Reevaluating Your Budget

 

 

The Budgeting Series

 

 

*NOTE: This is part 4 of a series on budgeting.*

If you have missed the previous articles in this series, I encourage you to read them before moving forward – they are in linear order for the reader’s sake:

1. Budgeting 101
2. Living Below Your Means
3. Avoiding Lifestyle Inflation
4. Reevaluating Your Budget
5. Tightening Your Financial Belt
6. Introducing Finances to Your Children
7. Tips to Help You Budget Better
8. Reverse Budgeting and Building a Case for Opportunity
9. What Do You REALLY Need To Live?

You can read any of them as stand-alone articles, but for the full effect, they are each designed to build off of each other.

 

Reevaluating your Budget

 

Initially evaluating – or reevaluating – your budget is the thing most do not do

 

The budgeting series, properly understood, starts with creating one. This is important given that 73% of Americans do not budget AT ALL. How can you get your finances in order if you do not even know where your money is going? So many people wonder where their money goes instead of telling it where to go.

Once you establish a budget – and hopefully, this series has inspired you to start one – you may come across reasons to reevaluate it. And if you haven’t started one yet – what are you waiting for? Go over to the first post – Budgeting 101 – to get one started TODAY.

Now, the reasons for reevaluating your budget could be varied and plenty: a change in income, new bills, something paid off, kicking a habit – the number of reasons could be limitless. Whatever the reasons, though, you have to reevaluate what you are bringing in and sending out.

To that end – and, for this article – we will look at a few examples I believe are the most common reasons why people would need to reevaluate their budget. Should you start a budget (and I hope you have/do) – and subsequently need to modify it, but your reason is not one I use – you can easily take the principles and apply them to your situation.

 

Reevaluating your Budget – A Change in Income

 

Have you found yourself with increased – or decreased – income?

 

This is the first for a reason: it seems to be the most significant and prolific one. Think about it for a minute. IF you have a budget (which, according to NerdWallet defines it this way: “A budget is a spending plan based on income and expenses”), then when you have a change in income, you need to reevaluate things. Hopefully, it is due to an increase  – but let’s be honest: it’s just as likely a reduction in income; that’s how the 50/50 principle works.

In any case, when you have your money budgeted for specifics, you are telling it where to go. You are tracking every dollar. You know where it’s assigned and what its purpose is.

When you experience an increase/decrease in income, however, things have changed. If you have additional income, then you can elect to put the extra into savings, free-spending, or even pay additional on your mortgage. Maybe you purchase another streaming platform to watch shows you were unable to previously. It could be you start saving for a specific trip – and if you are like me – you want to go somewhere cold and see the Northern Lights.

 

Ah, the famed Northern Lights – a sight to behold

 

Perhaps you decide to increase your food budget; not a bad idea given the inflation we are experiencing. Or – you could increase the frequency you go out to eat. Whatever you end up doing with that extra income, you should be intentional about it.

If you experience a reduction in income, though, (which is more likely today, especially with inflation), you have to approach things differently; where do you cut spending? After all, you have accounted for every dollar in your budget previously, and now you have less coming in – where do you cut money from? Is it less in free-spending? (IF you even have this as a line item in your budget). Is it taken from your “entertainment” portion? Do you give up your cell phone? Perhaps reevaluating your budget tells you there is a need for additional income – whether it is from you or someone else.

I’m not necessarily advocating for a second job, but additional income, when short, is indeed a viable option.

Regardless of the variables – and there are MANY – you should always reevaluate your budget when there is a change in income.

 

Reevaluating your Budget – New Bills

 

Are new bills leaving your pockets empty?

 

This is just as likely as the first reason, due to the unpredictability of bills sometimes; when it happens, though, there is cause to reevaluate your budget. You should have all of your recurring bills figured out when establishing your budget, but if you have something come up (let’s use medical debt since 66% of ALL bankruptcies are from medical debt), then you need to reevaluate your budget. Because you now have a new bill, you have a new variable; a new dynamic you need to account for. You should take a fresh look at your budget, evaluating what you can cut to accommodate this increase in spending. While not ideal, it really is that simple.

For example, let’s say your new bills account for an extra $50.00 a month. If, as I explained in Budgeting 101, you were doing zero-based budgeting, you need to take money from somewhere else to cover the extra $50.00 in expenses. The only alternative is to increase your income, something many do in the short term to pay off debt and free up cash. Again, not advocating for this, but I would not be giving you, the reader, a good overview if I didn’t at least mention it.

Either way, a new bill is definitely a reason to get out your budget, blow the dust off it, and reevaluate your income/expenses.

 

Reevaluating your Budget – Paid Something Off

 

Have you fin”ished” paying off a bill?

 

Maybe you have a car payment like the other 100 million Americans today. And, if Lending Tree is accurate, the average car payment is now $725 a month. Ouch. Let’s say you are diligent at making payments and eventually pay it off. Moreover, let’s also assume you took care of it, and instead of buying another car, you save that money – maybe for your next car, perhaps?

Some quick math reveals that $725 a month is $8,700 yearly. Two years of that, and you have $17,400 – and you now have the resources to pay for a used car in cash – with no interest, to boot. It CAN be done – you just have to be intentional and diligent about it.

Or, perhaps you found out how to dig yourself out of your student loan debt – which currently stands at 1.77 Trillion in the United States. Maybe you were able to pay off your mortgage – something I believe everyone should be aspiring for in their life of financial discipline.

It could be you were tackling your credit card debt, which Americans hold on average to the tune of $7,279.

