Part three of our Financial New Year's Resolutions Series tackles ol' faithful: the budget. The beginning of the year is a great time to create and implement a budget, or to reevaluate your current budget and tweak it so it better suites your current lifestyle. Start off 2017 with our steps to your best budget.
Step 1) Define your income
For this step you’ll want to list the amount and sources of your gross income. This step is important because you need to know every dollar that is coming into your hand so you can give it a purpose in your budget. This should be your gross income, meaning before any taxes or savings. You might know this number off the top of your head, or you might need to go back and look over your past year’s bank statements to learn exactly how much you earned.
Even if you have your budget together, you’ll want to still take a minute to think through anything that might have changed, like receiving a raise or changing jobs. If you earn money from a hobby or side gigs you’ll want to include this income in this step as well.
Step 2) List your expenses
Start with your reoccurring monthly obligations like your mortgage or rent, gym membership, car payment, cable, student loan, etc. From here you’ll move to your more amorphous expenses like food, entertainment, utilities and gas. Then think through your expenses that you pay either irregularly or annually like insurance, dental bills, haircuts, shopping, etc. Once you’ve gotten everything written down with a dollar amount next to it, we suggest you look back at the last three months bills to double check if there are any expenses you might have miscalculated.
Step 3) Find the difference
Subtract your monthly gross income from your monthly expenses. This is the step that can surprise people. Are you spending more than you’re earning each month? Do you have enough cash flow left for taxes and savings? If you’re looking at a negative number, remember that you can change bad habits. Don’t focus on the negative. Instead, focus on what you can do to improve.
Step 4) Plan for the future
Now that you understand where your money is coming in, where it’s going out, and what you need to do moving forward, it’s time to put together your budget. Look through your expenses and determine what you need to remove, lower, increase or keep the same with your spending in order to reach your financial goals. On the flip side, you might need to brainstorm ways that you can increase your income. Take some time to write out a realistic budget for yourself next to your current spending habits so you can quickly see what you’ll need to change.
At Wela, we are working to release a new budgeting tool which blog readers can beta test by creating a Wela account and then inside the portal visiting www.yourwela.com/budget. This tool will help you think through what categories you’ll need to include in your budget along with giving you a suggested monthly amount. It can also help you track your budget moving forward. Take this tool for a test drive, and let us know what we could do to improve it.
Suggested New Years Resolution:
I will calculate my current income and spending habits by _____(date)_____. I will put together and implement my new budget by_____(date)_____. I will work with Wela to track and optimize my new budget by _____(date)_____. I will review my budgeting progress every __(week/month/quarter)___.
So now you can budget better. Need help with consistency?
Financial New Year's Resolutions Series Part Two: Organizing Your Finances