With a New Year on the horizon, it can be a perfect opportunity to review your financial highs and lows from the past twelve months and decide which goals to set for the coming year. If you find your budget needs some improvements, here are some helpful tips to getting your income and expenses back in balance and creating a more financially fit 2023.
The holiday season often comes with a spike in spending, so you’ll want to include this in your yearly budget. Review how much you spent last year on gifts, travel, or events, and determine if there are areas you can cut back on or if more is needed next year. Always set a spending limit and stick to it, so you don’t end up putting extra on credit cards or using money from other areas of your budget. By beginning each year knowing how much you need to put toward holiday spending, you can help yourself save throughout the year and be financially prepared when the holidays arrive.
At the end of each year, take time to review your spending and how it compares to your monthly income. You can easily get off track and risk overspending if you’re not following your expenses and where your income is headed each month. Divide your budget into categories, for example, housing, food, transportation, medical, insurance, debt, personal, etc. To make this process easier, you can find many budgeting apps that allow you to conveniently track your spending, set savings goals, and better manage your money.
You’re not alone if one of your top goals is knocking down debt and finding ways to put more money toward savings. Take a look at your current payment strategies for your mortgage, credit cards, and student loans, and determine if there are more creative ways to tackle the balances. As you create your budget for 2023, consider paying more than the minimum amount or paying more than once a month if possible. This can help you save on interest and allows you to pay off your loan more quickly. You may find the snowball method works best for you, where you begin by paying off the loan with the smallest balance first, then once that is paid off, you use that same amount you were putting toward this loan and roll it onto the next smallest loan. As you continue to do this, the amount “snowballs” and allows you to put larger and larger amounts toward your debt, until your total amount is greatly reduced. You can also try a reverse strategy called the avalanche method, where you pay down the debts with the highest interest rates first and work your way down through each remaining loan.
Reviewing your budget regularly throughout the year can be very beneficial and is especially important at the year’s end. Take the opportunity to analyze your finances from 2022 and reevaluate your budget to help ensure you are making the most of your paycheck and avoiding unnecessary spending. Begin by determining your monthly income and current expenses, divided into individual categories. Then subtract your expenses from your income. If you’re finding your balance is at zero or not leaving much for savings, you’ll likely want to make adjustments to your spending.
The 50/30/20 budget rule is a popular budgeting method that has you split your after-tax income into three spending categories: 50% on needs, 30% on wants, and 20% on savings. The need category includes your rent or mortgage, car payments, insurance, health care, utilities, and groceries. Your wants are the part of the budget that is for non-essentials, like entertainment, vacations, gym memberships, and restaurants. Lastly, allocating 20% of your income to savings each month allows you to work toward long-term financial goals or be better prepared in case of an emergency. Once you gain a big-picture view of your finances, you can make adjustments more easily and stay on track toward your yearly goals.
If you have life insurance in place, use this time to review your coverage to determine if it still aligns with the needs and goals of your family. Have any life events happened over the past twelve months? Did you start a new job? Welcome a child? Move to a new house? These occasions can be a good reason to review your coverage amounts to help determine that there are no gaps. If you don’t currently have coverage, take this opportunity to explore your options. Life insurance can be worked into almost every budget and can be hugely valuable in replacing lost income and safeguarding your family’s future. If something ever happened to you, your loved ones would receive the financial support they need to pay for final expenses and keep up with the bills during a very difficult time.
The past couple of years showed us how quickly life can change, and if we’re not prepared financially, we can potentially face some difficult challenges. If you don’t currently have an emergency fund or need to rebuild this cash reserve, consider adding this to your budget for 2023. A good goal is having at least three to six months’ salary saved, so if an unexpected event or need arises, you’ll have this financial safety net to fall back on, without having to take out a loan or increase credit debt to make ends meet.
Whether your budget needs a complete overhaul or some fine-tuning, incorporating a few budgeting tips and tricks for the coming year can make a big difference. By prepping now and determining where you can start making changes, you’ll be in a solid position to achieve your financial goals in 2023.