My husband and I established a budget over 20 years ago when we married. We don’t find a budget restrictive; instead, adhering to our budget has allowed us to make financial gains we couldn’t have if we didn’t monitor our income and expenses carefully and budget for every dollar. However, times change—our income increases, and, recently, inflation has driven up the cost of everything–which is why we do a yearly budget audit.
Why Do a Yearly Budget Audit
Many Americans either don’t have a budget or don’t follow it. According to CNBC, “73 percent of Americans say they don’t regularly follow a budget.” For those who do create and follow a budget, having a yearly budget audit can feel like one more chore. However, there are three reasons why you should take the time to revise your budget.
Income Changes
Each year, your income likely changes. It may increase because you received a cost-of-living raise or received a job promotion and a salary increase. Or, your income may decrease because your insurance cost increased or you had more deductions taken out for retirement savings or an FSA account. Income is dynamic, so your budget needs to be, too.
Prices Increase
Every year we’ve done a budget audit, and we’ve noticed subtle price increases. For instance, the cost of our garbage service increased by $4 per quarter. When the price of gas climbed, we needed to set aside more money for gas than we previously had.
Recently, with the rapid rise in inflation, we’ve noticed that we’re spending $300 a month more for groceries than we had budgeted. This is a huge difference! A careful comb through our grocery spending revealed that we need to increase the grocery budget because food is much more expensive now. However, we didn’t raise it by $300 because we realized we could also eat simpler, less costly meals and shop the ads more to buy cheaper items. We made a plan to increase the budget by $150, and make behavior changes to lower the bill by another $150.
Goals Change
Finally, people’s goals change. A few years ago, we set a goal to pay cash for a new vehicle. That was our big savings goal; this year, we will realize that goal, so our budget needs to change. We’ve decided to prioritize travel to see families who live in another country and to travel to places we’ve always wanted to go before we’re too old to enjoy travel. This will likely be our goal for the next few years.
Final Thoughts
We don’t see budgets as restrictive but rather as a guide to get us to where we want to be financially. However, because income, expenses, and goals are dynamic, we conduct a yearly budget audit to reevaluate how we’re spending our money and how we can make the budget better serve us.
If you haven’t started budgeting yet, what are you waiting for? And if you have, don’t forget to revisit the budget yearly to ensure it’s still realistic.
Read More
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Melissa is a writer and virtual assistant. She earned her Master’s from Southern Illinois University, and her Bachelor’s in English from the University of Michigan. When she’s not working, you can find her homeschooling her kids, reading a good book, or cooking. She resides in New York where she loves the natural beauty of the area.