As the new year begins, it's an ideal time to evaluate or re-evaluate your household budget – the funds allocated to keep your home running smoothly, from powering the lights to putting food on the table. If you haven't established a spending plan yet, now is the perfect time to implement some tactics that can steer you toward a more financially secure future.
The impact of record-high inflation has affected most of us, leading to a significant portion of our paychecks (and possibly savings) being dedicated to essentials like food, gas, housing, and utilities over the past 12 months. Despite the increased expenses on necessities, there are ways to heighten awareness of spending habits and make more deliberate financial choices moving forward.
Follow these steps to reflect on what proved effective in 2023 and explore strategies designed to foster a more intentional approach to your finances in 2024.
Look at last year.
To conduct a budget check or initiate a new beginning, gather your financial records from 2023, including checking account statements, credit card bills, and annual expenses like property taxes and insurance. This step is particularly beneficial as it prepares you for the upcoming tax season. If your expenses outweighed your income last year, it's time to pinpoint potential savings opportunities in the coming year. On the other hand, if your earnings surpassed your expenses, that's even more advantageous and indicates effective management of your income relative to expenses. This gives you a clear idea of the amount you can allocate towards savings.
Follow the money.
Whether you live within your means or somewhere in between, the best way to tackle future finances is to do two things:
- Review your last few months of spending.
- Track every penny you spend for at least a week. (Tracking spending for a month is better, but seven days is a solid start.)
Following your money is important so you know exactly how much money is going towards specific items. This is a good time to find any monthly subscriptions you might not know you are paying for and aren’t using.
Income assessment.
As you evaluate how to improve this year’s household budget, look at your income. Did it go up or down in 2023?
If you were among the lucky folks who received a pay increase, congratulations. That can go a long way in helping shore up expenses or build on an emergency cushion.
If your income took a cut because of a job loss, furlough, or other reduction in self-employment earning, it’s time to eliminate the non-essentials (maybe cut your streaming services back to one or two) so you can afford to cover the mortgage with some breathing room.
Expenses assessment.
Given the unprecedented levels of inflation, it's challenging to envision a decrease in expenses for anyone unless they achieve a significant milestone like paying off a mortgage or auto loan. Regardless, having a clear understanding of your financial position and the expenses you have contributes to a smoother financial journey in the upcoming year.
What to change this year.
Take out your device, whether it's a tablet, laptop, or smartphone, and create a digital document to outline your expected expenses for the upcoming year. Evaluate this against your current net income and any additional funds you regularly receive, such as earnings from a side gig or rental property. If your expenditures exceed your income, it's time to examine areas where you can make cuts. Making adjustments now can help set you on the right track for the year ahead.
Which expenses should I cut first?
Studies indicate that one of the major culprits affecting a budget is spending on take-out and dining at restaurants. According to a recent Consumer Expenditure Survey by the Bureau of Labor Statistics, the average American family allocates approximately $2,375 annually to dining out and takeout. While completely cutting out take-out might seem daunting, consider beginning with a small step, like preparing more meals at home for just a week. Then, compare your expenses during the week for home-cooked meals, which should be lower. This can serve as a starting point to build momentum and reduce regular restaurant visits, especially regularly eating out for lunch at work.
Originally published by SavvyMoneyDaily Blog adapted by IAACU.
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