How To Reevaluate Your Budget When Your Income Increases Suddenly

how-to-reevaluate-your-budget-when-your-income-increasesIt’s good to be home. As I mentioned in my post about dealing with the financial side of long-term medical recovery, my side of the family has had some health issues that have kept me away from home for almost two weeks. I was able to come home on Friday, which involved a very long car ride in a very tiny rental car.

My time away from home had an added benefit — I managed to secure two paying gigs, one redesigning the website for a school for the mentally and physically handicapped that my family has a long relationship with, and a consulting job teaching social media marketing. I’ve mentioned before that I’ve had some difficulty finding paying work since we moved out of the city, so earning a decent wage from these projects, even if they aren’t long-term, feels very very good.

Over the same two weeks, Crystal received some great news from her employer — she got a substantial raise! After taxes, she’ll be bringing home right around $200 more per month, and that’s going to do some wonderful stuff for us.

We’ve mentioned in the past that underemployment since moving to this town has forced us to dip slightly into our savings every month to keep up with out bills — not much, less than $100 months, but it’s been tough seeing our net worth chip slowly away. With these new changes to our income, though, we’re finally back in the black and can start making some real progress on paying down our loans and increasing our assets.

An Income Increase Is Always A Good Time To Examine Your Budget

Last night, Crystal and I sat down with YNAB and examined our budget. We needed to decide how to incorporate Crystal’s raise into our monthly budget, as well as decide what to do with the lump sum payments I’d earned from my web design and social media gigs.

We started by increasing our budget for some of the budget categories that we’ve been overspending lately. This cold weather has increased our utilities bill by more than I expected, so we increased our utilities budget some.

Crystal’s orthodontist is in our old city, which has caused a steady expense — a one-day car rental every month or two. Thankfully, she should be getting her braces off in March, so I expect we’ll have to make fewer of those trips over the next year. We had been drawing on savings to pay for those trips, but we’ll be able to cover the remaining trips with our monthly income now.

Since I expect she’ll only need to see her orthodontist every 4-6 months once we shift to the retainer phase of her orthodontic work, we’ll probably shift that money to her undergrad student loan on the off months. We tweaked a few other categories as well, but in small enough amounts they aren’t really worth mentioning here.

As to the lump sum amounts I earned, we’ll be using a portion of it to bring our credit card back under control — this period away from home has wreaked a little havoc on our normal spending. I think we’ll also use a small amount (less than $100) to pick up a few things we’ve been putting off, like some new clothes. The rest we’ll use to top off our emergency fund and make a nice lump payment on a student loan.

How To Incorporate An Income Increase Into Your Budget

If your income has increased and you need to tweak your budget, here’s some tips to help:

  • Start with the red. If there’s a category of your budget that you’re routinely struggling with, use some of the new income to increase your budget for that category. This is important. There’s no point creating a new category of spending or buying based on want when you’re still struggling to meet your necessities.
  • Prioritize. After you’ve taken care of the weak spots, try to think of what new or increased expenditures will make the most positive impact on your family’s finances. If you have $50 a month to budget, would it be more beneficial to put that money towards clothes, or towards paying down your credit cards? The answer to that question will depend entirely on your family’s needs and means.
  • Plan ahead. What aspects of your budget are you not funding now, but would like to fund in the future? Crystal and I want to start funding a yearly vacation, but even with our new increased income, we don’t have the funds to provide for that just yet. It’s definitely something we want to do, though, so the next time our income increases, we’ll keep it in mind.

Let Us Help You Budget With YNAB!

Don’t forget! We’re giving away a copy of You Need A Budget 4, a great piece of personal finance software that can help you set up a budget and stick to it. Our contest ends tomorrow night at 11:59 p.m. EST, so hit that link to enter now, before it’s too late!

Photo by Damian Gadal.

Posted in Our Personal Finance