It is an ideal time to consider making a yearly financial resolution. We are still at mid of the first month of the year. It’s not too late, more over it’s never too late for starting a financial betterment exercise. People fail, mainly because of lack of budgeting, which leads to uncontrolled spending. Spending more than income.
People are interested to manage their finances well, they know the importance of a budget still, they hesitate to start. It’s the same habitual resistance which prevents us from starting exercise for our better physical health. The fear of a change and the habit of procrastination play major role in ruining our personal life. Don’t let them win over you! Budget.
I assume the readers have a basic idea of a budget and know how to prepare a basic budget. If you don’t, here’s a guide on how to prepare an annual budget. Since we give importance to new year’s resolution, it is a perfect time to start working on a budget.
I am not good at keeping up to my new year’s resolution, but, I know people, including my wife who do. I hope you give a high priority towards budgeting and sticking to the budget throughout the year. Here are the 10 tips.
1. Consider creating an annual budget rather than a monthly budget, because a yearly budget enables us to have a financial preview of the whole year and let us compare it with our annual income. It also enables us to break down our yearly budget into monthly budget items down the line.
2. Track even your minutest of income. We should comprise as much as possible in our yearly budget so that every incoming money has already been assigned a task to perform or kept as a saving. This ensures that we are in control of our finances. We should also consider provisioning fixed as well as variable spending in the budget.
3. Provision for emergencies. This is something that many people neglect in their budget but, it is very crucial. We must include emergencies in our budget. This is because emergencies are completely unpredictable. Typically experts recommend 3 to 6 month’s of family spending in emergency fund, read more about emergency fund. If you have not already built this fund, it should be your first priority. And, your budget should first set aside a portion of your salary towards building this fund.
4. Preview and review with family. We should consider previewing as well as reviewing it as a team within our family. Scheduling a review session with entire family, maybe with a spouse if your kids are not old enough to understand the concept, will be ideal because at the end of it all will be aiming towards the same objective, control on spending.
5. Provision for fun and rewards. Without fun and rewards every journey gets boring. You should encourage yourself and other family members to follow your budget. Completely depriving yourself or your family leads to potential future splurge which may derail a your budget altogether. Do not ignore fun part and get an instant buy in from your family.
6. Automate your financials. When building the budget we should also consider automatic bill payments and investments. Most of the brokerages and funds accept systematic investment options, where you set a fixed amount to be drawn from your checking account for buying bonds, funds or retirement saving every month on certain dates.
7. Look for budget surplus. Another factor to consider is spending less money than what was planned for. This is easy said than done. Suppose you allocate $500 towards monthly grocery bill. Later on after using some coupons and eliminating food waste, you might be done with less than $500. You’ll end up with surplus money. Now, you’ll do best by using that surplus toward a surprise family activity or outing. If still you are left with some money, re-allocate to the highest prioritized item in your budget.
8. Budget for big expenses and allocate money every month. Most Americans spend the highest sum during last two months of the year. Average Americans spend more in November and December than their income. To avoid debt because of this behavior, start allocating money in your budget for the Thanks Giving and Christmas funds. your festivities won’t hurt your pocket that much from next holidays onward.
9. Factor increased income in. There will be cases when you’ll get an increment, or a stock dividend may come in surprisingly. This may impact your budget positively and we must include this on our budget. Its my usual practice to list a few ‘Nice to have items’ in my budget, which usually don’t get any fund allocation upfront but, they wait for an increased income or budget surpluses for allocation.
10. Give budgeting a priority. In this new year, make personal budgeting your priority. It shall enable you to achieve your dreams as long as you set a provision for that dream in your budget. Identifying what is needed during the year and what is not that necessary upfront, is a very important step towards better managing your finances.
A budget enables you to avoid unnecessary spending. Using money wisely becomes easier as the only thing that you have to worry is sticking to the budget you set for the year.
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