By Joni Lindquist
One of the best things about the New Year is the chance to start fresh. The hustle and bustle of the holidays is over and for many of us; the beginning of the year is an ideal time to look at goals and plans, and to set an annual budget. Going through a budgeting exercise at the start of the year enables you to really think about your income, how you allocate it relative to your short- and long-term goals, and to make adjustments that will help you meet them.
I’ve found the following 5 steps helpful for setting a realistic and workable annual budget:
- Start with your savings goals. Whether it’s the kids’ college funds, a new roof, new car, or your nest egg for retirement, most of us have long-term needs or major purchase items for which we plan and save. Boost that effort by setting aside money from each paycheck before you spend it. Make sure that money is not in an account you can get to. Once you’ve carved out savings, build your monthly “living” budget with what you have left.
- Take advantage of budgeting tools. There are many easy-to-use budgeting programs available today – Quicken, Moneydance, mint.com and others – that can help you track spending and manage your finances. Many banks also offer personal finance software programs. Pick one that meets your needs.
- Identify your must-haves. Think of your must-haves in terms of your everyday living expenses. Mortgage, food, utilities, taxes, insurance, car payments, etc. all fall in the category of must-haves. For most of us, these should be relatively easy to identify. This can be where budgeting becomes interesting. For example, under the heading of utilities, your electricity clearly falls into the category of must-have, but cable service does not. I’m not advocating that you cut your cable or anything else, just be clear on where everything fits within your budgeting categories. It helps you prioritize.
- Review how you can reduce what you spend on must-haves. We all know food is a must-have, but eating at restaurants is not. One of the easiest ways you can cut back on non-essential spending is to eat out less. Taking lunch to work rather than going out can also help you save. Another area to consider is your morning cup of coffee. An American Genius article cited a survey stating the average American worker spends more than $20 a week on coffee, that’s a yearly average of $1,092! For many of us, coffee definitely falls within the must-have category, but the question becomes whether we need that specialty coffee drink every day. Another way to save? Clip coupons. You don’t need to be an extreme couponer, but just spending 15 minutes clipping the Sunday newspaper coupons can help you save. Make sure you’re signed up for grocery and department store rewards programs. Stores often offer their biggest savings to loyal shoppers.
- Identify things on which you can stop spending. This category should contain those things that are truly unimportant – areas that will not adversely impact your quality of life. For example, think about your communications infrastructure at home. Do you really need cable and DVR on every TV set? When you shop, do you only buy jewelry and clothes that you truly love, or do you find yourself buying “just because?” Again, I’m not telling you where to cut spending, but just make sure you know where your money goes so that any initial spending reductions hit those things you can easily do without.
We all have different priorities and goals, and different things we want to have and do. Budgeting in the New Year can be an effective tool to help you get the most out of your money and truly make life count! For tips on how to merge your budget with your longer-term financial goals, schedule a meeting by clicking below, contact Joni Lindquist –firstname.lastname@example.org, or call (913) 345-1881.