Budgeting in the New Year

The new year is here, and many of us make resolutions to do better in our lives, personally, professionally, and financially. When we mention the word “budget,” does your mind conjure up pictures of confusing spreadsheets, complicated calculations, and overwhelming decisions? If so, we’re here to help. Creating and maintaining a personal budget doesn’t need to be an unpleasant experience. In fact, proper budgeting can ensure that you’re able to live your life to the fullest while saving for an amazing future!

Here are 3 tips to help you get started on your personal finance journey and create a budget that works for your lifestyle.

Budgeting is an On-Going Process

There’s a common misconception that creating a budget should be a one-time process. Many people will look through their bank statements to determine their spending activities, calculate their monthly income, throw it on a spreadsheet, and call it a day, but effective budgeting is so much more than a one-time activity. To create a budget that you and your household can stick to and benefit from, you’ll need to sit down on a regular basis to examine your current financial situation and identify areas of improvement.

It’s best to start thinking about budgeting as a regular chore, such as doing laundry or running the dishwasher. Plan on gathering with your family members once a week to look over your bank statements and add up what you spend and earn. If you find that you spend too much on clothing one week, try to readjust your spending habits and correct them for next week. By keeping a weekly check on you and the other members of your household, you’ll catch any problems early on and avoid issues snowballing into major ones down the road.

Do a Deep Dive Into the Numbers

One of the toughest things about budgeting is taking a hard look at your finances and being 100 percent honest with yourself. Sometimes, living in blissful ignorance about your financial situation can feel better than doing a deep dive into the hard numbers and coming to some harsh realizations about your spending habits. For example, realizing that you’re consistently spending $500 a month dining at restaurants may be shocking, but in the long run, it’s better to know where you stand and where you can improve. One simple rule to remember is that your earnings should ideally be larger than your expenditures, so if you find yourself out of whack with this principle, it might be time to reevaluate your spending habits.

Here are a few important values to calculate:

  • Monthly Income: Calculate how much money each member of your household brings in per month. Remember to factor in taxes and 401K contributions.
  • Vital Expenses: Add up the amount you spend per month on necessary items, such as rent, insurance, purchases from the grocery store, medication, car payments, student loans, and doctor’s appointments.
  • Discretionary Expenses: Add up the amount you spend per month on luxury items, such as dining out, movie tickets, clothing, vacations, cosmetics, and hair appointments.
  • Financial Goals: One thing that many people forget to factor into their budgets are their financial goals. These can include things such as paying down student loans, saving up to create an emergency fund, or setting aside money for a major purchase. Add up all of your financial goals and make sure to include them in your budget.

Put Your Plan Into Action

Once you’ve developed a budget that works for you, it’s time to put it into action. The first month can be a tough adjustment, but by month two or three, it will feel like second nature. Remember to have weekly budgeting sessions with the spenders in your household and make adjustments as necessary. If you find that one month you’re not hitting your financial goals or spending too much on discretionary goods, such as entertainment, dining out, or vacations, don’t despair. Simply make an adjustment, try to do better in the coming weeks, and don’t beat yourself up if you have a less than stellar month. Nobody’s perfect!

Need Help?

The Merchants & Marine team is here to help you every step along the way in creating, tweaking, and implementing the perfect financial plan. If you’re looking for expert guidance and caring service, make sure to get in touch with us. One of our friendly representatives will be happy to walk you through the ins and outs of budgeting.