One of your top priorities as the year comes to its final stretches is preparing your household budget to start the new year. It might be mont’s into the future but the current year is already heading to its last quarter. As such, planning not only for the holidays but the coming new year is important. You might be too focused on ending the year on a high note that you overlook what you need to prepare for the new year.
You need to plan your holidays well so that it does not leave you in financial ruins after. However, you also need to look further down the future. One of the many things you can use to help you with planning for the next year is creating a new year’s resolution. This is basically a set of goals you want to achieve for the new year.
Having a budget will be one of the tools you will need to help you start the year right. It gives you the ability to control and monitor your finances as you go along. You can make informed money decisions because you know how much your income and expenses are at any given time. You can either move your income around or make extra payments on certain expense items as the year progresses.
This is why it makes a lot of sense to start out with a good budget for the coming year. As you do that, there are a few things you need to keep in mind as you put your budget together. Here are some of them you can look into.
Manage your holiday spending well
To help you in preparing your household budget for next year is to make sure you do not spend the last month of this year creating a financial mess. In your desire to make sure you end the year with a memorable party, you could be stretching your finances in a way that you are maxing out your credit cards left and right.
The next thing you know, you are already in the red even before the year has ended. This can put you in a tight spot when you start putting together your budget for next year. This is why it is important for you to manage your spending as you end the year with an expensive holiday. There are a lot of things you can do to minimize the cost without ending up in serious debt.
One is using cash for the holidays to help force you to budget your money. You can still use your credit card but you have to make sure you pay the whole amount at the end of the month. It can actually be a great way to save money if you can take advantage of the rewards it gives you. Bottomline is that you have to watch your holiday spending to give you a good start for the year.
The household budget needs to be doable
Once you start putting together your budget, you have to list down items you know you can accomplish before the year ends. You might start putting lofty goals you know will be impossible to achieve. Putting down items you cannot accomplish only sets you up for failure.
If you still have over 10 years to pay off your house, do not try to pay everything off in a year. You try and rearrange everything in your budget so you can pay off your house but you will inevitably give up some payments in your budget. You already know that once you start missing payments, that amount only gets bigger in time while your credit score goes down.
When you create a household budget, you need to be very honest with what you can accomplish. Trying to squeeze in a year’s worth of mortgage or even student loans in the next year is close to impossible. Take a look at what you can afford to spend every month and work your way from there. Do not stretch yourself out too thin that you are not able to manage your finances well.
Learn from your past mistakes
Your household budget is more than just numbers because it should also include financial lessons you have learned in the past. The lessons you have learned in the past should make you a smarter money manager. It needs to ripple out into your budget so you can create a strong budget or at the very least, one that is better than before.
If you were in deep credit card debt this year and you had to make a lot of sacrifices just to pay everything off, take that lesson with you. CNBC shares that credit card debt surpassed $1 trillion in the past year. Do not be too quick in using your credit card in buying items you want. Think back on all the struggles you have had in the past just to be able to pay off your credit card bill off.
From those hard lessons, you will most likely scrutinize more your credit card expenses before charging on it because you know the feeling of repaying financial mistakes. If that new car prevented you from getting your business started, there is a good chance that you will make sure that your budget will not have any room for those types of expenses.
Keep your long-term goals in mind
Your household budget should also be put together in a way that it gets you closer to your long-term goals. If your goal for the coming new year is to help you lower your student loan debt, you need to make sure that extra money in your income goes straight to that goal. Your budget will show you where that extra funds will come from.
If you went through a challenging time this year because of an unexpected emergency, that could be a goal for the coming year. You could make sure that you get to bring up your reserve funds to a level you are comfortable with. This will allow you to face any unexpected emergencies in the coming year and give you peace of mind as well.
Potential money problems at the start of the year
Now that you have an idea of how you can prepare your finances for next year, it will also benefit you to know some of the potential pitfalls you could encounter with your budgeting. Here are some of them you need to familiarize yourself with.
Credit card bill from your holiday expenses
As mentioned earlier, you need to properly manage your holiday spending during the last month of the year. If you don’t, you will be dealing with the repercussions of that action during the first month of the new year. The bill will come and you have to deal with the problem. You might not be able to pay everything off in a month. Once this happens, you would have to spread it across a few months just to pay it off.
Getting into too much debt at the start
You might not be getting in debt during the holidays but you do go out at the beginning of the year and blow off your savings. You also undo all the hard work you have put in the past year. There is no reason for you to spend more than what you need at the top of the year. Stick to your budget and focus only on the expenses which are important and will bring you closer to your goals.
Using up all your savings from last year
Use it to strengthen some of your important funds such as your emergency fund or even your retirement fund. You can even put it into your children’s college fund or make an extra house payment. The idea is to use the money to help you improve your finances and to not give in to your wants and desires. You will quickly use up that amount
Your household budget is an important tool you will need to utilize the most at the beginning of the year. It is important that you stick to your budget will give you the chance to get to your financial targets.