Signs Your Budget Needs Tweaking
Is Your Budget Working?
We often have the best of intentions when creating a budget. We want to get our finances in order, or save for something big, or even pay down debt. What we do not realize is that a budget needs to be revisited regularly to remain effective. Here are some signs that it might be time to take a second look at your budget and make some adjustments.
You aren't sticking to it.
Developing a budget is a difficult task, but sticking to that budget is even harder. According to a NerdWallet study, of the 74% of Americans reporting to have a monthly budget, nearly 84% of them responded that they sometimes exceed it. Budgets are meant to reflect reality, but if you find, month after month, your bills and spending are very different than what you have planned, it may be time to make some changes. One good way to do this is to set up a payday routine. Experian outlines a great way to implement a payday routine as part of an overall successful budget. This gives you several times a month to evaluate the effectiveness of your budget in real life, and adjust as necessary. Another helpful thing you can do in conjunction with a budget and/or payday routine is to download a budgeting app. This is great for budgeting on the fly and being able to look at your finances at any moment. Forbes has announced the best budgeting apps of 2024 already this year. Some are free, some have a small fee, and there is one that will suit any type of budget/spender.
Fees are draining your account.
Are you finding that every month are you paying more in overdraft and NSF (non-sufficient funds) fees? This is a clear sign that you are living outside of your budget. In the final quarter of 2022, Americans paid $1.6 billion dollars in overdraft/NSF fees, states the CFPB. Consistently facing overdraft fees indicate your money management may need improvement. Take a look at your statements and find out where you are overspending. Is it during a certain time of the month? Consider setting up balance alerts with your financial institution to notify you when your balance falls below a certain amount.
Your credit card balances are going up instead of down.
If you are consistently putting things on credit to bridge the gap between pay periods, it may be a sign that you're living above your means. Credit card debt can carry significant costs in the way of interest charges. The average credit card interest rate is 24.08%, according to Forbes Advisor’s credit card rate report as of mid-March 2023. With the average American carrying about $5474 in credit card debt, that totals about $109 in interest for just one 30-day billing cycle. Paying down credit card debt should be a priority of a budget, versus increasing it. Take this opportunity to look at where and why your budget is falling short and adjust accordingly.
Your bills are often late or unpaid altogether.
For most, the whole point of a budget is to manage recurring bills while building a plan to pay down debt or prepare for the unexpected and varied expenses of life. If you have already created your budget, but are struggling to pay your bills on time (or at all), this signals a flaw somewhere in your budgeting process. Are you having a hard time keeping track of due dates? Are you plain forgetting that bills are due? Try setting up a calendar with all your due dates on it. Set up automatic payments if possible, hopefully taking the human error element out of the equation. If a lack of funds is the problem with paying your bills, then most definitely you want to work on creating a more sustainable budget.
The Bottom Line...
Budgeting can not have a "set it and forget it" approach. Yes, there are always expenses that typically do not change in cost, but life happens, and your needs change. Because of this and things like inflation and variable interest rates, you should expect to examine your budget at the very least monthly for changes. At that time you can see what's working, what isn't, and why. Keeping a working budget is your first step to financial success!
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