Select Page

Getting laid off, going through a divorce, or experiencing a major life change can have a huge impact on your finances. However, positive life changes can also upend finances. For instance, if you receive a major promotion and suddenly are making more money than you’re used to, it’s easy to begin making irresponsible financial choices.

When your income fluctuates, it’s important to prepare for the possibility of having to make changes to your spending plan. This can be done by drafting different budget versions that can be used to manage different financial situations.

Many financial planners suggest having a lean, moderate, and fat budget.

“Planning for different budget levels is like adding guardrails to your spending,” he said. “Your lean budget is the left guardrail, your moderate budget is the middle of the road and your fat budget is the right guardrail. Most of the time you drive in the middle of the road, but it’s helpful to know how far left and right you can turn.” (Jake Northrup, financial planner)

Having the necessary budget alternatives can help ease the anxiety or stress that you might feel when your financial situation changes.

A Lean Budget During Times of Hardship

The lean budget will display the absolute least amount of money you need to survive. Having a lean budget can help you to ensure that you’re capable of covering the essential expenses.

A moderate budget is focused on the essential expenses such as food, shelter, and utilities. It also includes the minimum payments on credit cards and student loans.

A Moderate Budget For Day-to-Day

During normal times, a moderate budget is the main budget that you use. It should cover all of your expenses, and it should also include additional discretionary expenditures such as food and entertainment.

Unlike the “lean” budget, the moderate budget will also factor in savings goals and debt repayment plans.

There are a variety of ways to structure your budget. For instance, if you want to keep track of every dollar that you spend, a zero-based budget is ideal. On the other hand, if you prefer to think of your income as a percentage of your needs versus wants, try the 60-20-20 or 50-30-20 methods.

If you’re having trouble overspending then consider the cash envelope method.

A Fat Budget for Abundant Times

It’s easy to get carried away by the sudden increase in your income, and it’s also easy to spend that money on frivolous items. Having a fat budget is a plan for managing your expenses if you have a financial windfall or a significant salary increase.

Before you start working on a fat budget, make sure that you have realistic goals. For instance, instead of thinking about how you’ll spend all the extra money, consider what you could do differently with the funds. Can you increase your 401(k) contributions? Pay off a credit card? Oftentimes this is the best opportunity to accelerate your financial goals.

Having a fat budget is similar to having a moderate budget, but with enhanced features. It gives you the chance to indulge in things you love but may not be able to do that often. While you’re making responsible decisions remember that it’s okay to add in a few rewards.