A budget isn’t something you just “set and forget.” If you want to get the most out of your money, you need to know how to make a budget plan that accounts for your priorities and circumstances as they shift over time.
Here’s how to keep your budget up to date and your financial goals on track.
Adapting to Lifestyle Changes
Have you recently upgraded to a pricier apartment or taken on a new commitment like adopting a pet? Are you planning to move in with a partner or tie the knot? Major lifestyle changes like these require adjustments in your budget so that you can manage new costs — and take advantage of new savings.
Whenever you experience a change in your lifestyle, take time to review your budget and spending habits to figure out where you can make room for new expenses without sacrificing essentials. Are there new savings to make up for new costs, for example trading gas and car insurance premiums for city rent and public transportation? What can you do with the money you’re saving by moving in with your significant other?
Maybe your lifestyle change is a boost in income. If you get a raise, you may want to splurge on celebration. But stop and consider what bigger changes you may want to fund with your new income — or better yet, what savings and longer-term financial goals you might be wise to see to. How’s your student debt load? Your 401(k)? In many cases, the smartest move is to keep your lifestyle the same and direct your “extra” money into savings or loan payments.
Keeping Up With New Priorities
It’s not just lifestyle changes that demand budget adjustments — changes in your bigger-picture priorities do, too. While your main budget priority in your 20s may have been travel, for example, as you move toward or into your 30s, you might find yourself more drawn toward starting a family and the unique financial obligations that come with that goal.
As you experience these kinds of shifts in priorities, be sure they’re reflected in your spending plan. Don’t wait until it’s too late to find that you’ve been spending money on things you don’t really care about at the expense of things you do. Maybe you’ve had your fill of city life and it’s time to reallocate some of what you’ve been budgeting for rent to save up for a down payment on a house.
Know that adjusting your budget according to your changing priorities can mean giving up things you enjoy day to day for longer-term goals. On top of having to make trade-offs, it can be difficult to be proactive and forward-looking when it comes to your budget. But if you can remain clear about your goals and the motivation behind them, you’ll help yourself get there. And if you need a push, consider setting up an appointment with a financial planner. (Ask if your company facilitates free consultations.) Discuss your priorities with a professional, and they will help you identify exactly how your budget needs to change to achieve them.
Absorbing Unexpected Expenses
Budgeting for lifestyle changes and shifting priorities is simple, in a sense. You decide what you want and take actions that move you toward it. But there’s one more factor that can have a major impact on how to make a budget plan and when to adjust it: unexpected expenses. Unplanned costs like car repairs and medical emergencies can throw a curveball into any financial plan, no matter how smoothly it’s running.
Managing these unhappy surprises can mean adjusting your spending plan in the short term to make room for new costs. You may have to skip a few meals out to make up for the damage done by your broken windshield. Next month, your budget can return to normal.
That said, while a reactive response to relatively small unanticipated expenses may not put your bank account in real danger, saving proactively for surprises is crucial. Building a financial safety net may require only a minor adjustment to your budget now while providing you a major benefit later.
This is especially true of those daunting left-field expenses like emergency hospital stays or unplanned surgeries. Instead of putting aside a little each month, though, it’s smarter to budget for affordable supplemental health plans like critical illness and accident or hospital indemnity insurance, which give you cash to absorb the blow of certain unfortunate medical surprises.
At the end of the day, optimizing your budget is about planning ahead, knowing your needs and checking in on your finances. In fact, scheduling weekly or monthly budget check-ins will help you see changes coming and ensure you remain on the path toward your goals.