Each year, we set our monthly budgets and use those to project our year’s performance. But sometimes, we encounter a mid-year surprise financially that threatens to turn our financial plan upside down! Sometimes this could be an unanticipated increase to a fixed expense such as monthly rent; other times it could impact a variable budget instead. For many of us, gasoline has seen a steep increase in cost given current world events. As a result, if you were budgeting monthly for gas, this could be a good time to re-evaluate your allocations.

Setting a Budget

As a reminder, when setting your budgets, you will want to develop an educated guess based on historical spend, knowledge of any rate or usage increases, as well as any other factors (i.e. an expected increase due to precedent). In the case of gasoline, you likely set your monthly budgets this year by doing one of the following:

  1. Carrying forward your monthly allocation for gas from last year because it seemed to work well; or
  2. Calculated your monthly requirement for gas using estimated mileage / miles per gallon * average cost of gas

Unexpected Events

Besides the news stories, I took notice of the gas price this month when I suddenly exceeded my monthly gas budget while driving the same route. After analyzing historical spend, I noticed that it was costing me 18% more to drive this week than it had this time last month. Coupled with the news in current events, it was safe to assume my monthly budget required an increase.

Why Rebalance Your Budget?

A budget is not just about tracking your spend, it’s also about projecting your savings (the leftover money you will have each month after subtracting your expenses from your income). To use round numbers, let’s say I’m budgeting $100/month for gas. Despite noticing that I am now spending $120/month for gas given the recent rate increases, I continue to budget the same $100/month. Each month, I am $20 over budget; when the end of the year rolls around, I’ll see that I’m $240 (12 months x $20) over budget and therefore have that much less in my savings account. At that point, there’s nothing I can do.

Instead, by taking a moment to rebalance my budget now, I can be more thoughtful about where that money will come from. Yes, perhaps I will take the additional funds from savings. But maybe instead, I’m willing to forgo one meal out each month and reduce my “Dining” budget by $20 to account for the $20 increase to my gas budget. Now, despite the increased cost of gas, I will still meet my savings goals for the year by maintaining the same monthly spend and counterbalancing one increase I could not control with a decrease that I could.

When to Rebalance

Here on April 1st (no foolin’!), we find ourselves at the top of the calendar year’s second quarter (2022 Q2). A quarterly review of your expenses, reviewing your actual spend against your projected spend and analyzing the results, could make sense for many of you. This will give you a nice level of control throughout the year without over burdening your schedule with financial reviews. Additionally however, you can always interrupt a routine (such as a quarterly review) and complete an additional assessment if outside factors (i.e. a war that’s driving the cost of gasoline) warrant it. Ultimately, for better or worse, you want your budget to tell a detailed and accurate story of your spending to ensure you like where you’re headed before you get there.