Many people who would upgrade their phones at a heartbeat often cringe at the thought of buying a money management software or even using a notepad and pencil to make a budget. This could be simply because they are intimated by the concept in itself, or because the work that goes into producing a budget and maintaining seems to be too much to handle along with their daily lives.
Whether you use an online program, an app or a pencil and paper, managing your money — and budgeting — can be easier than you think. All it really takes is having the ability to track down your income and expenses and budget for long-term expenses as well as running costs. While you do that, you need also to account for emergencies and unexpected events such as sickness or job loss.
What may not be easy, however, is to keep your budget updated — something that an automated system may be helpful with. When you make a budget and you don’t keep it updated you miss on the opportunity of plugging in new income and new obligations. After a while your budget may become obsolete, and you find that what worked in the past is now turning into a problem.
How do know you if you need to review your budget — manually or not. Here are a few signs.
Debt is building up
This is a red flag. If you’ve been able to keep your credit cards paid and so are your other financial obligation and now you can’t, something is wrong. Either you have been stretching your budgets in certain categories or inflation has tempered with your planning. Review every single item of your spending to find where the problem is coming from. Once detected, you should be able to reallocated money to where you can bring the debt down gradually until it is paid off.
Rise in disposable income
Do you feel like you suddenly can afford much more. This could be because of some running costs or instalments that are paid off, a pay increase, or even just because you’ve been sticking to your budget and saving. While that extra cash may be nice to enjoy on casual splurges, at a certain point you may want to review your budget and get an idea of how much exactly that amount is. For example, if you’ve paid off a car loan, you probably have enough available income to put aside in a savings account or a new purchase.
If the amount is insignificant and you’d rather enjoy a little bit of financial flexibility, knowing that you’ve this cushion will simply make you more comfortable when you’re making your current and future financial decisions.
Surprises
If you’re often surprised by payments that you’ve not accounted for, your budget is probably up for an update. These surprises probably could have been known payments and got lost because of their cyclical nature or being overlooked. Having your budget updated often means that you always will be able to add current expenses and account for future ones. This will definitely reduce your surprises and you need to dip into savings or debt to pay unexpected costs.
New purchases
If you’re finding it difficult to make any big purchases either because you don’t have any savings to pay a down payment or because you can’t squeeze in a monthly payment, check your budget. The point isn’t to try to stretch yourself thin, but to make sure that you’re not running on a very small margin. You need to ensure that in case of an emergency, you’ve some savings or flexibility to deal with any adversity.
When budgets work out, you should have some space for unexpected events. You may still scramble to come up with the required amount, but it should not be the norm that you’re just running paycheck to paycheck with no space whatsoever for savings or emergencies.
Rania Oteify, a former Gulf News Business Editor, is a Seattle-based editor.
