How to Budget for the New Year
The holiday season can mean that your wallet will take a hit with extra spending on traveling, gift-giving, dining in, and dining out. If you’re already looking to start budgeting for the new year – here are a few tips on how to get started.
Before you begin, reflecting on your previous year’s budget is a great way to understand where you have gone wrong and what aspect of your budgeting you can improve on in the new year. It can also help you understand where you have done a great job which you can continue with in the new year.
Here are five steps for setting up a budget for the new year.
1. Write Down Your Budget
Take time to write down your recurring expenditures for each month to have an idea of how much of your income is left over after necessary expenditures like mortgage or rental payments, utilities, and basic groceries. This is the amount which you can use to pay off debt, save or invest, or spend on discretionary (unnecessary) purchases.
Once you have looked over your past finances and decided what you will need to pay in the upcoming year, start writing down your budget. Your new year budget should have a year-long plan as well as a monthly plan.
A possible approach is a “zero-based budget” which instead of having “extra money” at the end of each month, you plan for all income to be spent, saved, or invested in different categories to keep you in the mindset of paying off debt, saving, or investing rather than making more unnecessary purchases.
2. See Where Your Money is Coming In and Going Out
Keeping track of where your money is coming in and going out is a great habit to have. There are many budgeting and money saving apps available, enabling you to track transactions as you make them.
This can help you review how you have been spending your money monthly and recognize your budgeting weaknesses, whilst providing the opportunity to make corrections as the year goes by.
3. Save and Invest Regularly While Sticking to Your Budget
Saving and investing does not occur on its own. It should be included in your budget and actionable steps should be taken to make it happen.
By saving and investing now, you are creating and building your nest egg and possibly creating wealth for future generations to come.
4. Cut Down Spending and Pay Back Debt
Getting out of debt is another item you should include in your budget as a key step in taking control of your finances. Begin with your highest-interest accounts, while paying attention and also paying the monthly minimum payments on all other accounts. If you have credit card debt, this is usually the highest interest debt which should be paid off first.
Making recurring debt payments and committing to stick to them over the year can make a big difference a year from now.
5. Review Your Budget Regularly
Lastly, ensure you are regularly reviewing your budget at the end of each month to see how well you are doing, and adjust your expenditures accordingly.
Sticking to your budget can be tricky, but once you have set your budget and taken corrective actions each month, keeping on track with your annual budget will be a lot easier.
You can even ask yourself, “do I have money left over that I can put towards saving or investing?” and “how can I save more?” Improvement is always a part of the process!
The Bottom Line
If budgeting is something that you do regularly, then you will have no problem keeping to your financial goals.
Starting a budget in the new year may be one of the best goals you can set for yourself. At the end of the following year, you will be happy to see how far you have come and to know where your hard-earned money has been spent.
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This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.