A classic mistake that a majority of budgeteers make is not reviewing their budget periodically. As the practice is uncommon, most individuals are not even cognizant of how to effectively review a budget. This article walks you through the right questions that you should be evaluating while reviewing your personal budget.
Were you able to manage with the amount you intended to?
People usually budget to limit their expenditure and manage their finances adequately. So to assess if you were able to accomplish this motive, the first question to arise while reviewing your budget should be whether you were comfortably able to manage your lifestyle with the expenditure limit you set. To do this, calculate your total expenditure of the month and note if you stayed within your limit, overspent, or saved some extra.
Budgeting should not make you miserable. In fact, one of the most common mistakes that people make while creating a budget is that they design it to be too restraining. This eventually plummets motivation and budgeteers end up giving up.
Hence, while evaluating your answer, consider if you could follow the budget conveniently, without any additional stress. If not, you may need to redesign your budget and accord for some flexibility.
Did you meet your saving goal?
If your budgeting goal involved fulfilling a saving goal, evaluate whether or not you were able to realize it. If not, estimate the difference and find out where you spent the money instead. In the event that the spending was on an unnecessary item, you can regard the observation to avoid it in the future.
In the event that you have not been able to reach your saving goal of the month, redesign your budget to cover the gap in the upcoming month. If the gap is large try to fill it within the forthcoming 2-3 months so that the burden of saving higher doesn’t fall on you at once.
Has there been any change in your income?
It is vital to examine if there has been any change in your income. Income is the core of a budget around which the entire layout is developed. In case there has been any change, you will have to restructure your whole budget according to the newly increased/decreased income.
Have you started earning extra cash through freelancing? Have you taken up a part-time opportunity at your friend’s start-up? Have you started an online business? If the answer to any of these questions is yes, or if you have started making extra cash through any other source, incorporate that in your budget and plan accordingly.
Is there any major upcoming event that can affect your budget?
This question is to determine whether there will be any change in your variable cost. Events like a cousin’s wedding, moving to a bigger apartment, renovating your house, etc can lead to extra outlay, and disturb your whole budget plan. This may cause a financial strain during a major life event. Therefore, it is beneficial to outline and prepare beforehand.
Are you on track to achieve your financial goals?
Appraise how far you have come to reaching your financial goals. Review if you’re right on track or are behind and need to expedite the process to achieve your objective in your set time frame. It is desirable to also gauge whether your goals are the same or have changed in magnitude or preference. In any case, you may re-adjust your budget in the review process suitably.
Is your emergency fund stacked?
A contingency or an emergency fund is the bedrock of a budget and protects the budget from derailing when things go south. So if you have used your emergency fund or a part thereof you may make a provision for replenishing it while analyzing your plan.
Finally, the whole purpose of the review process is identifying loopholes in your budget and devising a plan to mend them. If besides these you find any other ambiguities in your budget amending them during review is most desirable. Also make sure that you’re not making any other common mistakes in formulating your budget structure.