Create a Better Budget for the New Year
With a new year right around the corner, now is the perfect time to take a closer look at your finances and refresh your budget so it works best for you. Your budget should set you up for success to meet your needs and accomplish your financial goals. A better budget can provide peace of mind, boost your confidence in managing your finances, and help you take charge to achieve your financial dreams. Follow these tips to create a better budget for the new year.
Evaluate Your Income
Having an accurate monthly income to base your budget off of is the first step of creating a successful budget. Knowing how much money you have allows you to determine how it needs to be dispersed between saving, spending, paying bills, debt repayment, etc. With all that has happened this year, your income may have changed compared to previous years. Factor in any changes to your income so you have the most accurate picture of how much money you have each month after tax.
Review Your Spending
More than likely, your spending habits have also changed this year. For example, you’ve likely spent more on groceries and household supplies and spent less on travel and activities. While reviewing your expenses, look for opportunities to reallocate funds. Establish which expenses are needs versus wants (be honest with yourself here), and also which expenses are fixed and variable. Fixed expenses are things that are typically the same month-to-month, like mortgage or rent payments, car payments, student loan payments, credit card payments, and other bills. Variable expenses fluctuate a little bit more, like gas, groceries, dining out, and utilities. While variable expenses are less consistent and thus more difficult to track, it’s still important to set limits for these categories when building your budget.
Save then Spend
Many choose to spend first, and then use whatever money is left over to contribute to savings. Unfortunately, this mindset makes it easy to view savings as an option, and doesn’t reinforce consistent savings practices. Think of your savings contributions as a fixed expense, and factor it into your budget accordingly. Also known as “paying yourself first,” this is the best way to help you achieve your savings goals.
Prioritize Debt Repayment
It’s important to keep your overall debt down since that affects your credit utilization and thus your credit score. Paying down your debts and keeping your credit utilization low will help you save money on interest charges and reduce the financial stress of having lingering debt payments. Even if you are trying to save money for something else, such as a new car, you still need to make regular payments on your existing debts, as wiping out debt or at least keeping it low will greatly improve your chances at getting that new car.
Plan for the Unexpected
Unfortunately, all the planning in the world can’t prepare us for unexpected expenses, like car repairs or emergency room visits or anything else that’s impossible to predict. This is why it’s crucial to factor an emergency fund into your budget. We recommend having at least $1,000 saved in case of emergencies, so make regular contributions to this savings fund until you have enough cushion to protect you from unexpected expenses.
Budget to Zero
Budgeting to zero means tracking every dollar you earn and assigning it a place in your budget until you don’t have a single dollar to spare. After budgeting your fixed and variable expenses, savings goals, and any other spending, each and every dollar should be accounted for with nothing left over. Budgeting to zero shows you exactly where your money is going and gives you the power to assign every dollar you earn a specific purpose.
Set Your Budget Early
Planning ahead is the best way to help you stay on top of your budget. Before each new month starts, take time to plan your next month’s expenses and activities. For example, if you know you have an upcoming appointment or have a trip planned, you can adjust your budget for that month to plan for those expenses accordingly. When you know what outlying expenses you have coming up, you can make sure you decrease your spending in the month or months before to ensure you have the funds to cover it.
Use the Right Tools
Set yourself up for success by using the financial tools that will help you accomplish your goals. Money Manager, our personal financial management tool, helps you track and categorize your spending, set spending and savings goals, track and receive reminders for upcoming bills, and more.
At Robins Financial Credit Union, we are committed to helping our members make the most of their finances. We’re here to help you build a budget that will set you up for success in the new year. For help creating your budget, give us a call or make an appointment at any of our branch locations.