No matter what bill you may actually pay off, this is definitely a solid reason to reevaluate your budget. Take a look at what income you have coming in, your expenses going out, and plan accordingly.

 

Reevaluating your Budget – Kicking A Habit

 

Do you need to kick any habits? Make no mistake: they are costly.

 

Habits – we all have them – including yours truly. And while loosely connected, you could also substitute the word “hobby” here, too, if drastic cuts in spending were necessary. For the purposes of this particular point, however, I will look at the two more prominent ones: smoking and drinking.

 

Smoking

 

According to the CDC, “In 2021, nearly 12 of every 100 U.S. adults aged 18 years or older (11.5%) currently* smoked cigarettes. This means an estimated 28.3 million adults in the United States currently smoke cigarettes.” Interesting to me is the AP reports cigarette smokers actually hit an all-time low. In any case, it’s clear there are millions of smokers.

Those of us in the trades seem to be more prone to smoke, too: NIH reported traits of smokers, saying, “In sum, current smokers are characterized by high neuroticism, high extraversion, low agreeableness, and low conscientiousness.” If you haven’t met a lot of people in the trades, then you may miss the connection, but for those who have – you intuitively understand.

How?

Neuroticism, as defined by NIH, means “the trait disposition to experience negative affects, including anger, anxiety, self‐consciousness, irritability, emotional instability, and depression.” Extraversion can be defined as “a measure of how energetic, sociable and friendly a person is.” Agreeableness needs no real definition – I suspect everyone knows it as well, as most tradesmen I’ve come across can be quick to disagree. Moreover, many in the trades have low conscientiousness; they are on auto-pilot, doing a great job but often not really focusing on the big picture things.

Does this define some in the trades? Absolutely. Moreover, there are few careers where people can disagree, erupt in anger, or even joke like those of us in the skilled trades do, further driving home the point.

In any case, Tobacco Free Life tosses out an average cost for a pack-a-day habit: $1,916.25. This is, of course, an average. If you lived in New York, the cost of a pack of cigarettes runs $11.96 – with $4.35 of that for taxes! If you smoked a pack a day at that amount, you would have $4,365.40 tied up yearly. On the low end, Missouri has a $6.11 cost, with 0.17 being tax-related. That comes out to be a $2,230.15 yearly expenditure. By those numbers, the average for Americans is significantly higher than Tobacco Free Life states.

Now, I’m not trying to come down on anyone – including smokers – here; instead, I am merely pointing out the cost and how much money you could free up if need be. A few extra thousand dollars is nothing to shake a stick at in my book.

 

Drinking

 

Gallop reports that The 62% of Americans who currently report that they drink alcohol is in line with Gallup‘s 63% average dating back to 1939. Majorities of Americans have said they had “occasion to use alcoholic beverages such as liquor, wine or beer” over the more than eight decades Gallup has tracked this measure.”

Put another way, six out of every ten Americans partakes. A quick look reveals Americans spend 37 Billion annually on alcohol. Interesting to note is that since 1996, that is an increase of 56%.

Moreover – and let’s be candid a second – many of my brothers and sisters are deep in the bottle on a daily basis. Many self-medicate to numb themselves from everyday life, and it’s to the tune of a lot of money. Never mind how it affects us and, by extension, our families. Perhaps it’s time to rethink our approach to how we work things out.

Again, I’m not trying to talk down to anyone who partakes; plenty of people are able to do so responsibly. However, there are a lot of others who effectively become high-functioning alcoholics, and that affects more than their wallets.

*IF this describes you and you recognize it, want to make a change,  and could use some help, feel free to drop me a line. I’ll do what I can to get you the help you need.*

 

Reevaluating your Budget – Periodic Checkup

 

Periodically, we should take a fresh look at our finances

 

I advocate you periodically take out your budget, look at it regularly, and adjust anything that needs to be dealt with. It could be you find no need to do anything; it’s just as likely you have to account for new expenses, changes in income, or even different priorities. People change, their spending habits change, their goals change, their needs and wants change – in short, it’s not realistic for you to expect that just because you have created a budget, you will not need to reevaluate it periodically. It’s just as likely you will have to make changes on a yearly basis, and probably even more frequently.

To that end, we advocate for a frequency of at least quarterly – once every 3 months. Even if you haven’t experienced any increase/decrease in money and/or bills, it helps to lock eyes with your plan. It could just spark the next life-changing goal you will implement.

 

Conclusion

 

 

No matter what your situation is, what your bills are, or your income status, if you do not have a budget, you should create one – stat. Once you have one, however, you then should develop a robust schedule of periodically reevaluating your budget – whether you actually have some changes or not. Make it a habit to take another look, make any adjustments if necessary, and build discipline in your life.

After all, if you are following this budgeting series and implementing it in your life, my hope is that you will also be teaching your children how to be financially savvy too – which is coming up. You can’t teach what you aren’t practicing.

AND, if you REALLY want to set your kids up for success, -next to instilling into them morals and ethics – teaching them to be financially savvy is up there high in priority. You’d be amazed at how far they were ahead of millions of others.

So be intentional, be diligent, be disciplined, and change your life – and your family’s too. What are you waiting for?

 

 

If you have missed the previous articles in this series, you can find them below in the order they are meant to be read:

1. Budgeting 101
2. Living Below Your Means
3. Avoiding Lifestyle Inflation
4. Reevaluating Your Budget
5. Tightening Your Financial Belt
6. Introducing Finances to Your Children
7. Tips to Help You Budget Better
8. Reverse Budgeting and Building a Case for Opportunity
9. What Do You REALLY Need To Live?

 

*NOTE: This is part 4 of a series on budgeting.*