As we head into the new year, it’s a good time for reflecting on last year – Was it overall a good year? Did you meet most of your goals? How were your finances? What did you get right and how could you improve? If you financially had a great year, then good for you! But if it wasn’t that great or you think it could’ve been better, then perhaps you need to create or revisit your budget.
Whether you realize it or not, everyone has a budget. At its simplest form, a budget is broadly defined as “an estimate of income and expenditures for a set period of time.” So if you work and have an income, you have a budget. The key is managing your budget so it doesn’t manage you.
Like a good business, you need a plan for your finances. Here are some things you can do as you reflect on your current budget and create a plan to improve your finances in the new year.
1. First rule is to keep it simple. It may be obvious, but so many of us tend to forget that budgeting is simple mathematics. Your income should be more than your expenses. Simple, right?
2. Be all inclusive – To really manage your budget, you need to get the full picture, so don’t leave anything out. Be realistic. If you make a daily visit to the corner coffee shop, include it in the budget.
3. Think about the future – Include any savings and retirement plan payments in your budget. And don’t forget to budget for emergencies.
Once your budget is created, take a good look. If you have more income than expenses, congratulations! You’re good. But what if your expenses exceed your income?
1. First, don’t panic!
2. Go back through your budget and look for ways to cut your expenses. (Maybe you don’t need that daily latte after all.)
3. Get a consolidation loan – If your debt is high and the cause of the imbalance, a low interest rate consolidation loan may be what you need to get back on track. Generally a consolidation loan will roll most or all of your high interest cards into one lump sum, and with a lower interest, you’ll generally pay less. Check with your financial institution to see if this option might work for you. But here’s a word of caution – a consolidation loan will help only if you discontinue using your high interest credit card(s). Otherwise, you’re adding more debt to an already precarious situation.
4. Remember the keeping it simple part? At the core, the budget is simply income minus expenses. If you can’t decrease your expenses, then it’s time to look into increasing your income. Depending on your situation, if a one-time windfall will do the trick, consider a yard sale or simply selling something of value that you no longer use or need. If you want income that’s more permanent and over a longer period of time, consider a part-time job or side gig for additional income. Maybe you have a hobby that you could make some extra money from. Your side gig shouldn’t be a chore. Get creative and make it a fun way to earn some extra income.
Once you create your budget, you may find there are times you have to be flexible. When that happens, take a minute to readjust and get back on track. With a little planning, you might make the new year your best financial year yet!
What are some things you want to do to improve your finances in the new year? Share your ideas in the comment section of the blog.