Budgeting for Change: How to Handle More (or Less) Money

By Mike Peterson
In September 22, 2014

If you read this blog regularly, you already know that I’m a big believer in budgeting. And you also probably know that there are lots of great budgeting ideas out there, from the traditional to the creative.


But when it comes to budgeting, it really doesn’t matter what kind of budget you choose. What does matter is that you choose something that you’ll stick to – and that you choose something that can be adjusted if your income changes.


Your budget is meant to be flexible, after all. And let’s face it: Your income will change, eventually. Whatever the reason, it’s very likely that you aren’t going to make the same money forever.


Want to make sure your budget keeps up with your income? Keep reading.


When Your Income Increases
There are lots of reasons that your monthly income might suddenly go up. Maybe you finally got a big raise or a promotion, or you finally found a new, better-paying job. Maybe you just got married and are now living in a dual-income household. Or maybe you just received an inheritance or some other lump sum of money.


Really, the best thing to do when you have a little more money to work with is to pretend that your income never changed. Use the extra funds to accomplish a specific, budget-related goal like debt repayment or savings, and keep your day-to-day expenses the same.


Here are a few smart budgeting ideas if you find yourself with more income:


  • Don’t splurge. When you find yourself with extra money, it’s very tempting to want to celebrate with an expensive purchase that’s definitely not in the budget. Resist the urge to splurge. Don’t spend a dime until you’ve looked at your budget and figured out how to use the extra cash.


  • Have credit card debt? Increase your monthly payments. Debt repayment should be a top priority. More income means more money that can be used to shrink your outstanding balance. Consider using all (or at least a significant chunk) of your extra income to pay down your debt.


  • Bulk up your emergency fund. Everyone should have an emergency fund that contains at least a couple months’ worth of living expenses in the event that you, say, lose your job or get sick. Ideally, your budget should already include emergency fund savings. If it doesn’t, now is a great time to start. If you’re already setting aside emergency funds, consider increasing the amount you save each month.


  • Save, save, save. Your budget should also include a category for savings – and if you’re making more money, you should be able to increase the amount of money you put in savings each month. Make it easy by setting up an automatic transfer with your bank – you won’t even miss the extra money!


When Your Income Decreases
At some point, you may find yourself in a situation where your household budget goes down. This doesn’t have to be a negative change: Sure, in some cases a lower income might have to do with job loss or corporate downsizing – but it could also be because you or your spouse decided to return to school or because you left a higher-paying job for a more satisfying position with a lower salary.


Whatever the reason, if your monthly income goes down, it’s time to sit down and review your budget — and make a few adjustments, such as:


  • Roll back monthly expenses. Review your bills and budget and see if there are any monthly expenses that you can pare down. A change in income provides a great opportunity to look for better deals on everything from cell phone service to car insurance. You may even be able to cut some expenses completely. Have a cell phone? Consider ditching your landline (and the extra bill that comes with it). Subscribe to cable TV? Cancel it and switch to a cheaper streaming service such as Netflix or Hulu – or stick to local broadcasts only.


  • Cut unnecessary spending. Fancy coffee, restaurant meals, impulse purchases, and other non-essentials can take a big bite out of an already-tight budget. If you’re trying to live on less, it’s a good idea to review your monthly spending habits and look for splurges and extra purchases. You may find a nice chunk of cash that you can repurpose for more important budget priorities.


  • Don’t stop saving. As you re-work your budget, don’t forget to include a savings category. Even if you can only set aside $10 or $20 per paycheck, it’s better than nothing.


  • Avoid new debt. Credit cards are not a source of income, period. It can be tempting to supplement your lowered income with credit cards – but don’t do it! If you’re having trouble making ends meet, take another look at your budget. Adjust your spending. Find additional sources of income (consider a part-time job or sell your unwanted junk on eBay). Get creative. But whatever you do, don’t use credit cards!


Remember: Whether you’re dealing with a little extra money or getting used to living on less, your income probably won’t remain the same forever. Knowing how to handle a change can help keep your finances stable in any situation.


Happy saving (and budgeting)!

Mike is the author of “Reality Millionaire: Proven Tips to Retire Rich” and he has been published in a variety of local and national publications including Entrepreneur Magazine, Deseret Morning News, LDS Living Magazine, and Physicians Money Digest. He holds a B.S. in business administration from the University of Phoenix.

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