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Budgeting Your Money

Financial Budgeting for the New Year

Celebrating the New Year is often a time of renewal.  We sometimes resolve to make the New Year “our year,” start new diets, begin new exercise regimens and wipe out the things in our lives that didn’t quite work out.  Financially, clearing the slate and starting over again is one way to set the New Year off on the right foot.  Creating and using a budget can help you have an easier time during tax season, lets you find ways to save and can help you spend more wisely.  Here are a few tips for getting a budget started.
 

Set Your Goals

The basic use of a budget is to help set a financial goal.  These can be as simple as adding a specific amount to a savings account each month, or as complex as getting ready for retirement.  After creating your budget, your goals may change, but knowing why you are budgeting can help determine what, if any, areas you need to focus on or that need change.
 

Know Your Income

The most basic elements of budgeting are knowing your income and expenses.  For some, income is a set figure each month which allows for easy budgeting, but for others, income may vary and budgeting may require more long term adjustments.  Begin by listing all of your income sources and adding all your take home pay to create your income.  If you are self-employed, you’ll need to remember to deduct for taxes before including that income in your budget.
 

List Your Expenses

Create a list of every monthly expense including consumables such as groceries and gas.  If you enjoy hobbies that have costs, list them as well.  Being on a budget does not mean that you cannot enjoy activities that have associated costs.  You may find later that you’ll need to adjust those expenses, but for now, leave them in.  If you use your debit or credit card for most purchases, it is easy to see your expenses via your monthly statement.  Once you have your expenses listed, categorize them as either fixed expenses or flexible.  Your fixed expenses should include expenses that don’t generally change over time such as a cell phone bill, a mortgage or loan payments.  Flexible expenses include items that may change in value from month to month.  Here you’ll have items such as restaurant spending, hobby expenses or vacations.  For variable expenses, you may want to use an average of several months’ spending to establish a specific amount.

 

Create Your Plan

For most people, a zero based budget is ideal.  This plan places every dollar into an allocated expense, so that the budget equals zero when completed.  Starting with your total monthly income, subtract each expense for the month to determine your bottom line.  If you have money left over, consider what your goal was.  If it was to increase savings, add that extra cash into a savings account.  If you don’t have enough income to cover expenses, look at those flexible expenses.  This is where you most likely have room to change.  Can you dine out less?  Is it possible to reduce your grocery bill by taking advantage of sales, coupons or cutting back on certain foods?  Are there expenses that are considered wants and not needs?  Evaluate each one critically. 

 

Reevaluate

Budgets are most helpful when done monthly.  This allows for a periodic look at your plan, goal adjustment and expense planning.  Checking in on your budget regularly allows you to adjust expenses for upcoming planned events.  Any time you have a change in income or expenses, add those to your existing budget.  Having a reliable and accurate budget can help you more easily attain your financial goals.

Financial Budgeting for the New Year