Post-Holiday Budgeting Tips
If you overspent during the holidays and find yourself with a huge spending hangover, now is the time to make some changes to get your finances back on track.
Follow these steps to create a household budget for the New Year by asking yourself how much money you actually have, how you’ve been spending and why you may have failed to follow previous budgets. Chances are your old plan was unrealistic. However the process comes out, remind yourself that a household budget is only useful if you actually stick to it.
Add up your income
To figure out exactly how much money you have to spend during the year without incurring additional debt, total up your net income from your job and any other money you receive monthly, such as alimony and child support. Multiply that number by 12, then add any annuity disbursements, royalties or guaranteed monetary gifts and bonuses.
Gather all your bank statements, bills and store receipts from the past year. Use home budgeting software or a budget calculator to organize and add up those expenditures. This is also a good way to start getting your financial records in order for filing your tax return.
When totaling your expenses, remember to include intermittent bills such as real estate taxes and car repairs. Also factor in incidental expenses like coffee shop visits.
Calculate your cash flow
Subtract your annual expenses from your annual income. If you wind up with a positive number, your cash flow is adequate or better, depending on how large that number is. A negative number indicates you have more money flowing out of your pocket and bank accounts than you have coming in.
Reduce your spending below your income
Once you know where all your money is going, you can identify places to cut spending. Eliminate incidental expenditures first, and see if you can keep cutting until you have a positive balance that equals at least 10 percent of your income. For instance, if you divide your annual income by 12 and get an average monthly income of $2,000, make cuts until you can expect to have $200 left over every month. Plan to put that “extra” money into a savings or retirement account.
Set your December budget a year in advance to avoid yet another holiday spending hangover. Reduce the need to use credit cards by earmarking a portion of your monthly cash savings for gifts, decorating and entertaining. Most importantly, determine what you spent between Thanksgiving and New Year’s last year and use that number as a baseline for the minimum you can expect to spend over the coming Christmas season.