Budgeting for the new year
Why a budget? A budget helps you create financial stability by allowing you track where your money comes from and where it goes. It helps you know what expenses you have and what you can afford to save and spend each month. A budget also helps you analyze your spending habits and perhaps recognize areas where you may be wasting money or spending money you don’t have.
Here are the basic steps to creating a budget.
- Calculate your after-tax monthly income by looking at what you’re being paid and adding in any other income sources besides your paycheck.
- Now track what you’re spending each month. You’ll want to note expenses that are automatically coming out of your paycheck, such as your 401(k), life insurance, health insurance, etc., as well as what you’re spending on all other expenses. The 50/30/20 rule is a good guide to manage your monthly spending:
50% of your budget is spent on needs: housing, groceries, utilities, transportation, insurance, minimum payments and any expenses necessary for work
30% on wants: dining out, entertainment, clothing, shopping, hobbies, travel and gifts
20% on long-term savings and an emergency fund
- The last step is to analyze what you’re spending. Does your spending align with the 50/30/20 guide, or are you spending a lot more on your wants? What spending could you cut out or reduce to free up more money to save? Finding and maintaining balance in your spending is the key to better financial stability.
There are many online resources and worksheets to help you manage your budget and spending, such as Nerdwallet and Consumer.gov. Start your new year off by getting your finances in check, and you’ll feel more in control of whatever comes your way in 2023 and beyond.
The information provided here is for general informational purposes only, and should not be considered an individualized recommendation or personalized investment, tax or legal advice.