Financial resolutions are top of mind this time of year. Whether you have typically overspent, under-saved, racked up too much debt, or simply have some exciting financial plans you need to adjust for, looking back on your past and current spending and financial wellness can give you some much-needed insights for the year ahead.
Paying down debt, saving more for the future, spending less, building credit – no matter what your financial goal is for the new year, there is one step that can help you achieve it: creating a budget. In this post, we will share our best strategies for preparing your budget for the new year.
While the start of a new year is a great time to do this, keep in mind that you can create a budget at any time!
Add up your income.
Whether you have just one source of income or several side hustles, compile a list of all your income and their amounts. If any income is not guaranteed, it is best to use an average or a low-end estimate.
Add up your debt and payments.
Begin by listing out all your debt, from home loans and vehicle loans to credit cards and student loans. If needed, pull out previous statements to identify their exact amounts. Look also at how much you typically expend each month in cash withdrawals and debit card purchases. The idea is to get as complete a look at your spending and debt as possible.
Categorize your spending.
With your spending list created, start to separate spending into various categories, such as transportation, housing, utilities, food, clothing, education, entertainment, charitable donations and gifts, debt payments and more. Be sure to delve into the transactions made with credit and debit cards as well as peer-to-peer payment services so that you get a complete picture of what money is going where. From here, you should be able to better see what spending is associated with things you need versus what you want.
Identify spending to adjust.
To use the 50/30/20 rule of budgeting, you should be spending about 50% of your income toward what you need, while 30% goes toward wants and 20% is saved. Evaluating how your spending compares to this guideline can help you identify what you need to adjust. You can even cut back on spending for some needed items by price-shopping things like utilities, insurance and other services. Instead of having food delivered, cook more or pick up meals yourself. Wait to purchase clothes when they are on sale. Evaluate your subscription services to see if you are getting their full value or could go without. Consider switching from premium to store brands as well. The goal here is to create strategies that help you adjust your spending to align with a healthier budget that supports your overall financial wellness and helps you reach major financial goals over time.
Incorporate your goals.
Make sure your budget accounts for your most important financial goals. If you have a mountain of credit card debt, for example, your budget should allow you to pay down this debt more aggressively. If you need to start an emergency savings fund, your budget should help you find ways to set more aside.
Get organized.
Putting all the information, adjustments and strategies together is where budgeting really comes to life. To do this, you can use something as simple as a pen and paper – or you can put it all into a spreadsheet or even use a budgeting app like Mint.com. With the information you have compiled, create a monthly budget showing how much you should spend on what types of purchase categories. Also make note of due dates for utility, debt and other payments as well as dates your income typically deposits.
Respect your budget.
The point of creating a budget is to reach your financial goals – so stick to it! Manage your spending over time to your budget, but be sure to give yourself some grace if you get off track. You can always adjust again and move forward toward a greater sense of financial wellness.
At APCU/Center Parc, we are also committed to your financial wellness, so be sure to let us know how we can support you in creating your budget or helping you reach your financial goals. We are here to help!
