Published in: Banks | Dec. 3, 2019

4 Signs Your Budget Needs an Overhaul

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Here's how to know when your budget could use a reboot.

Following a budget is a great way to keep your spending in check and understand where your monthly income actually goes. But your budget should also enable you to meet certain financial goals, and if that's not happening, it could be that your budget is in serious need of a redo. Here's how to tell. 

1. You're not saving money consistently

Savings should be a key category of your budget. But if you can't remember the last time you contributed money to a savings account or retirement plan, it's a sign that your budget isn't doing its job. You should aim to save at least 10% and, ideally, more like 15% to 20% of your income on an ongoing basis. If your budget doesn't allow for that, you'll need to reduce your spending in other categories so that your savings aren't neglected. 

A group of friends clinking their wine glasses together on a sunny patio.

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2. You often spend more than what you earn

When you frequently spend more than you bring home in your paychecks, one of two things happens: You either raid your savings instead of adding to them, or you run up a tab on your credit cards that you can't pay off and land in debt. Neither is good. 

If you have a tendency to spend more than you earn, there's a good chance your budget needs an update. And if that's the case, you'll need to comb through your more recent bank and credit card statements, see which spending categories have increased since you initially set up your budget, and replace the figures that are off with accurate numbers. 

Of course, from there, you may need to adjust your spending across the board, because if the money leaving your checking account tends to outpace the money coming in, it means that serious changes are in order. But having your expenses more accurately mapped out will help you determine where to cut corners. 

3. You guessed at your expenses to begin with

It's one thing for your budget to be off because your expenses have evolved since you created it. But if you completely guessed at your expenses in the first place, then you absolutely need to redo those numbers. Carefully review your bank and credit card statements from the past year to get a good sense of your average spending. From there, you can make lifestyle adjustments as necessary to ensure that you're meeting your savings goals and avoiding debt. 

4. Your income has changed since you set up your budget

The amount you can comfortably afford to spend -- and save -- should be based on the amount of money you bring in on a monthly basis. If your income has changed since you created your budget, but you haven't adjusted for that new level of earnings, then you're doing yourself a disservice. A better bet? Rework those numbers. If, for example, you've been spending an extra $200 a month on meals and leisure because the money was suddenly there, allocate some of that income boost toward your savings or retirement account instead. 

There's no sense in having a budget if it doesn't help you spend smartly and save consistently. If your budget needs an overhaul, carve out some time to rework it. It's a modest but necessary investment in your financial health.

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