2020 threw most of us a curve when it came to financial wellness and planning. If you’re like most people, your “best laid plans” made in good faith last January went awry as the year unfolded, full as it was with COVID-related challenges. According to Principal, 22% of Americans said they considered their top financial blunder last year to be not saving enough (22%) and not budgeting properly (11%).
One of the best things about every new year are the opportunities it affords for making a fresh start. There’s a lot of power in taking control of what you can change, even while there are plenty of things that are still beyond our influence right now.
Let’s use this time to look ahead and start planning a new financial budget for 2021 using this process:
1. Reflect on the future and identify and prioritize some goals surrounding the next 10+ years. Try organizing them by answering these questions: What are my…
- Short-term goals (6 months to 5 years)?
- Mid-term goals (5–10 years)?
- Long-term goals (10+ years)?
How much have you already put toward each? If you’re going to have a shortfall for one of your goals, how will you fund that? What you determine in Step #2 may help you answer that question!
2. Here’s where we get down to making a rudimentary budget. Refer to your recent bills and check 2020’s bank and credit card statements to keep your numbers accurate.
- Make a list of what money comes in each month. Your net pay and other income you derive from other sources.
- Make a list of what goes out each month. Include your fixed expenses like your car payment, rent or mortgage, and utilities. Be honest with yourself about your discretionary spending as well…things like how much you spend on clothing, hobbies, and entertainment.
- Now sharpen your pencil. Where can you cut back? Prioritize and revise. The goal here is to find “extra money” to save, invest, and put toward those goals you identified in Step #1.
If your budget comes up short, have another look. Review when, where, and how you are spending your money. Pay special attention to these categories, which Principal reports many people overspend in:
- Dining out (27%)
- Food/groceries (24%)
- Entertainment (19%)
- Clothing/apparel/shoes (16%)
- Vehicle expenses (16%)
Reducing the amount of money going out and reassigning those funds toward meeting your financial goals is a wise move. That said, more income helps, too! More money coming in obviously means faster progress toward your goals.
A side hustle can help. Can you teach a virtual class at your local community college based on your skillset or even one of your hobbies? Can you start a side business tutoring students one-one-one or in small groups via Zoom?
Could it be time to ask for a raise at work? If you’re successful, don’t change your standard of living. Just take that “new money” and apply it toward meeting your goals.
At Money Mentor Group, we advise our clients to Think of a budget as a way to organize your monthly cash flow that includes your saving and investing goals. Having a plan that you have thoughtfully created will help you decide how to manage what’s left after you pay your critical bills.
If you’re ready to integrate your goals and budget into a larger financial plan, Money Mentor Group would be happy to help!