New Year, Fresh Start: Budgeting 101

A new year is on the horizon! If one of your resolutions is to get a handle on your budget and manage your money better, here are some tips to get you started.

1. “Pull back the veil” on your current spending. Before you plan for the future, it’s important to know where your money is going now. To get an accurate picture, be sure to capture:
   • How much you earn (Remember there’s an average of 4.3 weeks per month or 26 two-week periods per year. Self-employed? Use an average.)
   • How much you spend, by category, including automatic deductions like taxes, insurance, 401k. Then use statements, online banking or an app like PocketGuard or Honeydue to track what you spend. Pinnacle’s calculators may be helpful as well.
   • How much you give, using past records like tax returns
   • How much you save into a separate account
2. Give each dollar a name. Be sure to itemize all the things you pay for with apps like Paypal or Venmo. You can’t manage what you don’t know, and recurring payments via these apps can be particularly sneaky, because it’s easy to forget what you’re paying for month after month.
3. Make some adjustments. After you’ve gotten honest about your current spending, you can make some decisions to trim some categories or divert spending in one category to a higher priority. Create a realistic framework that includes the “must-haves” and puts guardrails on “wants.” Uncovering all the wants you’re currently paying for helps you find money that you could divert to needs like savings, home maintenance or more than minimum payments against debt.
4. Note variable and periodic expenses for the year. Then calculate the monthly average and set that amount aside each month so you’ll have enough cash to cover that oil change or annual checkup. (Speaking of checkups, if you are covered by a high-deductible health plan or if your employer offers a flexible spending account, be sure and take advantage of tax-exempt accounts to pay those eligible expenses.)
5. Start an emergency fund for the unexpected. Surprise expenses will pop up, and when they do, having a “rainy day fund” can make a big difference. Everyone’s situation is different, but one common recommendation is to set aside three to six months’ living expenses in a regular savings or money market account. If that’s a stretch for you, work toward a goal of $1,000 or perhaps aim to cover your car and/or home insurance deductibles. Any amount is better than none!
6. If your income is irregular, try this exercise: Ask yourself, “If I could afford only one thing this month, what would it be?” Write it down. Then ask yourself, “If I could afford only one more thing this month, what would it be?” Keep asking that question, and you’ll end up with a list of priorities (ideally based mostly on needs). As money comes in, prioritize the items that show up early in the list.
7. Aim for establishing a positive monthly cash flow. That’s your income minus expenses with an amount left over, no matter how small. Establishing a habit takes time, and you can build on your success. Your first budget won’t be perfect, but as you continue to work your plan and refine your budget, you’ll begin to feel more confident that you know where your dollars are going and less like money just “disappears.”