A new year is always accompanied by lots of goals and resolutions. Promises to do better and visions of losing that unwanted weight, getting that promotion you’ve had your eye on and finally getting your finances under control!
New Year’s is a time filled with the magic of new beginnings that quickly fade as our excitement wears off and we find ourselves right back in our patterns from the previous year. And while I can’t help much with the promotion and weight loss, I can definitely help you improve your finances!
How to budget in the new year
If you struggle to manage your money, pay off debt and build savings then I have the answer for you…you need a budget! Maybe you’ve tried to budget before and failed, but rest assured, creating a budget you can actually stick to is quite a simple process.
I want to help you avoid the overwhelm so you can create your budget and be ready to start your new year off on the right financial foot!
Why do I need a budget?
Budgeting will allow you to organize your finances, pay off debt and have enough money (even on a low income) to cover both needs and wants without going into debt or mismanaging your finances!
The “B” word can be intimidating, but the budget gets a bad rep! Many people start off strong! They make their budget, set their savings rate and proceed to spend $0, feel deprived and eventually go straight off the deep end right into the Target Dollar Spot!
If that scenario sounds all too familiar to you then you’ve likely been going about budgeting all wrong! A budget does not restrict you, instead, a budget offers you freedom! I know that might sound confusing, but it’s true!
A budget is simply a plan. It is a very intentional, specific plan that you create for your money before you spend it. “Before you spend it” is the key. Creating a plan for every single dollar you earn throughout the month will ensure that your money goes exactly where it needs to be!
The best thing about living on a budget is you get to decide what goes into the budget! This means you can literally include anything you want in your monthly budget! Trips to the salon? Check. Lunch with a friend? Check. A trip to the islands? New dishwasher? Family movie night? Check, check, check!
That is the beauty of a budget! You can do all the things as long as they are planned for and budgeted for in advance.
How do I create a budget?
Creating a budget is just simple arithmetic. To get started, grab all of your financial information: monthly bills, checkbook, credit card statements, etc. Go ahead and make of list of every expense that occurs each month. These are called fixed expenses and are usually considered normal household expenses such as rent/mortgage, utilities, and car payments. They are due on a regular basis (month, quarter, year) so you always know they are coming and can easily prepare for them.
Next, make a list of your variable expenses. These are a bit less predictable so they can be harder to anticipate, think: soccer registration, hair appointments or home repairs.
It is important to include every single expense you can think of on these lists. Now total up all of your expenses.
Total all of the income you will receive in your household this month. Subtract your expenses from your income to see how much you have left at the end of the month to budget in the extras!
You can use this money on the things we mentioned above or better yet, put it towards any debt balance you might have. If you are already debt-free then you should use that money to build up some nice emergency savings!
Living on a budget
Believe it or not, creating a budget is the easy part…it’s sticking to the budget where most people tend to struggle! It doesn’t have to be this way. Taking the time to sit down and write out some financial goals you’d like to achieve and reviewing them often will help motivate you to stick to your budget.
I want to encourage you to give budgeting a try for the upcoming new year as getting a better handle on your finances can lead to an improved quality of life in many ways including less financial stress and more money left over to enjoy experiences and make memories with loved ones.
The new year is the perfect time to create new habits that will lead you down the path towards financial freedom! Check out my website Life of Stones for more tips to love your life of a budget.
This was a guest post written for Home Health Living by Kristin from Life of Stones.