Well here it is, another year. You have promised yourself this is the year that you will live within your means. Make 2019 the year you finally take control of your financial life. Use these tips to create a realistic budget which will let you pay down your debts and give you the opportunity to put something away, while not forcing you to live like an monk to make it happen.
Tips For Budgeting in 2019
Gathering the facts. Before you do anything else, you need to know how much money is coming in and how much is going out each month.
For people who receive a regular paycheck, estimating the amount of money coming in is as simple as calculating your post-tax income. But for anyone whose income varies throughout the year, things can get much more complicated. A relatively safe way to budget with an irregular income is to use the lowest earning month from the previous year as a baseline for creating a budget. A less secure, but probably more realistic way to budget, would be dividing the last year's income by 12 and using that number as your monthly budgeting baseline.
Once you determine the amount of money which is coming in, you need to know what you are spending on a monthly basis. Average the total amount of the money you spent monthly over as months as possible to create your average monthly expenses. Separate this average monthly expenses into two categories: needs and wants. Needs are bills you have to pay, like housing, food, insurance, basic utilities, minimum loan repayments, and transportation. Everything else is a want.
Setting up the budget. Without a good plan, you won't make your financial goals.
There are lots of different ways to set up a budget, but the most important thing is that is that it works for your situation, and you can stick to it. One simple, yet effective budget, is called a zero-based budget, meaning your income minus your expenses should equal zero. If you're over or under, check your math or simply return to the previous step and try again.
Adjusting your spending habits. A budget only works if you are willing to change your spending habits.
For many people cutting down on spending is a painful experience. But there are ways to make it a little less uncomfortable.
- Control impulse purchasing. While you are still at home, make a list of items you will purchase and don't give in to temptations at the store. If you see something which you really want in the store, write it down to buy on your next visit. It is amazing how many 'must-buy' items lose their attractiveness after a few days.
- Use a credit card, but pretend it is cash. The advice used to be that you should always use cash when you shop, but cashback and other incentives from credit cards makes using them a great deal. But never spend more money than you have in your 'want' budget for the month. Consider asking your credit card company for a lower limit to dissuade you from making larger purchases.
- Avoid the 'little luxuries.' Small expenses can really add up. Stop visiting your local coffee shop every morning for a latte and start bringing your lunch to work, and it won't be long before you notice substantially more money in your pocket without sacrificing a whole lot.
Remember that budgeting is an ongoing process. You will need to revisit your budget plan from time to time to make sure that you are staying on track. Sometimes it can even seem overwhelming. That is where a financial planner like Highball Advisors can help. We can design an in-depth budget to get you back on track towards your financial goals. Take the next step and schedule a free 30 minute consultation.
Photo provided by Mike Ray.
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved.