Time for a New Budget Planner?
It’s that time of year again when we’re all given the opportunity to work with a clean slate and try to progress on our health, career, and financial goals. Out of those, finances often most immediately shoots up to the top of the list when it comes to priorities for the beginning of the year.
The best part about focusing on your personal finances from the get go is that you can do most of the heavy lifting all at once and reap the benefits for the rest of the year with little to no effort in the months ahead.
Now come’s the daunting part: facing your personal finances from the previous year. For some, this is exciting, and for others, this is terrifying.
Having to come face to face with your spending habits can leave you scratching your head wondering where all the money went. In the midst of the moment, remember that these were all past decisions and there are the present and future to change your personal finances habits. Let’s get started on devising a new budget for you!
Choosing a Budget
Depending on your experience with managing your personal finances, you will have to cater your budget “style” to your unique starting point. Someone who has never paid much attention to their personal finances will have a different budget than that of someone who has some experience budgeting. For those that have a handle on their personal budget for a couple of years, their budget will look different to the former two people as well.
So how do these budgets all differ?
Never Budgeted Before
First off - hooray! Tackling your finances for the first time is an accomplishment in its own right. Now that you’re ready to take on your finances, you might feel lost and confused in terms of understanding where to start given all the jargon that is spread in the personal finance world.
Tracking Your Money
Keep it simple when you’re first starting off by looking at your money coming in (i.e. income) and money going out (i.e. expenses) on a month to month basis. Take a look at your accounts over the past year and retroactively look at each month to see how much money you brought in and how much money you spent.
This may be scary to face for the first time ever head on, but remember that this is looking at only past decisions in order to help you inform your present and future financial decisions.
Analyzing Your Financial Habits
Once you’ve calculated your income and expenses for each month from the previous year, take a look at the big picture and analyze trends across the year.
Did you have more coming in or going out in specific months of the year? Recollect what happened during those few months and see how certain circumstances could have affected your financial habits.
Net Zero Monthly Goal
The basic goal you want to achieve each month going forward as you begin to budget your finances is to be net zero in terms of your income and expenses. What do I mean by that?
We’ll look at what you bring in, your income, and subtract what goes out, your expenses, to conclude on how much money you’re left with after each month. When this number is negative, that’s when you’ll commonly hear that you’re in debt because you spent more money than you made.
Our goal now will be to ensure we spend no more than what came in for the month to reach the net zero monthly goal. The best part of this exercise is that you know on average, or even exactly, how much money you’re bringing in every month, so you can accordingly plan for how much you can allow yourself to spend each month.
Some Budgeting Experience
Now we’re about to get financially savvy and figure out ways to adjust your budget to accommodate various life factors, such as switching jobs/geographies, purchasing a home in the near future, and planning for kids.
Tacking Down Regular Living Expenses
You likely already have this down pact, but it still might vary month to month while also drastically change if a big life event is on the horizon.
Now’s the time to buckle down and try to reduce that variation as much as possible by forecasting unexpected/large expenses that may come up that are necessary as part of your everyday living expenses. This will allow you to have a better grasp on the day-to-day fluctuations because you’ve baked that potential variation in from looking out into the future.
Saving For Major Life Events
I’ll assume that by this stage of life, you’re looking to take the next step in your career or personal life. That means big, exciting changes are on the horizon - congrats! We should begin looking to save our income to plan for going to grad school, moving cities for a job, buying a home, getting married, having kids, etc.
There are so many options to explore when it comes to different ways to save through different types of savings and investment accounts - I suggest you research the options for yourself to see what makes the most sense for you.
Investing For The Future
By now, I’ll also assume that you also have a pretty decent flow when it comes to managing your personal finances from month to month for the most part. The two major goals to accomplish being cash flow positive for the future is to pay down your debts and invest for your retirement.
I’ll spare you the discussion on compound interest (but it’s really the eighth wonder of the world), and just say that, while it’s easier to look at the short term gains you can make with your extra cash left every month, there’s an eye-boggling truth when you look at the long-term picture if you invest that extra cash wisely every month.
Multiple Years of Budgeting Experience
You’re essentially a pro - nothing phases you when it comes to budgeting out your expenses, looking at investments, and devising new ways to expand on your income. However, there are still ways to fine tune your budget to maximize your financial situation.
Constant improvement is what got you to where you already are, so why not keep improving?
Maximized Investing
Given your availability to different investment vehicles, now is the time to ramp up your investments to maximize your investments from both a return and tax perspective. You’ve likely been exposed to the different forms of investing but may not have personally taken part in the different vehicles; now may be the aptest time to consider exploring those options.
Lean Expenses
No matter how far you’ve come, there is always a way to lean out your monthly expenses. Reevaluate your daily expenses and see how much they align with your value system to ensure you’re not aimlessly throwing your hard earned money away. As you’d likely say, just one dollar wasted is still a dollar wasted no matter how far you’ve come financially.
I hope all of these insights prove useful to anyone and everyone regardless of where you’re at in your financial journey. At the end of the day, planning out your budget comes down to a fundamental understanding of your value system and psychological behavior. Happy planning and tweaking your budget for the year!
Disclaimer: The information claimed on this post and the resources made available through this post are not intended as, and shall not be understood or construed as, financial advice. I am not an attorney, accountant, or financial advisor, nor am I holding myself out to be, and the information contained on this post is not a substitute for financial advice from a professional who is aware of the facts and circumstances of your situation. I am not liable for any actions taken upon reading this post. Consult a financial professional and perform your own due diligence prior to taking any actions.
“Don’t tell me what you value, show me your budget, and I’ll tell you what you value.” - Joe Biden
