You may have mapped out financial goals for the year —to save more, spend smarter, or stick to a budget. Whether you made New Year’s resolutions, pasted images on a vision board or crunched numbers on a balance sheet, you likely started the year with high hopes and big plans.
Now is the perfect time to solidify your plans and take steps to help you achieve those goals. Starting strong can set the tone for the entire year.
Here are six dos and don’ts about financial planning and management that can help you achieve a fresh start and get closer to reaching your goals.
- DO create a budget
One common financial mistake is not having a budget at all. Remaining in the dark about your spending can limit your ability to save for important goals like a car, a home or your retirement. If you don’t know what you’re spending, there’s a good chance you may be spending too much.
2. DON’T leave your budget up to chance
Using guesswork when trying to allocate your monthly budget can lead to overestimating or underestimating how much to allot toward each budgeting category. This may set you up for failure. Taking a month to assess and identify your spending patterns may help to establish a baseline as you’re setting your budget.
3. DO track your spending
Get to know your spending by creating a monthly budget tracker. You can then review your spending and track it in a monthly budget worksheet. Over time, you can adjust which budgeting categories to cut back spending on. Expenses can fluctuate month to month, so be prepared to shift gears whenever necessary.
4. DON’T put wants and needs in the same category
A common error beginner budgeters can make is mistaking “wants” for “needs.” Needs are essential items like utility bills, rent or mortgage payments, and groceries. These are things you need to live. Wants, on the other hand, are non-essential expenses like dining out or entertainment. It may still be possible to find room in your budget to accommodate a few luxuries, but being honest with yourself about what’s truly necessary may help you avoid this budgeting mishap.
5. DO keep it simple
The idea of listing every single expenditure for a month might seem daunting, but you don’t have to go that far. It can be helpful to create a budget that works for you, which includes making it manageable enough to take on in the first place. If you’re just starting out, create just a handful of budgeting categories to help keep things simple.
6. DON’T skip the emergency fund
Life is unpredictable and having an emergency fund to pay for unplanned expenses may help you during that time. Without it, you may have to dip into long-term savings or use a credit card if the unexpected arises. Creating an emergency fund doesn’t have to be intimidating. When you’re making your budget, include a monthly line item for emergency fund contributions. This can help build up your reserves over time. Many bank accounts even let you automate these emergency fund deposits.
The bottom line
Starting the new year with a clear plan can set you up for success, and budgeting is a powerful tool to help you achieve your financial goals.
Start tracking your spending now to set up your budget for the year and be aware of common budgeting mistakes. It’s never too early – or too late – to get back on the road to financial freedom.
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