06 Jan 7 Budgeting Secrets to Help You Stay On Track in the New Year
Key Takeaways and Budgeting Tips
- Tailor your budget to a time period based on your pay periods; weekly, bi-weekly or monthly.
- Account for larger, intermittent budget items and take advantage of level billing programs.
- Develop a commitment to lower your expenses across as many categories as possible.
- Budget in a way that matches the personality of you and/or your spouse.
- Use a system like a digital app or a manual envelope system to help keep you on track.
Most people have an aversion to budgeting because it takes time to prepare and feels restrictive. You don’t like overspending but resent feeling like you can’t go out to dinner because you already reached your monthly spending limit for dining out.
However, making a concerted effort to tally spending estimates, then never looking at it again, is a waste of time because it’s not useful in developing effective budgeting habits.
The objective of creating a personal budget is to guide you in your monthly spending. When used properly, it can help you understand your costs, serve as a guide to spending, and establish financial priorities. The secret to successful financial management is not simply creating a budget, but building one that operates as a decision-making tool, ultimately helping you win when it comes to your finances.
Below are five secrets to creating an effective budget in the new year:
- Tailor Your Budget by the Month. Most people create a budget that remains the same throughout the year, even though monthly expenses change. It is critical to adjust your budget for seasonal spending For example, living in the north will result in higher utility costs during the winter, while those living in the southern regions of the country will face their highest utility bills in the summer. Families with children often face steeper childcare costs in the summer months. Travel, birthdays, and holidays can also result in higher costs in any given month.
- For more accurate financial planning, calculate expenses independently, and be sure to make seasonal adjustments to your spending categories like budgeting for holiday spending.
- Account for Intermittent Costs. In addition to the expenses that vary by season, most households have bills that occur either annually or quarterly. Common items falling into this category include vehicle registration, vehicle maintenance, HVAC system maintenance, taxes, and insurance.
- For intermittent spending items, and especially for large items such as property taxes or homeowners and auto insurance, consider creating a spending line item in your budget that allocates a monthly amount to this spending category, then set aside that amount of money each month in a special savings account so the money is there when the bill comes due.
- You can also contact your insurance company and utility providers to inquire about level monthly billing programs that allow you to spread out your payments over the course of a year, or, in the case of electric, gas and water utilities, pay an average, level amount of your total prior year’s consumption each month. This serves to level out the seasonal spike in your utility bills that can blow your budget during high consumption periods.
- Put the Brakes on Spending. As you build the annual budget, separate essential and discretionary expenses. Flag areas where you can cut back in any given month, offering you the option to adjust spending thresholds during months with higher costs. Reviewing your prior month’s actual spending, relative to the amount that you budgeted, will help you better measure your effectiveness of staying on track with spending and help you avoid mistakes that can blow your budget.
- Budget to Fit Your Personality. Your budget is personal. Some people want to know where every cent goes. While others like to use general categories with general spending thresholds. Utilizing a budgeting method you will follow is more important than budgeting a certain way. Be sure to take into account your personality and the personality of your spouse or partner when it comes to building and reviewing your budget periodically.
- Customize Savings. The importance of building your savings cannot be understated. Failure to set money aside can result in credit card charges or emergency high-interest loans to pay for unexpected expenses.
- Once you tailor the budget to account for uneven monthly expenditures, determine how much you can save. Take advantage of months with lower costs to beef up your emergency savings fund.
- Follow-up. Continually compare expected costs with actual spending. If you struggle to keep up with day-to-day spending, use a free app like Pocketguard, which will provide status updates on spending in real-time. Closely tracking your expenses can head off any end of the month surprises.
- Develop a physical connection to your money. If you are not digitally proficient, or just prefer to manage your spending in more traditional ways, consider using an envelope system. Create an envelope for each spending category in your budget. Then add the allocated budget amount of each category in cash to the corresponding envelope. This allows you to see in real-time, as you make purchases, how much you have left in each category or envelope. When there is no more money in the envelope, your spending in that category stops until your budget period starts again and you refund that spending category.
- The envelope system also helps to create a physical, tactile connection to your money, which can increase the perceived value you place on your money, since you must physically “give it away” each time you make a purchase.
Customizing your budget to account for different expenses each month and saving more during months with lower costs can help you stay on track and be successful in budgeting. Creating the initial household budget requires some time and forethought but can reap major financial rewards. An effective budget will clearly define your financial priorities while helping you gain control of your spending.
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