Set Your Budget Up For Success Next Year
With the new year right around the corner, now is the perfect time to refresh your budget and make sure your finances are set up for success next year. It’s important to make sure your budget works for you so you can meet your financial needs and goals. A better budget provides you with peace of mind, boosts your confidence in managing your finances, and helps you take charge to achieve your financial dreams. Follow these tips to create a better budget for next year.
Evaluate Your Income
The first step in creating a successful budget is knowing how much money you bring in each month so you have an accurate number to base your budget off of. Knowing how much money you have left after tax deductions lets you determine how to split it up between paying bills, loan and credit card payments, other spending, and saving. Your income may have undergone major changes as a result of the events of the last 2 years, so be sure your budget reflects where your income is currently at so you have an accurate picture of your finances.
Review Your Spending
Your spending habits have probably also changed over the last 2 years. You’ve likely been spending less on travel and events, and have probably seen a spending spike in groceries and household supplies. When reviewing your expenses, keep an eye out for opportunities to move funds around. Next, establish which expenses are needs and which are wants, as well as which expenses are fixed (like loan payments and other recurring expenses) and which expenses are variable (like usage-based utility bills, such as electricity). Fixed expenses are the things that are the same month-to-month, while variable expenses fluctuate a little bit more, like gas, groceries, dining out, etc. Though 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.
Prioritize Debt Repayment
It’s important to keep your overall debt as low as possible since that affects your credit utilization, which in turn affects 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 working to save your money for something else, like a down payment for a new car, it’s still important to prioritize making payments on your existing debts and paying as much as you can. Wiping out or significantly paying down your current debts will free up even more money to save towards your goals and will also make it easier to be approved for a new loan with a lower interest rate.
Save then Spend
When it comes to saving money, many people choose to spend first, then use the money that’s left over (if there is any) to put into their savings. Unfortunately, this mindset makes it easy to view saving as an option, not a necessity. It also makes it difficult to set and reinforce consistent savings practices. Think of your savings contributions as a fixed expense, and factor it into your budget as such. This practice is also known as "paying yourself first" and is the best way to stay on track to achieve your savings goals.
Plan for the Unexpected
Unfortunately, all the planning in the world can’t prepare us for when those unexpected expenses hit like medical costs, car repairs, income loss, etc. This is why it’s critical to have extra savings you can fall back on when life throws you a curveball. An emergency fund can be your saving grace when unplanned expenses pop up. Make regular contributions to your emergency savings fund so you can have extra funds to cushion the blow of unforeseen expenses.
Plan Ahead
Planning ahead is the best way to help you stay on top of your budget. Before each upcoming month starts, take time to plan out the expenses and activities you have lined up for that month. For example, if you know you have an appointment scheduled or you have a trip planned, you can adjust your budget for that month and even the months leading up to it to plan for those expenses accordingly. This way you can adjust your budget as needed to make sure you have the funds to cover these events when the time comes.
Use the Right Tools
Set your budget and yourself up for success to meet your financial goals. Using the right financial tools will help you start off strong and stay on track. We have a personal financial management tool available for free within Digital Banking. Our Money Manager 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, our mission is to enhance the financial well-being of our members and community. We honor this commitment by providing educational content to help you make the most of your finances. Read our other blog articles to help you gain the financial knowledge you need to succeed.