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Reevaluating Your Budget: A Guide to Financial Wellness

Why Is It Important to Reevaluate Your Budget?

A strong budget is a key part of financial wellness, but it’s important to make sure your budget grows with you. If new expenses pop up or your income changes, you’ll want to tweak your spending plan to make sure it still reflects your financial goals.

Reevaluating your budget regularly, or as major life events occur, can help prevent overspending and under-saving. It also keeps your finances aligned with your wants and needs. Below are some simple tips for updating your budget.

New Financial Goals

Maybe you’ve decided to save for a down payment on a home, start a business, or grow your family. No matter your goals, you’ll want a budget that can get you over the finish line. Revisit your spending plan whenever your short- or long-term financial goals change. That can allow you to set and reach ever-evolving savings targets.

Changes in Income or Expenses

Whether you’ve taken a pay cut or gotten a raise, the first order of business when your finances change should be updating your budget. An effective budget makes room for essential bills, discretionary spending, and financial goals. If your take-home pay is stretched thin, you may need to make necessary adjustments. If you now have a surplus, it’s time to make a plan for how you’ll use that extra money. That can help you optimize your savings and reach your goals faster.

Also, add new expenses to your budget as they come up. Perhaps you’ve signed up for a gym membership or financed a new car. Whatever the expense, make sure you’ve accounted for it in your spending plan.

Surprise Expenses

It isn’t possible to budget for every single expense. Financial surprises happen, whether it’s an unexpected car repair or a medical bill you didn’t see coming. These unforeseen expenses can disrupt your budget, especially if they result in new monthly payments. However, a healthy emergency fund can help you navigate financial surprises without wrecking your budget. A popular rule of thumb for how much to keep in your emergency fund is to save up three to six months’ worth of expenses.

How Often Are Budget Reviews Necessary?

The circumstances above usually warrant a comprehensive budget review, but it’s also good practice to check in on your budget on a regular basis. Every week, month, or quarter, you can:

• Recalculate your net income.
• Review your expenses and discretionary spending to make sure they’re still aligned with your budget.
• Measure the progress you’re making toward your financial goals.
• Do an audit of your outstanding debt—and make a plan for paying it off if you haven’t already done so.
• Check the status of your emergency fund.

If you’re managing your finances with a partner, updating your budget with help from your significant other can help reduce financial stress. That can be as simple as reviewing your budget together every week over a cup of coffee. What matters most is getting on the same financial page.

Strategies for Effective Budget Reevaluation

After conducting a detailed budget review, you may decide to make some changes to reduce your expenses. That might look like:

• Canceling unnecessary memberships or subscriptions
• Refinancing high-interest debt
• Modifying your cellphone plan to maximize savings
• Switching internet or cable providers
• Curbing your entertainment costs
• Meal planning and eating out less

You can redirect your savings toward your financial goals. It’s also possible to work toward multiple goals at once. For example, if you free up $300 a month, you could divide it equally between two different financial objectives—like saving for a house and paying down debt. The idea is to reallocate funds so that you’re covering your essential bills while leaving room for fun and saving. Budgeting tools can make the process easier. That may involve:

• Exploring different budgeting methods to find one that feels right for you
• Using budgeting apps
• Working with a financial advisor or credit counselor

The Bottom Line

You’ll want to reevaluate your budget if your income or expenses change, or you encounter a major life event or financial surprise. In the meantime, it’s a good habit to check in on your budget on a regular basis. It can help you stay on top of your money and monitor your financial goals.

Also, be sure to check your credit score and credit report at least once every year. It’s a simple financial move that can reveal potential identity fraud. Free credit monitoring with Experian makes it easy and will alert you whenever something new appears on your report.

Contact O1ne Mortgage for Your Mortgage Needs

At O1ne Mortgage, we understand the importance of a well-managed budget in achieving your financial goals. If you’re looking to buy a home or refinance your mortgage, our team is here to help. Call us at 213-732-3074 for any mortgage service needs. Let us assist you in making your homeownership dreams a reality.

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