When Life Happens: Reassessing Your Budget {via The Rich Life}

When Life Happens Reassessing Your Budget

*Each month I contribute a personal finance column to The Rich Life, an online community for the practice of living a rich life with less stuff. Here is this May’s contribution.

Moving is a funny thing. There’s the excitement – that’s real. And the determination to make the most of it: new friends, new bucket list, new brunch spots… sign me up. Then there’s this cool thing I hear the river does in March, when it turns green to celebrate St. Paddy’s Day, and city-dwellers come out en masse, crossing their fingers for an ease into spring. All right, Chicago, I’m in.

But there’s also the anxiety: Will I make friends? Is rent in the Windy City sky high? What exactly is a “down” jacket?

And, of course, the logistics. Little stuff, like changing your address with the bank, and larger, looming tasks, like packing up your kitchen.

Fortunately, it’s taking care of this logistical stuff that eases my anxiety around all things down jacket. There’s nothing like taking care of what’s in my control to feel like the rest will fall into place, and one of my largest tasks over the next few months will be to accurately reassess my budget.

Budget reassessment is the process of taking a good, hard look at my spending so far this year, project the expenses I expect, and changing my budget if need be. This is an excellent tool for someone undergoing a big change, like me, but really important in general as a way to stay on track.

So, whip out your budget , and let’s get going!  Here’s how:

Step 1: Compare actual spending to budget.  While you can do this in a few ways, I like to see where I am by using a chart like the one to the right (If you’re using the budget template provided on The Rich Life, you can find this chart on the “Yearly Actuals” tab.). Eek! Look at my vacation spending!

Step 2: Adjust for expected expenses. Now that it’s May, I have a better handle on how my year will unfold than I did in January. I now know, for example, that I need to work in the ~$2k cost of moving, so I’ll add it to the budget.

Step 3: For each line item, ask yourself:

•Does it make sense that I’m over- or under budget in this category?

•Given what I know about my spending for the rest of the year – and my added expenses – am I still on target to come in under budget?

This is where I ask myself, really ask myself, if I’m on track.  For example, referencing the above chart, I’ve already spent 79% of my vacation budget, a whopping 37% over budget, given that we’re 5/12th’s of the way through the year (and I should therefore be no higher than 42% (5/12) in any category). I therefore need to consider whether I can still meet this goal (i.e. cut back on vacations) or increase this portion of my budget.  And that’s when we get to reallocation.

Step 4: Reallocate. Now it’s time to change up the budget.  If my answers to the above questions conclude that I will not be meeting my budgeting goals this year, I’ve got to change it up. The only rule: The total must stay the same.  For example, if my $2k moving costs are putting me over the budget, I then have to:

…ask myself if these costs can be lowered. While I haven’t done full research into moving and the answer here may be yes, I’m going to keep my $2k budget until I know more.

…figure out how much more I need to add to my budget.  Done with this part: I am estimating $2k. If this were a more daily expense, like “transportation,” I could use the last five months to help me project my future costs. The cool part here is that I now have data from the first half of the year to help me figure this out.

…add those $$ to my budget. $2k now added to a new category: “moving.”

…subtract those same $$ from elsewhere. Yep, it’s the sad part. Need money to move? Goodbye manicures. And new jeans. And eating out.  Here I have to figure out what category can take the hit, and make the cut. Then (and this is the most important step!) I really don’t get that manicure, buy those jeans, or indulge in Restaurant Week.

The last step? Pat yourself on the back. Knowing where you are financially is kind of like stepping on a scale – it can be scary if you don’t know what you’re going to get. But we have scarier things to worry about – I’m looking at you, Polar Vortex! – so there’s no need to add this to our plate.

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