been $400/month. But you can see from receipts that you’ve actually spent closer to $500 each month. You need to make a decision to either increase your budget (if it’s feasible) or figure out a plan for reducing your spending (using coupons, shopping at different stores, etc.) to get it down to your budgeted amount.

 

5. While you’re doing step 4, keep an eye out for things you’re paying for and not using: gym membership, newspaper subscription, etc. Cancel those and reallocate the budgeted amounts. Also account for expenses that happen only in that month, such as vehicle license tab renewal, school pictures, a seasonal event, or back to school supplies.

6. When you’re finished making adjustments and adding expenses as needed, rework the amounts until you end up with zero after subtracting expenses/debt repayment/savings from your income. Now you’re good to go until your next evaluation!

*You may have read that first line and thought, “But I don’t have a budget! Where do I start?” This 31 Days to a Better Budget series will help guide you through that initial process.

Melissa Kaiserman

Melissa is passionate about people living within their means and becoming--and remaining--debt-free. She is the owner of A Time for Everything, which includes both a shop where she sells handmade cash envelope system wallets and accessories, and a blog where she writes about frugal living, creating, and life in general. She's been blogging since 2007 and making pretty wallets since 2011.

Tags: budgeting
A Time For Everything, April 2014, Blog, Budget, budgeting, contributors, dave ramsey, envelope system, finances Posted in 8 comments