If you have huge financial goals you want to attain in 2020, you need a good financial plan. Since it’s still the beginning of the year, there’s no better time than now to get your money in order and take a fresh look at everything. With that in mind, here are six steps to get your budget right in 2020.
1. Observe the Money Coming In
To create a realistic budget that meets your financial needs and situation, you should first observe the money that comes into your bank account every month. The goal here is to look at both your active and passive sources of monthly income in order to get a true picture of your monthly income.
Examples of monthly include your salary/wages, passive income such as rental income, as well as your side hustle earnings (if any). This is where your bank statement will come in handy. More specifically, if all your income passes through your bank account, your updated bank statement will typically contain all the necessary details you need to calculate your monthly income. On the other hand, if your only source of income is your salary/wages, you can use your pay stubs to figure it out.
2. Look at the Money Going Out
In addition to looking at the money that goes into your bank account every month, you should also look at the money that flows out of your account every month. To put it another way, you should know your monthly expenses, too. Examples of such expenses include the money you spent on groceries, utilities, travel, car insurance, rent/mortgage, and cell phone.
Now, if your monthly expenses tend to fluctuate month by month, you should work with an average figure. For instance, you can calculate your average monthly expenses over the last three months. To make this task easier, you can use paper documents like a personal finance planner. Another strategy you can use to track your expenses more effectively and easily is to pay for all your purchases with a single debit or credit card. Of course, if you use a credit/debit card instead of cash to pay for your purchases, you should still track your spending.
Check out my Finance Planner printables at The HBH Shop. It’s a great tool to track your budget, progress on your finance goals, and debt reduction!
3. Watch Your Credit
When creating your budget, one of the main factors to consider is your credit rating. For this reason, you should ensure your credit score is both healthy and accurate when preparing your budget. Maybe you’re looking into renting or buying a house in the future. If any of those applies to you, you need to review your credit report regularly.
Fortunately, every year you are entitled to one free credit report from any one of the three nationwide credit rating reporting agencies, so ensure you take advantage of that.
4. Know Your Why
Proper money management requires more than just ensuring you pay your bills on time. While you may need a lot of self-motivation to manage your money properly, one of the things you can do to achieve this goals is to know your “why.” Simply put, your “why” is basically about the feeling as well as the outcome of your financial undertakings.
For instance, when thinking of buying a home, your “why” is not home ownership, which is essentially a consumption goal. From the definition above, your “why” could be something like, owning a home is an important step to the growth of your family or you feel a particular city is the ideal place to settle. While the difference between your “why” and your financial goal may be subtle, the former will help you to cultivate the discipline you need to stick to your budget.
5. Plan for Unexpected Expenses
Granted, irregular expenses are generally more difficult to plan for than regular expenses. Still, because life is unpredictable, you should create a plan for the unexpected. In other words, you should account for unexpected expenses, at least to some degree, in your budget. One-time expenses range from an urgent wardrobe refresh to an unexpected medical expense to a special city tax. To ensure such expenses doesn’t wreak havoc on your finances, set some money aside in your budget. In general, people refer to such expenses as “miscellaneous” expenses.
6. Track Your Progress
While accounting for both your income and expenses will provide you with a sound financial foundation, you shouldn’t stop there. Instead, you should constantly track your financial activities to ensure you’re adhering to your budget. One of the best ways to achieve this goal is using a physical financial/budget planner.
If you do need additional assistance with organizing your budget, make sure to stop by The HBH Shop and check out my Finance Planner printables. It’s a complete system for managing your finances, creating a budgeting system, and building up your savings.