Your personal budget is like a relationship. It should be a source of comfort and strength. Like a significant other, it should grow with you and help you realize your goals.
Of course, like many relationships, some budgets just don’t work out. They become unreliable, and they lead to stress and heartache.
Here are some signals that it’s time to break up with your budget and start going with a new one.
1. Your Budget is Unorganized
To some people, a “budget” is simply a quick, jotted-down list of how they think they’ll be spending their money during the following week or month. Unfortunately, such lists can be hard to follow; they’re often incomplete and soon abandoned.
Instead, along with each member of your household, spend plenty of time thinking of and writing down ― or typing ― every single item that you regularly pay for. You could use old receipts, credit card bills and bank statements to refine your dollar amount estimates.
Next, divide those entries into broader categories like groceries, rent or mortgage, clothes and shoes, savings, automobile costs and social activities. Finally, organize those groupings from the most important to the least important.
That way, you’ll have a handy tool that you can easily read from top to bottom every week or month. You can also check off all of your expenses as you pay them, and you can make revisions as necessary.
2. It Only Deals with the Short Term
It’s great to have a weekly or a monthly budget. However, many people neglect to create an annual budget and a longer-term financial plan as well.
With a long-term budget in place, you might save more money to fund your major goals. Those objectives could include your children’s college educations or your living expenses when you’re retired.
Plus, a big-picture budget will give you a sense of your overall financial health. If you’re falling short of your goals, you could take action right away. Maybe you’d request a raise, find ways of reducing your spending or rearrange your investment portfolio.
3. You’re Unprepared for Emergencies
Sure, you might have enough cash to pay your expenses every month. But do you still get a sinking feeling when you think about money? It might be because you’re not quite saving enough.
You should save at least a fifth of your income each year. Moreover, at any given time, you should have several thousand dollars or more that you could access right away if you needed to.
It’s unpleasant to contemplate, but you ought to ask yourself: What if you suddenly had to pay a large medical bill? What if you totaled your car? In this situation, would you have to make some hard choices, such as not paying your utilities bills to avoid eviction or foreclosure?
4. You’re Overusing Your Credit Cards
Do you frequently rely on your credit cards to pay your bills because you don’t have enough cash on hand? If so, your budget is insufficient. Your expenses exceed your income.
This habit makes it surprisingly easy to build up massive credit card debts, which could put you in serious financial jeopardy in short order.
Remember that you shouldn’t use more than 30 percent of your credit card limit at any time. Otherwise, you could hurt your credit score. Fortunately, if you’ve had credit card problems in the past ― including a history of late payments ― you can improve your score by being diligent from now on. Further, obtaining the services of a dependable credit repair company can help a great deal.
5. You Keep Dipping into Your Savings
This problem is very similar to the credit card scenario above. Since you don’t have as much money at your disposal as your budget requires, you repeatedly make unplanned withdrawals from your savings accounts. You tell yourself that you’ll make up the difference sometime soon. As time passes, though, you find that you’ve significantly depleted your nest egg, making your financial dreams harder to reach.
6. You Haven’t Taken New Circumstances into Consideration
If someone in your home is laid off or you’ve recently lost a lot of money, it’s vital to rework your budget right away. Maybe you can move in with relatives or start sharing a car with your spouse for a while to bring your cost of living down. If you stick to the budget you had before, you may soon find yourself in a deep monetary hole.
On the other hand, maybe you’ve acquired a big sum of money, such as an inheritance or a prize. Without careful planning, it’s easy to overspend and lose it all. Thus, in consultation with an accountant, tax attorney or other expert, craft a new budget that raises your spending rate a little while still protecting your economic future.
Indeed, no matter what’s going on in your life, review and amend your budget every now and then, not just when your finances change. Remember to factor in new expenses, look for places where you could save money and adjust for rising or falling prices. A dependable budget is one that’s ever evolving.