I personally believe that having a budget is important for financial success. A good budget helps you not only see the dollars that are coming in, but also the dollars that are going out. Since I started budgeting I’ve found that it gives me a clear picture of what I can and can’t afford on a daily basis and also where I can cut back or spend more.
What I didn't realize is I should be reviewing my budget at the start of each year and resetting my budget
(I am not a financial expert. All information is based on my own personal experience and research. This information is not meant to be financial advice and is just for educational purposes. This post includes some affiliate links. Should you click an affiliate link and make a purchase I may receive a small commission at no extra cost to you.)
Budgets aren't made to be static or one-and-done. They are meant to be a guide for your finances and should be fluid. Meaning they change based on your financial situation. Getting a new job, moving, wanting to buy a house or a car, and getting closer to retirement all impact you financially. Including your budget.
A few big things changed for me over the last year that also had a financial impact - I bought a house and started working with a financial advisor. While I did make some minor adjustments to the categories these things impacted in my budget I didn’t fully examine how they impacted my overall budget.
When a new year is beginning I take a fresh look at my personal budget to see what should be adjusted. Here are the three things I do to reset my budget each year.
I’ll also dive into each of the categories to see if my budgeted amounts make sense. I don’t want to budget too much or too little as that could throw off my whole budget.
What I didn't realize is I should be reviewing my budget at the start of each year and resetting my budget
- Based on learnings and trends from the previous year
- To account for life changes I may have experienced
- To account for large purchases I plan to make in the new year
Budgets aren't made to be static or one-and-done. They are meant to be a guide for your finances and should be fluid. Meaning they change based on your financial situation. Getting a new job, moving, wanting to buy a house or a car, and getting closer to retirement all impact you financially. Including your budget.
A few big things changed for me over the last year that also had a financial impact - I bought a house and started working with a financial advisor. While I did make some minor adjustments to the categories these things impacted in my budget I didn’t fully examine how they impacted my overall budget.
Related read: How To Build Up Your Emergency Savings This Year
1. Review the previous year for trends
Looking at my spending and savings trends from the previous year is an important first step for me. The reason is I want to see if there are certain areas where I would consistently over or understand and by how much. Where was my money being spent over the last 12 months? Was more of it going towards food, housing, entertainment, or something else?I take that info and use it to create the framework for my new budget. I've found that some years I can remove some categories or items from my budget or I need to create new categories.
2. Update income and earnings
Income can change from year to year, hopefully, it goes up due to a raise or money coming in from a side hustle. It's important to make sure you're basing your budget on your current income. Otherwise, you could be overspending if your income decreased or missing out on some additional savings opportunities if your income increases.
When I've received raises I make sure it's accounted for in the budget not just as income but also I designate what categories I will assign that raise to.
3. Update spending and saving categories
The ultimate goal here is to make sure I’m not spending more than I’m making so I’m able to save money each month. Using the trend information I gathered from the previous year I'm able to- Create new categories need for areas where I’m now spending money or for additional income
- Remove categories where I’m no longer spending money or for income streams that are no longer valid.
- Consolidate categories for things that may now be bundled together or shouldn’t have been separated in the first place.
I’ll also dive into each of the categories to see if my budgeted amounts make sense. I don’t want to budget too much or too little as that could throw off my whole budget.
Related read: Five Ways To Save Money On Groceries
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