New Year, New Savings: The Importance of Having a Monthly Budget
It’s the start of a new year – the perfect time to begin a new financial you. A budget, like any endeavor, is something that you just have to dive into and start. Don’t wait until everything is perfect, because it never will be! How to begin? Follow our quick tips to get your financial health up and running.
Before you get started, take a moment to set your priorities. Are you saving for retirement, a job change or for your emergency savings fund? Once you have your goals set, you’re ready to hit the ground running.
Be Honest With the Process
Having an organizational process for your budget is necessary for success. To determine how you’ll set up your financials, spend a few days tracking what you spend. You can use an app on your phone such as Clarity Money or Wally, an excel spreadsheet or a small notebook that you keep in your purse or pocket. This gives you the opportunity to see how and where you spend your money. It’s important to be realistic about your spending along with what the month holds for you in term of expenses. Also think about the upcoming weeks – do you plan to dine out more due to friends visiting from out of town or do you know that you will have a big power bill due to a cooler winter? You’ll want to capture these changes within your new budget.
If you bank online, review your past bank statements to see where your money went in 2018. There will be a few fixed expenses such as utilities, rent/mortgage or a car payment that need to go into your budget. Costs like these are typically a predetermined amount and never really change. Next are your variable costs, such as entertainment, clothing and food, which may increase or decrease depending on the activities of a given month.
Create Goals In 2019
What are your goals for 2019? Now that you know where you spent your money in 2018, what do you want to make a priority this year? Maybe it is growing your savings, or taking a vacation you keep putting off. Whatever it is, write it down and make a plan to chip away at it each month. Place this list somewhere in your home or car so it is visible to you on a daily basis and serves as a reminder of why you are saving and what you are striving to achieve this year.
Rules to Live By
Here are a few quick resources to help you get started. The first is the 10/10/80 rule, which is to give away 10% of your income, save 10% of your income and only live off of 80%. Is this a huge shift in how you’re living now? Possibly, but in order to experience joy and financial freedom, we highly recommend you have a set process in place.
While it is important to #treatyourself from time to time, it shouldn’t be a daily occurrence. Take a deep breath and remind yourself that each deposit you make into that savings or retirement account is the same as buying a new pair of shoes or a dinner out. Decide for yourself what is truly important to you and what items or activities you can cut by following this template. Patience, along with a healthy dose of willpower, is needed to set aside money and leave those funds alone to grow, so you can enjoy the rewards later on in life. It is so worth it!
Your Emergency Fund
Life is not without its challenges. There will be a day when a hiccup will occur in your daily routine. You want to avoid borrowing when you have a personal financial crisis. Establishing an emergency fund will serve as a buffer when times are lean. Bankrate reported that one quarter of Americans (55 million people) have not even started an emergency fund, and if they do have one, 18% indicated that they saved three to five months of living expenses and only 29% have a fund that contains six months of living expenses.
You will undoubtedly have a financial emergency at some point in your life, so plan for the unexpected. Consider setting up a monthly deduction from your account into your emergency fund so you save money for the future without thinking twice.
Review and Reflect
Your budget reflects what is going on in your life at a certain point in time. Get in the habit of reviewing it either weekly or monthly and set an appointment with yourself by putting it into your calendar. This process may take a few months of getting used to, but once you have a true idea of your expenses, reviewing and updating your budget will be a breeze. During this time, look for any trends that may start to appear, such as eating out too much or paying for a gym membership that you may not use. Are any of your bills or subscriptions on auto-payment? If so, evaluate them and consider pausing or canceling any if you aren’t regularly using their product or service.
Having a budget review process gives you the time to reflect on whether a purchase or future expense is a true need versus a want. By creating and sticking with your budget, you’ll make smarter choices for the future.