Regardless of how well you followed your budget last year, now is a great time for a budget tune up. Things generally change at the beginning of the year – you may be getting more (or less) in your paycheck each month, and some of your costs may have changed. Here are some steps I think everyone should take for a budget tune up.
Compare how you did against your budget last year
Look at your budget from the past year and see how you did. Don’t automatically assume that you should follow the same budget – if you had significant variances to your budget, look at how you can adjust it. Didn’t have a budget? Then just review your high-level expenses, and put one together.
You’ve probably heard the saying, “Pay Yourself First”, and for a good reason. It’s solid advice, especially if you can have those savings taken right out of your paycheck (e.g., your 401K contributions). If you don’t see the money, you can’t spent it.
Automatic investments are a great way to automate your savings beyond your 401k. Do this for things like 529 plans, emergency fund savings, and standard savings/investment plans. You can also do automatic withdrawals for some charitable contributions (I especially like Donors Choose).
Trim the fat
Last year’s spending is a good starting point for your budget, but there’s usually room for improvement. What did you buy that you really don’t need? If you have receipts/credit card statements from the past few months, go through them and see what you purchased. Do you even have/use those things now? Cut those expenses out of your budget and put that money into savings.
Cut bills where possible
The beginning of the year is a great time to go through your set bills, like utilities, mortgages, car loans, and insurance. It’s worth calling each company to see if they reduce your bill in any way. You could also see if refinancing is an option.
Once you have a good budget, it’s important that you follow it and compare budget to actuals each month. Also consider getting your free annual credit report.