Quick and to the point! I hope after this article you no longer wonder when you should update your budget! Start now:
Every year, at least
Take the opportunity in January while you are doing New Year’s resolutions and re-evaluate every category and percentage. Aim to increase your savings rate every single year.
See: Exposed Monthly Spend post
Whenever a big expense may occur
Most of the time, conversations about a big household expense may occur way before the purchase happens. Examples are: buying a second car, upgrading your current car, buying a new house, going for a vacation, buying a new computer or home renovations.
Don’t wait until the day where the purchase happens. Whenever you foresee the need for something, re-adjust your current budget and start a short-term savings plan. Re-arrange the percentages assigned to other categories to be able to save more and pay off cash with your savings, instead of applying for a loan.
This is not always possible, but you’ll be surprised by the impact this will make to your wallet.
When you get a raise
Most employees get an annual salary increase! Review your budget after the new raise and allocate the extra cash flow to a category that makes sense, preferably your debt payment, emergency fund or retirement savings account.
When your get a promotion
Same as when you get a raise!
When an unforeseeable event happens
If something comes up and your finances are affected, review the overall impact on your cash flow. Make sure you have a plan to pay off debt, a certain loan or to re-adjust your cash flow to normal standards. Examples are being laid off, a car accident, etc.
Also see: Budgeting 101
What should I consider when updating my budget?
Make sure there is a balance between needs and wants. Money can help enjoy more life but is not the sole source of happiness. Give yourself an allowance and spend it on whatever makes you happy.
Short, medium and long term. Do you have debt now? Then pay that off. Do you want to take a dream vacation next year? Update your budget and start a savings plan. Do you have a child that may go to university in 15 years? Start their education savings now. Do you want to retire sooner? Increase your retirement contributions.