Budgeting

A budget should be a living structure, changing and modifying itself to adapt to your changing circumstances. An outmoded budget is worse than ill-fitting clothes; the clothes you can go and change, but the budget takes longer. And, just as ill-fitting shoes can cause blisters, an ill-fitting budget can cause financial problems, both immediate and long-term.

However, you do not want to be changing your budget every day. A budget that is so fluid as to change from day to day is no budget at all. There is no commitment, and there are no results, from such a budget; it is worthless. You want your budget to guide you in your choices, not the other way around.

The best time frame for a continuing budget is monthly. Determine your budget at the beginning of the month, and then use those decisions to guide your choices over the course of the month. Trying to run a budget on a smaller time frame means that you will miss important factors. Your income is determined either bi-weekly or monthly (usually), your expenses are often monthly, so your budget should cover a month as well.

But even a monthly budget should not be changed every month. Your budget is designed with a purpose in mind, and those purposes last longer than a month. Whether it is retirement, a new home, a vacation, or even a purchase of an entertainment system, you are probably planning for longer than a month. So even if a budget uses the month as its time frame, the budget should be used for more than a month to evaluate its effectiveness. So the question remains, when should you review and revise your budget?

Creating Your Budget

The process of creating your budget should take at least two months and probably three. The reason that one month is not enough to create a budget is that the month in question may have some unexpected or unusual components. Maybe that is the month you received an annual bonus. Maybe that is the month you had to pay your property taxes. Maybe you had a hospital visit, or a car repair, or a yard sale. For whatever reason, one month is not enough data. Most experts agree you should look at two or three months to actually create your budget. That means that during the creation process, you need to revise your budget monthly. Then, once the creation process is set, you can let the budget ride for a while.

Ongoing Revision Times

Depending on your purposes, you should revisit your budget at either six, nine, or twelve months. The more immediate the purposes served, the shorter the time frame. If you are looking at a vacation plan which will happen within the year, evaluate the effectiveness of the budget after six months. If you are working towards the purchase of a house, probably twelve months is better. The longer you use a particular budget, the clearer the results will be.

Major Changes

The other reason you should revisit your budget is when a major change occurs. If you get a raise, or a new job, that would be a good time to revisit your budget. If your child moves out of the house to college or to their own living arrangements, your can revisit your budget. If you get a new car, refinance your house, or make a major purchase, these can all indicate that your budget should be revisited.

Why Make Changes

The whole purpose of revisiting your budget is to see if your previous decisions are still worthwhile. Do not change your budget simply for the sake of something new, but to reflect changes in your goals and purposes. Document your reasons, so that when you look at your budget six months to a year down the road, you can test your results against those reasons.

Your budget should not be the guiding force of your life; that role is reserved for your goals and dreams. Your budget is a tool to implement those goals and dreams. Revisiting your budget is to evaluate whether your budget is fulfilling that role.