Start with the basics
Think back on last year and identify financial areas you managed well and those that challenged you. For example, was there a particular expense that pressured your budget? Has your income changed? How has inflation impacted your spending? It’s important to identify changes so you can make the proper adjustments.
If your income and/or expenses have changed substantially, you may want to consider starting your budget fresh. If you don’t already have a budget, you can use this worksheet (PDF). Otherwise, start with your last budget, make adjustments based on the changes you just outlined, and recalculate it.
Plan to pay down debt
To help lighten the stress of balancing bills and debt, create a payoff plan that works for you. Like with savings, every little extra towards debt gets you closer to a payoff goal. Start your plan with a list of your debts, including balances and interest rates. Evaluate your debt payoff goals against savings goals and prioritize the most critical goals first.
One method to pay off debt is the avalanche method. This strategy involves paying off the higher interest rate credit accounts first, minimizing the total interest paid. Another method is the snowball method, which tackles your lowest balances first, providing quick payoff wins to keep you motivated. Before starting any method, be sure to review the pros and cons to determine which may work for you.
Save something every month
It’s ok to save differently each month. Unless you have an expense coming up that you’d rather avoid adding debt for, you might not need to save aggressively. However, try not to stop saving altogether. You don’t want to stop the momentum of this healthy habit. Set up an amount you can manage in an auto transfer tool so funds will transfer to a savings account automatically. Setting aside something, no matter how small, still counts as saving!
Use windfalls wisely
Financial windfalls like holiday bonuses, cash gifts, and tax returns give you an easy way to supercharge your savings account and/or pay down debt. Examine your budget to see if there are areas where some extra cash might make a difference. For example, paying off an additional bill or debt earlier than initially planned could help ease future budget pressures. Plus, any extra you can put towards savings may help you reach your goals sooner.
Another source to consider is the credit card rewards from holiday spending. You can leverage accumulated points to get cash back or discounts on future purchases like travel expenses for spring break. These incentives can help maximize the value of your purchases.
Budget your bites
During the flurry of holiday travel, shopping, and gathering with friends and family, eating out more often is not unusual. However, if that ate up a lot of your budget, now might be a good time to reassess your meal plans before it becomes a more difficult habit to break. Keep some funds in your new budget for dining out, but look for ways to save, like packing lunches, meal planning, and value menus, to help reduce your food expenses.
Unsubscribe from overspending
The biggest budget busters are not always lattes and lunches. Often, small recurring expenses go unnoticed, but they can add up. Scan your bank account and credit card statements for recurring charges and evaluate whether they are worth continuing. Canceling ones that provide little value and shifting the money could have significant impact on your budget and help in achieving your financial goals.
Start your budget tune-up now so you can begin 2023 on a good financial track!