THE IMPORTANCE OF FLEXIBILITY IN YOUR BUDGET

A BUDGET IS A PLAN

A budget is a plan which can guide you through managing your income, expenses, and other assets. However, if we want a budget to be helpful to us, it is so important to realize that a budget must be flexible. If you go into a budget with the expectation that everything will go exactly to plan, more likely than not you will be very disappointed or discouraged. Of course, we want to be as accurate and thoughtful as we can be when creating our budgets. But, it is important to realize it is very likely that things will come up that we did not anticipate.

When that occurs, you do not want to toss the budget aside and say it didn’t work. Budgets need to be adjusted and updated as things happen. Modifying your budget is a very important part of managing your money. It allows you the opportunity to best handle unexpected situations that may come up in relation to your finances. Today I am going to share some tips for building some flexibility in your budget.

BUDGETING YOUR INCOME

If there is a chance your income might come in a little higher sometimes than others, it is a good idea to be a little conservative and budget your income on the lower side. This way at times when your income might come in a little bit lower, you don’t have to worry about trying to cut back on any spending or savings amounts. If your income comes in higher than what you budgeted, have a plan in place for what you will do with the extra money.

That might be putting it towards paying down debt or working towards a savings goal. Whatever it is, you want to have a plan on what to do with excess money that you might end up with so that it doesn’t get spent in ways that might not be aligned with your goals. Having a plan in place ahead of time makes it much easier rather than having to decide what to do with extra funds each time the situation arises. Decide on a plan one, and then follow it each time.

BUDGET EXPENSES

Same idea with your expenses as with income, go a little bit on the conservative side. If you have a bill that ranges in the amount, budget toward the higher amount so that you are covered in your budget if the amount comes in a little bit higher than expected. If you are unsure of how much an expense might be, make an educated guess based on the best information you have available to you. Remind yourself that this is a plan and it will change as things happen and actual expenses are incurred.

Budgeting your income and expenses will get more and more accurate with experience. But there will always be unanticipated things that happen. So, do the best you can to estimate what your expenses will likely be. If your expenses come in under budget, follow the same plan you decided on when there is extra income. You can follow the same plan if you have extra income or lower expenses. It’s still extra money that you need to decide what to do with.

EXCESS EXPENSES OR LOWER INCOME

So far we have talked about what to do with extra income and savings from lower expenses. Unfortunately, those usually happen infrequently. If that was the only reason we needed our budgets to be flexible that would be awesome. We would all like to have the problem of making decisions about what to do with extra income or lower expenses. The issue we most often end up having to adjust our budgets for is higher than anticipated expenses.

Those sometimes come in the form of an increase in monthly fees for a service or product that we pay for. For example, if the new monthly amount for our car insurance comes in higher than we expected. Or sometimes it comes in the form of a large unexpected emergency expense. That might be a large medical bill for you or your pet, a major auto repair, or a major home repair. There are so many things that can come up unexpectedly. It would be nice to be able to include coverage in our budgets to cover all these situations that might arise, but unless you have an enormously high income, that is just not realistic. These unanticipated expenses are usually what cause us to pause and see what changes we can make to our budgets to adjust for the unexpected cost

UTILIZING EMERGENCY FUNDS

I like to think of emergency funds as a last resort. Of course that is only if you are fortunate enough to have emergency funds to pull from. Depending on where you are at in your financial growth, you may not yet have emergency funds or may have a very small emergency fund. Even if you do have an emergency fund, I still feel like it is best to see if there is first another way to cover the cost of an emergency in your existing budget before pulling from your emergency fund. Once you pull from your emergency fund, you will need to replenish it.

So, if there is something else you can cut to avoid pulling from the emergency fund without causing too much sacrifice consider that first. If you cannot cover the cost of an emergency because your budget is just too tight, or the cost was just too significant then use your emergency funds if you have them. Just be sure to figure out what changes you can make, even if they are small to start replenishing what you have taken from your emergency fund.

The thing that stinks about an emergency fund is that while it is so great to have it, it’s a never-ending goal.  Once you have to use it, you have to work to fill it back up. But, it’s still so amazing to have it. So, if you have not yet started an emergency fund, see if you can squeeze a little bit out of your budget to start something no matter how small.

USING SINKING FUNDS

Sinking funds are another way to keep some flexibility in your budget. A sinking fund is like little savings for things that you will spend money on in the future. For example, if you have an annual insurance payment, you can deposit 1/12th of the amount of that payment into a sinking fund each month so that you will have the money put aside when it is time to make your payment. I like to fund my sinking funds each week, but they can be done based on any time period that works for you. I have some sinking funds that are for costs that I will most likely need to spend, and then some others that are just for things that are fun.

Some of the fun ones are for things like ordering pizza, going out for the day with family, buying a new candle, or whatever other fun little things might come up. Whenever a smaller unexpected expense comes up, the first place I go to pull money from is from those sinking funds that are just for fun things. It’s not that I am trying to suck all the joy out of our lives, but it’s nice to have a little place to pull from when needed. And, there are plenty of fun things we can do for free if needed. So, having some sinking funds, or just some extra money in your budget for things you would like to do but know you can cut if needed really helps you be flexible with your budget.

BUDGET FOR MISC EXPENSES

Every budget should include a line item for miscellaneous expenses. How much you can put into that line will depend on how tight your budget is. It might not be a great idea to budget the miscellaneous dollars too high. If you have too much cushion built into your budget, you may be tempted to spend on things that you really don’t want to spend on. But, no matter how detailed of a budget we have, something always seems to come up that we did not expect. Often things that we did expect end up costing more than we thought. By having some miscellaneous dollars included in your budget you have somewhere to pull from if you have to spend more than you had expected on another budget line.

BE PREPARED TO MAKE CUTS

Usually, our budgets might have some items that can be cut or reduced if needed. By deciding in advance where you can cut back if needed, you will better be able to handle unexpected expenses. Every year I budget for me and my husband to get our cars professionally detailed.  Usually by sometime in February, I’m saying “Yeah that ain’t happening”. It’s the first thing to get cut when something else comes up. While I would love to get my car detailed every year (or twice a year as the detailers suggested when I did actually get it done a few years ago), it’s an easy item to cut from the budget if needed. So, really take a good look at your budget and see what might be able to go if you need to cover other costs.

DON’T GIVE UP ON YOUR BUDGET

Like I said at the beginning, a budget is just a plan. There is no way to know exactly what is going to happen in a week, a month, or a year. Do the best you can when creating your budget using the best information you have available. Make changes over time to make it even better each year. But recognize that things will happen that you never would have anticipated. Adjust your budget and move on. Giving up on your budget won’t help deal with a bad financial situation. Assessing and making a new plan will put you in a much better place.

Thanks so much for checking in! If you would like to hear the podcast version of this topic check out Lola’s Frugal Life Podcast! Also, be sure to check out my other blog posts on this site!

I would love to have you join my mailing list! Sign up here:

Email address:

Leave this field empty if you’re human: