The beginning of the year is the perfect time to reevaluate your budget and change things up a bit to ensure you rock your goals for the new year.
As a young professional, you have time on your side — but that isn’t a reason to be complacent with your budget or savings. Your budget and savings should be as flexible as you are. But like you, it also needs maintenance.
Follow these steps to get started:
Track Your Income and Expenses
Before you even begin to budget, you need to have a clear picture of your income and expenses. These numbers help create the roadmap you’ll need to understand how to properly manage your money. But without knowing your income and expenses, you’ll wander aimlessly and increase your chances of losing focus and getting lost along the way.
Start by looking at all of your income from various sources. Make a note if it is recurring, or unexpected.
After getting a clear picture of your income, look at your expenses. Your expenses include things like food, shelter, entertainment, insurance, and more.
Hopefully while doing this exercise, you realize you earn more than you spend. The most basic step in financial wellness is spend less than you earn, lest you walk towards a life built on credit and paved in debt.
Create a (New) Budget and Outline Savings Goals
After tracking your income and expenses, create a new budget that reflects your goals and values for the coming year. Are you working towards paying off debt? Do you plan on attending a lot of weddings this year? What are your short, medium, and long-term savings goals?
It’s crucial that your values and goals are clearly outlined and that they are well-documented in your budget. If they’re not, it’s tough to maintain focus, stick to a budget, and make it work.
Don’t forget to choose a budgeting method that works for your specific goals and lifestyle.
Consider the zero sum budget, which takes every dollar of income, and puts it to work in your budget. The zero sum budget is helpful because there is no “money left over” — it’s all put to use for things like bills, entertainment, and savings goals, etc.
You can also use the 50/20/30 rule, which states that 50% of your budget should go towards essentials (in this case, needs), 20% should go towards short and long-term savings goals (think emergency fund, retirement, or even debt reduction), while 30% should be used for personal choices (read: wants).
Get Serious About Financial Progress and Success
But those are just general guidelines. There’s nothing that says you can’t save and invest more than the typical 10% rate.
If you really want to get financially fit, consider saving 25% to 50% of your income — or more. Doing so will speed your progress to financial independence. If you can afford it, go for it!
Maximizing your savings rate now can have huge payoffs in the future and open up a world of opportunity, such as early retirement, travel, and financial security.
Understand Your Spending Triggers
When you revamp your budget and savings goals, it’s easy to get excited and carried away. But when you go overbudget or miss the mark on your savings goals, it can feel like a huge blow. To help avoid this, take time to recognize and understand what triggers you to spend more than you should.
If you know you can’t be trusted in a particular store without spending money, then it’s probably a wise idea to not go in there unless you absolutely have to. If you know that you spend more money on eating out when you are crazy busy, then spend some extra time on the front end to meal plan.
Focus on how you can save money, too. This is helpful when you can look at positive actions, instead of just negative ones. (In other words, don’t constantly tell yourself, “I can’t spend on this.” Instead, say “I can save this much by doing X and Y!”)
Improving your finances, staying on a budget, and boosting your savings requires a keen understanding of your spending triggers. Mastering your finances is just as much about your mentality as it is your money. All it takes is to start doing things a little differently, day by day.
Getting financially fit doesn’t have to be difficult or overly complicated. The most important part is to get started. Your life should guide your budget, not the other way around — but you need to take action and reassess your budget and savings goals from time to time. And why not start now? It’s a new year, new you. Time for a new budget.