Budgeting for the new year is hopefully on your list of to-dos. While getting back to the gym is part of many people’s new year resolutions, you should factor your financial health into your planning for the new year. Whether you want to achieve financial independence, have debt weighing on you, or just want to be better at tracking and reviewing your income and spending, there are some things you’ll need to do. If you’re looking for tips on budgeting your finances for the year ahead, you’ve come to the right place.
Set financial goals
When planning your budget for the new year, it’s important to consider your financial goals. Do you have credit card debt looming over your head? Are you saving up to buy a home and need a hefty down payment? Do you plan on leasing a new car? Whatever your goals are, it’s essential to factor them into your budget.
When setting your financial goals for the year ahead, do your best to set realistic, incremental goals that will help you achieve your big-picture goals. Holding yourself to unrealistic goals will only help you burn out faster or lead to disappointment when you see how far off your budget you are. Instead, do your best to set achievable goals to avoid adding extra stress, making it easier to manage your budget.
Reevaluate your income
After setting your goals, reevaluate all the money your household is bringing in. When compared to your income, you may find your financial goals may aren’t realistic. After evaluating your income, readjust your goals to ensure they align with your overall budget and expenses.
If you have a partner, when evaluating your overall income, be sure to include your partner’s income in your budget. Don’t factor in any potential bonuses or raises, because they aren’t relevant to your budget until they’re actualized. Your income is essential to planning your overall budget, so be sure to include all the income your household brings in and will be starting the year off with.
Expenses are equally, if not the most important factor affecting your household’s budget for the new year. Your expenses include your bills, groceries, travel, shopping, and more, and should get factored into your budget and financial goals. To accurately view your overall expenses, you may need to write everything you buy down in a notebook or use a budgeting app to see where your money goes. You then want to compare your expenses to your income to look for any areas that could use improvement.
If you’re spending more than you’re bringing in, you need to cut some unnecessary expenses. If you have a good amount of money left over after your bills, look into where you want that extra money to go, such as a high-yield savings account or investments.
Allocate your budget
After carefully reviewing your household financials, you can then begin allocating where you want your money to go. A carefully coordinated budget can ease some of your financial worries, especially as the cost of living continues to rise along with inflation. Review your net income in comparison to your monthly expenditures. Then coordinate how much money to save each month for unexpected situations like loss of employment, medical emergencies, car troubles, and more to put you in a safe spot should something unexpected happen. If you have children, factor in their allowance. For example, if you’re supporting your kid in college, factor in the money you send into your budget.
Include your savings
Saving can feel like money burning a hole in your pocket, but you must do so. Generally, you want to have enough money in your savings account to help get you by for three to six months, so if you lose your income, you have a safety net to get you by for an extended period.
You should set an amount of money into your budget to put into your savings every month. This way, you don’t feel the effects of income you won’t be using as harshly. It doesn’t have to be 20% of your overall income, as long as you’re putting in something each month, you’re on the right track.
Evaluate debts and credit cards
Your financial debts should be priorities in your budget for the new year. Do you have a hefty mortgage to pay each month? How about student loan debt? Or did you go crazy on a shopping spree using your credit card? Wherever your debts lie, it’s important to factor your payments into your new budget. Unpaid debts can negatively affect your credit score, making it harder to acquire loans in the future. By paying off your debts consistently, you not only protect your credit score but make paying off your debts more manageable.
Review your credit
Your credit score is what lenders use to determine whether you’re a safe loan applicant. Not only can your credit score impact your ability to obtain loans in the future, but poor credit can also impede your ability to rent, get a new car, and more. If improving your credit score is one of your financial goals for the next year, see how you can pay off and manage your debts.
Check your finances regularly
After planning your financial budget for the year ahead, what good will it do if you don’t track and manage your finances regularly? It’s important to routinely reevaluate your budget, income, and expenses to ensure you’re on the right track to achieving your financial goals. Things happen, and sometimes unexpected circumstances will require you to shift and replan your budget, making it essential to regularly check your finances.
With careful planning, you can achieve your financial goals in the new year. Budgeting and sticking to your budget requires consistency to help you build good financial habits. Use your financial picture from the last year to help you make better changes for the new one. Whatever your financial goals may be, creating a budget is going to be the best way to achieve them. So get to planning and create a budget right for you and your family.
About the Author
Ashley Nielsen earned a B.S. degree in Business Administration Marketing at Point Loma Nazarene University. She is a freelance writer who loves to share knowledge about general business, marketing, lifestyle, wellness, and financial tips. During her free time, she enjoys being outside, staying active, reading a book, or diving deep into her favorite music.