Budget Analysis
Analyzing and adjusting your budget to foster financial stability.
A budget is a basic blueprint of your finances. It helps you organize and categorize expenses for a stable financial house. But you can’t just draw it up and toss it aside. You have to check in often and make adjustments as needed.
Fixed expenses only adjust if there’s a change, for example annual property tax adjustments on your mortgage. This consistency makes it easy to house fixed expenses.
On the other hand, flexible and discretionary expenses have no set cost. So you have to take steps to ensure they fit in your budget structure. To do this, you set target spending limits for each expense. Look back at what you spent in the last three months. Then take an average of those three months to determine a target spending limit.
Once your budget is set, compare your actual spending to the targets you set. If actual spending is consistently higher, you must cut back or adjust the target limit. Just make sure total expenses always fit the structure based on your income. If one expense grows, something else may need to be reduced or cut.
Come back to review your budget at least once per quarter or every three months. And also remember to make seasonal adjustments. Utility bills and fuel costs typically change from summer to winter. And you can also use your budget to plan ahead for key events like back to school and holiday shopping. By revisiting your budget often, you can always have a financial house that adjusts as needed to fit your life and goals.
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By analyzing and adjusting your budget, you create flexible and stable financial outlook.
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 PowerWallet. 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. Chose the one that works best for your lifestyle and budget.
