As we turn the page to a brand-new year, many take this time as an opportunity to reset and start fresh with resolutions to lead a better life. When planning your goals for the new year, you may be focused on amping up your fitness goals or increasing your travel itinerary. But another section of goal setting deserves equal attention: your financial health.
The new year is the perfect time to create or refine your budget and lay the foundation for a brighter tomorrow. The following tips will help you build a framework to stick to your financial goals this year and beyond!
Begin By Reviewing Your Spending Habits
Before you dive into building your new budget, it’s crucial to understand where your money has been going. Take some time to go over your spending from the past year by reviewing your account transactions and credit card statements.
Look for any patterns, make note of recurring expenses, and identify areas where you may have overspent. Understanding your past spending habits provides valuable insight into what’s working well and opportunities for growth.
Identify Areas for Improvement
After analyzing your spending habits, determine if there are areas where you can cut back or make wiser financial decisions moving forward. Begin with the obvious, such as:
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Are there subscriptions or other services you’re no longer using or find valuable?
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How much are you spending on essentials vs. discretionary (a.k.a. “fun money”)?
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Did you primarily stay within your means, or did you often rely on credit to cover expenses?
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Could you cut back on dining out and commit to cooking more meals at home?
Once you review the basics, take time to analyze your more costly expenses.
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Do you have several higher-interest credit cards or short-term loans (e.g., personal or payday loans) that you can consolidate?
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Would you benefit from refinancing existing loans, such as vehicle or home loans?
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Has your credit score improved recently, allowing you to lock in lower rates on your existing loans?
Even minor adjustments can add up to significant savings over time and put you on a more solid financial footing.
Define Your Goals
Your budget should reflect your goals, so it’s important to clearly state what you’re working toward. Make a list of all your financial goals and break them into two categories: short-term and long-term.
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Short-Term Goals:
Consider items such as starting an emergency fund, saving for a vacation, or reducing existing credit card balances.
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Long-Term Goals:
Think of the bigger picture, like saving for a down payment on a home, funding education, or investing for retirement.
And don’t forget to get specific with your goals! Instead of saying something general like “I want to save money,” identify what, when, how, and why.
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What: I plan to create an emergency fund of $2,400.
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When: I will have this money by November 1st.
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How: I will put aside $200 per month into a savings account.
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Why: I want financial security should unexpected expenses arise.
Your final goal could read:
“I will deposit $200 monthly into my savings account to create an emergency fund of $2,400 by November 1st.”
Build Your Budget
Now that you’ve set your goals, it’s time to create a budget that works for you. A good budget helps you balance your income, expenses, and savings while leaving room for flexibility. There are several budgeting methods to choose from, so it’s important to select one that aligns with your financial habits and goals. Here are some methods to consider:
Your budget is precisely portioned between three categories: 50% of your income is allocated to your needs, 30% to wants, and 20% to savings or debt repayment. You can adjust the proportions as needed to better suit your unique needs and goals.
A role is assigned to every single dollar earned so that you are left with $0 unaccounted for once you’ve finished making your budget. Your income minus your expenses should equal $0. The level of planning required for this method gives you a clear view of your money and ensures a plan for every dollar. Just remember to include your savings goals as an “expense” that you pay yourself monthly.
In the traditional form of this method, you assign cash to specific spending categories and label your envelopes accordingly. Categories may include things like bills, groceries, fun money, etc. Once you’ve spent all the money in a particular envelope, you can’t spend any more on that category – unless you transfer funds from another envelope. You can modernize this method by creating and assigning separate shares in your online banking platform to represent digital envelopes or keep track in a simple spreadsheet on your phone or computer.
Use Tools & Resources for Help
Thanks to advancements in technology, budgeting has become easier than ever. There are many budgeting apps available, along with other tools and resources. The credit union provides free tools like online banking, financial calculators, workshops, and other educational resources to help you on your journey.
Take advantage of the myriad tools at your disposal to help you simplify the process and stay on track to achieving your goals. By leveraging these resources to your advantage, you’ll enjoy the support you need to manage your money efficiently.
Stick to It
Building your budget is one thing, but sticking to it is where the real work begins. Here are some strategies to help you stay on track throughout the new year:
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Stay Active:
Monitor your finances regularly to stay on track with your goals. Schedule a weekly financial check-in to review your spending and bills and ensure you adhere to your budget.
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Be Flexible:
Life happens, and that’s okay. Unexpected expenses can throw off even the most well-crafted budget. Don’t be discouraged; adjust as needed and focus on bouncing back. Remember, the goal is progress, not perfection.
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Celebrate Wins:
Whether you paid off a credit card, reached a savings milestone, or avoided an impulse purchase, it’s important to celebrate your achievements. Recognizing your hard work and rewarding yourself helps you stay motivated and incentivized to continue your journey.
We’re Here to Help!
Creating a budget for the new year is essential in ensuring a prosperous year and a bright financial future. Build a budget that works for you and stick to it. Don’t hesitate to take advantage of the many tools and resources available to you as a credit union member. We’re here to support you every step of the way. Together, we’ll make this year your best one yet!
If you’d like to learn more about how the credit union can help you maximize your savings this year or the ways we can help you achieve other goals, we’re happy to help. Please stop by the Credit Union or call 410-687-5240 to speak with a team member today.