Powered by momentummedia
nestegg logo
Powered by momentummedia
nestegg logo
nestegg logo

Save

How to make a New Year budget (that sticks!)

  • February 04 2021
  • Share

Save

How to make a New Year budget (that sticks!)

By Zarah Mae Torrazo
February 04 2021

Thinking of making a New Year budget? Here are some tips on how to create one that will stick throughout the year.  

How to make a New Year budget (that sticks!)

author image
  • February 04 2021
  • Share

New year, new me. For most people, the beginning of a year provides a fresh start to improve several aspects of their life. 

This is where New Year resolutions come in. At the start of the year, we optimistically list down the things we want to achieve in the coming months. It’s no surprise that losing weight and creating a budget are two of the most common New Year goals people include.

According to Minnik’s Chartered Accountants founder Leah Oliver, the start of the year could be a great time for Australians to look into their finances in order to get their spending back on track. 

Advertisement
Advertisement

“Many of us start off the new year striving to be better with our money – saving more and spending less all in the name of financial freedom,” she said. “As we head into the new year, having resolutions are all well and good, but good intentions alone are not going to get you any closer to your goals,” she added.

But while we can’t sign you up for a gym membership or be your workout buddy, here are our tips on how to make a New Year budget that actually sticks. 

Review your last year’s finances

Take some time to step back and think about how your finances went last year. This will help you take note of the changes you should make this coming year. Here are some of the few questions you should ask yourself: 

What are the notable financial mistakes you made last year?
What good financial decisions did you make?
If you could change anything in how you handled your money, what would it be?
What unexpected events ended up costing you more than you estimated? 
Are there expenses that came up but could have been planned ahead of time? 

For example, you may have spent a lot of money on your house last year due to the increasing wear-and-tear on your property. So this year, it may be advisable to allot a bigger amount of money for home repairs or maybe start putting aside savings earmarked for home improvements. 

Know your income

Before you can make (or rework) your budget, you should know where you are financially. Calculating your income is a key step to evaluating your financial health and reaching your financial goals. Take the time to examine your income and know the good, the bad and the ugly. If you don’t have an idea of your financial standing, you will not have the proper information needed to create a budget that you can follow through. 

For people who rely on a regular paycheck, their income will usually be the same from month to month. But if you are working in the gig economy or are self-employed, the figures can greatly vary.  The best strategy is to make a baseline out of your income in the previous month instead of estimating what you’ll make in the coming month.  

It’s advisable to check your income every year to see if you’re still on track to reaching your financial goals (e.g. retirement, nestegg for your children, etc.) and rectify any mistakes you’re making before they become financial disasters. 

List your expenses

There are expenses that are the same each month, such as your mortgage payment, some utilities or rent. Set an average of what you’ve spent in the past to help create a foundation for your budget each month. If you have debts (e.g. credit card debts, personal loan), don’t forget to include your payments as a budget category. 

After knowing both your income and expenses, you will have a clear picture where you are prioritising your current spending and saving and where you need to make changes in your spending and saving habits. 

Review your credit score

When was the last time you checked your credit score? Knowing your credit rating will help you make the proper steps to fix some of its negative aspects. Take advantage of the free access to your consumer credit report once every 12 months from major consumer reporting companies. And don’t worry, requesting your credit report will not affect your credit score. Checking your credit report is not an inquiry about a new credit, so it will not hurt your score. 

Contrary to popular belief, it’s not inquiries that have a significant impact on credit scores; it’s late payments. Results from research conducted by Experian reveals that 97 per cent of Australians are unaware of how damaging late payments are to credit scores

To ensure a good credit score, the easiest thing consumers can do is to pay bills on time. A consumer who has a good track record of paying for a credit product on time is also likely to get more credit, more easily. For more tips on how to improve your credit score, read here.

Build an emergency fund

If you don’t have an emergency savings fund yet, the start of the year may be a good time to create one. This emergency fund is meant to serve as a financial buffer for when unexpected expenses appear or when unfortunate life events happen. 

There is no prescribed amount of money that you need to save. The common practice is saving money that is three to six months’ worth of your income in a bank account for emergencies. 

A more personal approach would be to look at the expenses you’ve had over the last year that were unanticipated (e.g. hospital bills, house repairs etc). Once you have the numbers, divide the cost by 12. That way, you can budget money every month to cover these costs. 

Experts recommend putting money for your emergency fund where it is still accessible – but not too accessible that you end up spending it for anything other than a real emergency. You can choose to open a separate deposit account in your local bank or open an online savings account with a high interest rate. 

Pay off your debts

Before you can build wealth, experts recommend getting out of debt first. After all, you can’t make financial progress for yourself if you’re building someone else’s (or some lender’s) wealth.  

But there may be a reason why Aussies can’t take control of their debt. An ING study found that one-quarter of Australians ignore their debt because they don’t want to talk about it, which is leading to feelings of anxiety and embarrassment. 

The road to becoming debt-free can be an enormous feat, especially if you have several lines of credit. It will need dedication and discipline, but mostly a plan. 

Don’t know where to start? Whether you’re looking for ways to strategically pay off credit card debt or home loans, you can find more information on how to stay on top of your debt here

Manage and track your budget

A budget is useless if you only check it once a month. As you track your spending, make the necessary adjustments needed to make your budget work. For example, you can add a new category or create a different allotment for expenses and savings to determine if there’s a better way to manage your income. Over time, you’ll work your way toward a budget that fits your situation.

You can also keep track by maintaining a checklist of how you are doing throughout the year so you can make the needed modifications to your budget. Consider consulting a financial planner to review the goals and objectives that you have established. 

Stay accountable

Be honest with yourself. Be cautious about setting too many or unrealistic financial goals. Otherwise, you may end up not accomplishing any of them. 

Understand that a budget is a constant work in progress. Some weeks you will fare better than others and some weeks you may fall off track (which happens even to the best of us). The most important thing is to stay motivated and pick yourself up when this happens. 

If you feel overwhelmed by your finances, it might be a good idea to work with a financial adviser. For tips on how to choose the best one for you, read here

 

 

How to make a New Year budget (that sticks!)
default
nestegg logo

Forward this article to a friend. Follow us on Linkedin. Join us on Facebook. Find us on Twitter for the latest updates
Rate the article

more on this topic

more on this topic

More articles

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.