Start the year off right by setting a budget that will get your finances on track to last through retirement. This advice sounds obvious, but According to a 2019 survey from the Certified Financial Planner Board, less than half of Americans keep track of their expenses and make a household budget. Only 30% of Americans have a long-term financial plan that includes savings and investment goals, according to a Gallup poll.
The new year is a fantastic time to set your budget and make plans for the year. You can take time to reflect on the past year and set goals for the future. Before you commit to any big projects, you will need to set a realistic budget. Take this opportunity to review annual bank statements and credit card summaries. These are great resources for identifying where any budget issues are hiding. Take a hard look at which spending categories are dragging down your finances and make the hard decisions about where to improve your spending next year.
Estimate your recurring expenses
Look over your annual statements and separate your ongoing bills such as electricity, gas, insurance, medical bills, grocery bills, etc. These bills tend to fluctuate throughout the year, so take your total annual cost for these and divide the number by 12 to get an estimate of your average monthly expenses.
Estimate your non-recurring expenses
Your non-recurring expenses are extraordinary expenditures that require planning, such as a big vacation or car repairs. Make sure to factor in irregular expenses that show up infrequently, such as home repairs and veterinarian bills.
Know how much you make
After you determine what your expenses are, it’s time to look at your income. Whether you are still working or retired, you need to know your actual income to set the framework for your budget. Aside from a regular salary, you must factor in social security, interest, dividends, rental property income, etc. Subtract your estimated expenses from your actual income to see how you’re doing. If you are spending more than you are making, then it’s time to make some cuts, so you don’t run out of money in your retirement. As mentioned above, your bank statements are ideal for identifying the categories that are breaking your budget.
Keep tracking your budget
Make sure you track your spending each month to ensure that you are sticking to your budget. Generic statements such as “I’ll save more this year” are easy to neglect as expenditures arise throughout the year. Set a specific budget and make sure you stay diligent with your actual expenditure tracking. Keeping an account of every little expense will make you think twice before splurging. If you find yourself in a crunch and need to tighten the belt, consider no spending days.
No spending days
Committing to a “no spending day” or “no spending weekend” are great ways to help get yourself to help correct your budgetary issues if unexpected charges arise. Make your meals at home, skip the shopping trip, and spend the time enjoying free entertainment such as a good book or free entertainment provided by your local library or parks department.
Don’t panic if you get off track
Don’t forget that you control your spending. It’s important to remember this if you happen to slip-up. Just remember to stay focused on your goals and get back on your budget plan. It happens to everyone, so don’t panic and learn from your spending miss-steps instead.
Creating and sticking to a budget are the first steps to financial freedom. Good luck in 2020 with achieving your financial goals!
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.