- Budgets help you prioritize what you spend money on.
- If your budget is too restrictive or no longer matches your income and expenses, it may be time to revise it.
Should a new year mean a new household budget?
Budgeting is one of the best personal finance moves you can make. When you create a budget, you can ensure you're spending your hard-earned money as wisely as possible to accomplish financial goals -- and to do the things you enjoy. Budgeting can also help you avoid living above your means, which can sometimes lead to credit card debt.
But if your budget doesn't work well for you, you won't get the benefits that the budgeting process is meant to provide. The start of a new year is a good time to assess whether your budget is paying off for you and, if it isn't, to make a change.
So how do you know if it's time to edit your spending plan? Here are four signs that you may want to rethink your budget in 2022.
1. You feel too constrained by your budget
Budgets are supposed to be a spending guide that helps you. They aren't supposed to make you feel like you're deprived or cause you to resent your spending plan. If you feel like your budget is too limiting, then it'll be much harder for you to stick to.
The good news is, there are lots of different budgeting methods to choose from. If your current approach isn't working for you, consider a 50/20/30 budget that offers more flexibility. This type of budget doesn't account for every dollar, giving you more freedom to spend as you'd like.
Here's how it works:
- You cap fixed costs at 50% of your income (like housing and transportation costs).
- You save 20% of your funds in places like a savings account and retirement fund.
- You can spend the remaining 30% on whatever you'd like.
2. You're having a hard time sticking to your budget
If you routinely go over budget, then it isn't a good spending plan for you. Instead, it becomes more of a wish list or an aspirational document that doesn't help improve your financial situation.
If you're finding it difficult sticking to your budget, it's time to figure out why and to make a plan that you can live with. Start by tracking your spending for 30 days to see where you're going over and why. If you routinely overspend in certain areas, then you may need to rework your budget to allocate more spending to those costs and make cuts elsewhere.
3. You aren't making good progress on your financial goals
One of the big reasons most people budget is because they want to make sure they accomplish important things with their money -- such as saving for a home down payment or saving for retirement.
If you aren't making progress on your goals despite your budget, then you may need to rework it in 2022 so you can find new places to cut spending and allocate more to achieving your financial objectives.
4. Your income or expenses are changing
If your income is going up or down by a lot this year because of a job change or other changes in your life, you'll need to adjust your budget to account for this new reality. The same is true if you're experiencing big changes to your expenses. This could happen, for example, if you're purchasing a home or having a child.
If you need to rework your budget for 2022, it's best to start as soon as you can. Explore the different approaches to budgeting and find a solution that makes sense for you so your budget provides the support you need to make smart spending decisions all year long.
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