By analyzing and adjusting your budget, you create flexible and stable financial outlook.
Analyzing your budget for financial stability
Analyze and adjust your budget to foster financial stability. A budget is a basic blueprint for your finances that helps you organize and categorize expenses for a stable financial house. But, it can’t just be drawn up and tossed aside. It needs to be appraised often and adjusted as needed. Fixed expenses are easy to house due to their consistency. Only adjusting for things like annual property tax and insurance adjustments on your mortgage, or rate changes on variable loans. On the other hand, flexible and discretionary expenses have no set costs. You must take the steps to ensure they fit in your budget. Set target spending limits for each expense. Take an average of three months of those expenses to target a spending limit. Once set, review your budget at least once every three months. If your actual spending is higher, you need to cut back or adjust the target limit. Make sure the total expenses fit the structure set by your income. If one expense grows, something else may need to be cut or reduced. Remember to make seasonal adjustments. Utility bills and fuel costs typically change from summer to winter. Your budget can also be used to plan for key events, like back to school and holiday shopping. By revisiting your budget often, you can always have a financial house to fit your life and goals.
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A budget is never static. It changes and adjusts with fluctuations in your income and as expenses come and go. This means you should revisit your budget often to ensure you can maintain stability.
Alerts make analyzing your budget easy
If you go for old-school pen and paper or spreadsheet budgeting, you have the most control to organize your budget the way you want. On the other hand it means you have a lot of tallying and math to do every time you check it. Adding hassle is a good way to ensure the budgeting work you need to do doesn’t get done.
Using today’s technology makes it much easier to stay on target with your budget. One of the main reasons comes with spending alerts. Basically, when you set up a budget online or through a smartphone app it will usually help you set the spending targets described in the video. Then you have alerts set up to tell you when you near or go over that limit.
The easier you make budgeting, the more likely you are to do it consistently. That means setting up spending targets with automatic email or text alerts makes budgeting an automatic process in your daily life.
If you need a budgeting platform, first check with your financial institution. Many have personal financial management (PFM) programs integrated into online and mobile banking. This means you can build a budget directly off your main bank account. You can also use free budgeting applications like Mint. These allow you to integrate all of your accounts into a single system.
5 adjustments you can expect to throughout the year
#1: Housing cost adjustments
Whether you have a mortgage or you rent, housing costs almost always change annually.
If you have a mortgage, your annual property tax evaluation at the end of year may increase or decrease your payments each year. Insurance cost changes can also impact your payment. So even if you don’t refinance, your mortgage payment may change from one year to the next.
If you rent, you can almost always expect your costs to increase from one year to the next. This usually occurs at the annual reset of your lease. Talk to your landlord early to find out if your rent is increasing as early as possible.
#2: Utility costs
Utility costs, particularly gas and electric, have significant changes throughout the year. If you live in the north, heating costs usually mean your bills are higher in the winter. By contrast, if you live in the far south of the U.S. like Miami or L.A. then your summer utility costs are probably higher.
Track your utility costs so you can adjust them cyclically. That way you’re not struggling to make the payment when your most expensive electric bill of the year comes in.
#3: Clothing costs
Spring and fall are generally the biggest shopping seasons because you’re either buying cool clothes for summer or warm coast for winter. If you have kids, you can expect especially high clothing costs during the two back to school shopping seasons each year.
This can make a clothing budget tricky to plan ahead for. Find a method that works for you. You may choose to buy a few pieces each month to spread out the cost. This makes it easier to set clothing as a flexible expense. If you prefer, you can budget ahead so you have enough savings to cover the big shopping seasons.
#4: Gas costs / car maintenance
The cost per gallon of fuel almost always increases during summer. In some cases, just a few cents extra on each gallon can equal out to a big difference in costs at the pump. Additionally, you need to factor and budget ahead for regular maintenance. At the least, you have the added cost of oil changes every 3 months.
Remember that regular maintenance increases gas mileage and keeps your car running better for longer. So a little planning ahead in your budget so you can stick to the maintenance schedule for your vehicle goes a long way in reducing your overall transportation costs.
#5: Winter holiday shopping
The average household now spends well over $1,000 on the winter holidays. This creates a significant expense burden at the end of the year that often turns into credit card debt. You run out of money, so you start charging. As a result, you end up starting the next year with a holiday debt hangover. That’s when you’re reeling from the credit card bill that comes in once you’ve charged everything for the holidays.
In order to avoid this debt, you need to plan effectively for holiday spending. There are two ways to do it:
- You actually buy gifts, decorations and all the trimmings throughout the year so the cost is spread out over time. You basically have holiday shopping money allocated in your budget as a discretionary expense that you spend on a few items each month.
- You create a holiday savings fund that you contribute to throughout the year. That way, when the holidays come around you can shop in November and December using the savings you accumulated.
Either method can be effective. Choose the one that works best for your lifestyle and budget.