The New Year often motivates people to work toward developing new and better habits. Many people decide it’s time to get into better financial shape in the coming year, and the best way to do that is by getting a handle on where your money is going each month. Here’s what you need to know about starting a budget in the new year.
What is Your Income?
To start to make a budget, you need to know how much money you have coming in. If you work for an employer who handles deductions such as taxes, insurance, and 401K, the number you need for your budget is the amount you receive after these deductions, which is known as your net income. Include any additional money you receive such as child support.
It’s a little trickier to know what your income is if you’re self-employed and your income fluctuates. If you’ve been tracking your income each month for the past year, use your lowest earning month as a baseline to set a budget. You’ll need to plan for quarterly tax payments and insurance, so these will need to be deducted from the money you are making to determine your net income.
Tracking Your Expenses
The next step is to track your expenses. Some bills are the same amount each month such as your rent/mortgage or car payment. You’ll also need to keep track of expenses that vary month to month such as entertainment, groceries, and gas. Credit card records can help you keep track of fluctuating expenses. When looking at your expenses, pay attention to needs versus wants.
Reviewing Your Information
When you add all your monthly income together and subtract all your expenses, do you have money left over? If you do, save some and put some toward paying down debt. Try to figure out what expenses need to be cut back for you to have money left over to save and to pursue long-term goals such as saving for a down payment on a house or saving for retirement. Are you buying things you don’t really need at the grocery store? Do you have monthly subscriptions that aren’t really necessary? See if you can consolidate debt at a lower interest rate. Consider eating out less or shopping around for cheaper car insurance.
Improving Your Financial Picture
Continue to use your budget throughout the year to see how you’re doing. When you record all your expenses each month, you may think twice about some of the things you’re spending money on.
Another good habit to get into is to protect your credit by paying bills on time and making sure to avoid using credit cards unless you can pay them back the same month. Keep an eye on your credit report to make sure there are not any reporting errors. If you find any errors on your credit report, Dovly is an automated credit repair engine that can help you dispute them. Try it risk-free with our free membership tier. Find out more by getting in touch with Dovly today.