Building a budget is a major step toward financial security, but it’s just the beginning.
Your financial picture can change dramatically from year to year, even week to week — when you get in that fender bender, for example, or find out you’re going to be a parent. Ideally, you have enough financial wiggle room to cover smaller, unexpected expenses, but even they can be cause to revisit your budget.
“Your budget is a living, breathing document,” says Courtney Ranstrom, a certified financial planner at Trailhead Planners in Portland, Oregon. She recommends reassessing your budget when life throws those curve balls, but also at regular intervals.
You likely sit down to pay bills at least once a month. Use that opportunity to give your budget a once-over. It might not be the right time for major adjustments, but you can note any unexpected expenses and make small changes to balance things out in the month to come.
Take a closer look once per quarter.
“You can’t really see your money habits until you have several months of data,” says Ranstrom. At these quarterly check-ins, find out how well you’ve stuck to your budget and adjust for the next three months.
2. When your income changes
Your budget is based on the amount of money you’re working with. When that input changes, everything else does, too. This applies to receiving a raise, taking on a part-time job, having a particularly good or bad run in your small business, losing your job or cutting back on hours. Any change in your household’s take-home income should trigger a budget review.
3. When you take on new debt
A new home, car or personal loan — all of these expenses require an updated budget. Even if the monthly payment is low, figure it in. Remember, if your new debt is high-interest or “toxic,” such as a credit card or payday loan balance, pay it off as soon as possible. You pay off lower interest debts, such as your mortgage or a student loan, slowly while you build your savings and retirement fund.
» MORE: How much debt is too much?
4. When you achieve a financial goal
Achieving a financial goal, such as making the final payment on your car or paying off your credit card debt, means you can direct more attention to the next priority on your list. If, for example, you’ve saved a few months of living expenses in your emergency fund, maybe your retirement contributions are due for a boost.
» MORE: How to save more money
5. When you experience a major life event
Major life events can be overwhelmingly positive or disastrous: having a baby, getting married, moving in with a roommate or partner, relocating, facing a serious medical diagnosis, experiencing a death in the family or losing your job. These aren’t only emotional events — they’re often financial ones. Each can affect either your household income and expenses, or both.
» MORE: Budget worksheet
6. If you’re struggling to make ends meet
Sometimes nothing in your financial situation seems to have changed, but there just isn’t enough money to go around. This could be a sign that you’ve been a little too ambitious with your budgeting goals.
“We budget so optimistically,” according to Ranstrom. She says it’s best to budget for “who you are right now,” making small adjustments quarterly to help you reach those bigger goals, rather than setting yourself up for failure with unreachable objectives.
“You need to have these regular, serious conversations with yourself,” says Ranstrom. “Is my budget a real reflection of what I’m doing, and is it realistic?”