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Budget Analysis

Why you should consistently be analyzing (and updating) your budget

A budget isn’t a static thing. Your income and expenses will fluctuate, and your budget needs to be adjusted to accommodate these changes.

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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5 Budget Categories Most Likely to Need Adjustments

#1: Housing

For homeowners, there are plenty of things that can cause your monthly mortgage payments to change from one year to the next besides refinancing, such as annual property tax evaluations at the end of the year and changes in insurance costs.

Renters can almost always expect costs to increase from one year to the next — especially in today’s turbulent housing market — and rarely are these conditions in the renters’ control. To play it safe, anticipate a rent increase at the end of each lease term.

#2: Utility costs

Utility costs, particularly gas and electricity experience significant changes in price throughout the year. These are known as periodic expenses. If you live in the north, heating costs usually mean your bills are higher in the winter. By contrast, if you live in the south then air conditioning is going to make your utility costs higher in the summer.

#3: Clothing costs

Spring and fall are generally the biggest shopping seasons (another type of periodic expense). Many people buy cool clothes for summer or warm clothes for winter. Parents can have especially high clothing costs during the two back-to-school shopping seasons each year.

Planning for clothing budgets can be tricky, find a method that works for you. You could buy a few pieces each month to spread out the cost, or you could budget ahead, setting aside money for clothing so that you have enough savings to cover the big shopping seasons.

#4: Gas/Car maintenance

The cost per gallon of fuel almost always increases during summer. In some cases, just a few cents extra per gallon can mean a big difference in costs at the pump. Total gas costs also tend to increase in summer break with people going on road trips and vacations.

Vehicle owners also need to factor in the costs of regular maintenance. At the very least, consider the cost of oil changes every 3 months. They should also consider that regular maintenance increases gas mileage and keeps your car running better for longer. Sticking to the maintenance schedule for your vehicle goes a long way in reducing your overall transportation costs.

#5: Winter holiday shopping

The average household 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 that ends up being carried into the new year. There are a few ways to prepare for holiday spending:

Option 1: Buy gifts, decorations, and all the trimmings throughout the year so the cost is spread out over time. With this approach, holiday shopping money is allocated as a regular discretionary expense that you spend on a few items each month.

Option 2: Create a separate holiday savings fund you contribute to throughout the year. That way, when the holidays come around you won’t have to rely on credit cards and risk starting the year with expensive debt.

How to analyze your budget

The old-school pen-and-paper or spreadsheet budgeting method gives you the most control over organizing your budget. On the other hand, it also means you have to do the math to make your calculations and manually track all spending. It’s possible, but cumbersome. Adding hassle is a good way to ensure the budgeting work you need to do doesn’t get done. Conversely, the more convenient your budgeting method, the more likely you are to do it consistently.

Fortunately, there’s lots of technology available to make it easier to stay on target. If you need a budgeting platform, first check with the company you bank with. Many have personal financial management (PFM) programs integrated into their online and mobile banking software. This means you can build a budget directly within your bank account. Specialized budgeting applications like YNAB (You Need A Budget) can integrate all your accounts and transactions into a single place making them extremely easy to track.

If analyzing a budget seems intimidating, you don’t have to do it alone. Contact a certified credit counselor today for a free debt and budget analysis to help find you the best option for your needs.

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