By Miriam Caldwell
Updated December 31, 2016
Mastering budgeting should be your most important financial goal. After you have been budgeting for several months or years you need to continue to evaluate your budget and set goals for your budget. Looking at your annual budget can help you recognize larger spending problems and makes it easier to assess your current priorities. Once you are debt free and you are contributing regularly to your retirement and other savings, you may be able to relax your budget or you may have a different set of goals that you are budgeting to reach.
Each year you should have a financial meeting with yourself if you are single or with your spouse if you are married to see how you are doing on reaching your long-term financial goals. When you first started budgeting you may have wanted to get out of debt or save up a down payment on a home, but once you reach that goal you may lose your motivation to stick to your budget. Setting up a support system is an important part of reaching your financial goals.
This is why you need to regularly set goals regarding your budget and adjust your categories each year to match those goals. For example once you buy your home, you may decide that you want to remodel the kitchen or finish the basement. It is better to do these projects with cash, and it can give you another goal to work towards and keep you motivated to stay on budget. You can create a new category for these goals and funnel the money that you were using to reach your old goals towards it.
It is important to make sure that each of these goals is achievable so you do not become discouraged and give up.
Additionally, you may be on a really tight budget because you want to reach a specific goal more quickly than the current goals you are working towards. For example if you wanted to get out of debt you may have set a time period of a year or two, which meant cutting back more than you would normally like to.
Once you have reached that goal you may want to loosen up your budget a little bit so you and live more comfortably while you save up a down payment for your house or for the remodel of your home.
As you set goals, you should make sure that you are thinking both long-term and short-term with your budget. Your retirement should always be a priority in your budget. Set aside at least fifteen percent of your income to cover your retirement each month. Additionally, you need to have an emergency fund of six months of expenses in place before you move on to remodeling your home and other more appealing goals. These two things will give you peace of mind and allow you make decisions about how you want to spend the rest of your money without worry.
Some people are willing to live frugally because they take extensive vacations or because they want to be spending a lot more in a specific area in their lives. For example I know people who live frugally so they can take extensive vacations in Europe each year. Another couple I know chooses not to eat out all year so they can afford nicer cars. Once you have your budget under control, you will be in a better position to make decisions so your spending priorities match your life priorities.
Even once you are out of debt and you are regularly contributing to retirement it is important to keep budgeting. It is too easy to overspend your income, no matter what your income is, if you do not take the time to track your expenses and stop when you have reached the limits you have set. But knowing what you are currently working towards will make it easier to stick the specific limits that you have set for the current year.
If you have children, your spending priorities may change again, and you will need to determine how much to contribute to college each year. Another aspect you need to consider is the extracurricular you allow your children to get involved in. Again your priorities for your family should match your spending priorities and a budget will make it easier to check to see if everything is on the track it should be.
Budgeting is a life-long commitment. The key to making it work is to continue to adapt it to your life. Finding a good budgeting system will make it easier to continue to budget throughout your life. As you grow older, your goals and priorities will change, and your budget should change with it. An annual financial planning session will let you evaluate your budget and make sure you are reaching those goals. You should be tracking your budget each month each well to make sure you are following it and working towards your financial goals.
source - thebalance