Update: 2/3/2021 | How to Start Budgeting
If there’s anything that the unprecedented problems of 2020 taught us, it is to expect the unexpected. Last year brought about a wave of job loss, new technology to keep up with the work-from-home demands, and of course, stockpiling toilet paper and canned goods. However, how do you budget for the unexpected?
As we enter 2021, it’s time to take control of our financial situation as we enter a New Year with new goals, and possibly new expenses.
#1 Take a look at last year’s spending
In order to get a realistic sense of your spending habits, take a look at a full year of your financial
documents. This allows you to notice trends in your bank and credit card statements that can be
related to seasonal needs. By looking at last year, you’ll have a better expectation of what this
year may bring.
#2 Consider why you spend money
Chances are that you have done some unnecessary online shopping during the pandemic. In order to hold yourself accountable when it comes to spending money, think about why you are making a specific purchase. There may be an emotionally driven reason behind your purchase.
#3 Map out your money in and your money out
In order to know what to budget, you have to know what money is coming in through your take-home pay. Note any taxes and/or benefits being removed from your paycheck. Once you know how much money is coming in, make note of all your ‘fixed’ expenses: rent, utility bills, loan payments, or credit payments. Don’t forget about your grocery shopping funds. Lastly, think about how much you spend on excess expenses, like eating out or entertainment. (Don’t worry, you can still practice self-care on a budget.)
After you have all your expenses figured out, you should be able to recognize the ratio of money in to money out. Once you know where most of your money is going, you will have a better idea of where you can start to save money. If you do the math and see that you are spending more than you are saving, start to consider where you can trim some excess spending.
If you want to go the old-school pen and paper route, invest in a budget planner. For those who don’t want to physically write out these expenses, you can use a budget calculator to help figure out and organize your funds from your phone or computer.
#4 Don’t forget about debt
As 2020 brought about more financial strain or job loss than many previous years, consider if this has created debt. If so, re-figure your budget to address this debt before moving onto future savings.
#5 Save for an emergency fund
Before dedicating your savings to your long-term savings, create a safety net in case of emergencies. As we have experienced in 2020, you never know when you may need that safety net of funds. This safety net should be equivalent to six months’ worth of your ‘fixed’ expenses. In order to build both your short-term and long-term savings, divide up your total savings each month into these two categories.
#6 Set up automated savings
An easy way to ensure that your money makes it into savings is to automate your paycheck to be split between your checking and your savings accounts. You can set up automated transfers with your bank, or with your direct deposit.
#7 Revisit your budget throughout the year
As you can’t necessarily plan for the unexpected, continue to check in on your budget throughout the year. Following life changes, like a change of income, or even just a slight detour off track for your budget, it can help to readjust your financial plans throughout 2021 to prepare for 2022 and beyond.
While we don’t know what 2021 has in store for us, we can try our best to be prepared by budgeting our money in ways that prepare us for the unexpected.
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