There’s no better time to get your expenses in order than in the New Year! And to do this properly, you need to create a detailed budget. With a budget, you get a clear picture of what you’re spending and where you may be overspending. It can also tell you when you can expect to get out of debt, as well as how much you need to save for your financial goals.  So if you’re looking to reach financial freedom faster, check out these tips on how to plan an effective budget for the New Year.

Get Organized

To create an effective household budget, you need to gather all your financial paperwork. This includes your yearly bank statements, pay stubs, rental statements, your utility bills, credit card bills, mortgage statements, insurance records, car loan receipts, contributions, and any other sources of income or expenses you may have. You ideally want to create a clear picture of what you make and what you spend on a monthly basis.

Calculate Your Income

Once organized, sort through your pay stubs and statements to calculate your total income. Sort out your income per month and make sure to include your salary, any interest on your savings or investments, and any rental income.

Calculate Your Essential Spending

It’s important to determine what is essential spending compared to non-essential spending. Essential is considered as anything you need to live or must pay to avoid being penalized, like your mortgage, groceries, childcare, car, insurance, transportation and utility costs. Depending on your lifestyle, you may consider your gym membership and beauty products also as an essential item. Sift through your statements and write down what you spend on each of these items per month.

Non-Essential Calculations

You’ll need to also add up all the non-essential spending you make per month. This is generally anything that is considered disposable like going out for dinner, alcohol, cigarettes, vacations, entertainment – basically anything that is a “want” over a “need.” Here is where you will find the areas you can cut back on to curtail your expenses and to save more.

Create An Easy To Manage Budget

With some simple formulas in excel, you can deduct your essential spending from your income, to see how much you are left with each month for your non-essential spending. Once you deduct your non-essential spending from the remaining amount, you will get a clear picture of where you’re going over budget each month. This will help you create a budget for your disposable income going forward in the New Year. And it can also help you to decide if it’s time to try to get better deals on your essential expenses like your mortgage to save more money.  The goal is to be able to have enough money each month to put some of the cash into savings.

Creating a budget can be a timely and frustrating task, especially for those with limited accounting or financial experience. And one simple mistake can leave you empty-handed at the end of the year, so leave it to the professionals. When you’re ready to create an effective budget for the New Year, call us at Priti Lad. Our certified professional accountants are here to help you get your finances back on track!