8 Things to Remember When Setting Up Your Annual Budget
Being able to manage your personal financials is extremely important. when you were looking for ways to improve your personal financial management, setting up a good personal budget is a great first step. There are eight things that you should do this year to ensure that your annual budget is prepared as well as possible.
Get the Right Tools
When you are trying to create a personal budget, you first need to make sure that you have access to all the tools that you need. When you create your budget, you will likely need to have a computer with a spreadsheet program, prior records of your spending and income, and other tools to help you do the work. Ideally, you should have this all set and prepared before you sit down to do the actual work.
Analyze Past Income and Spending
A big part of the process when you are setting up a personal budget for the year is to analyze what you did prior year. This part of the process will require you to go through all of your past statements as well as your bank statements to figure out where exactly you have been spending money. Once you have a better idea of where you have been spending money in the past and how much money you have been making, you will have a better idea of what your starting point is for your budget.
Look for Ways to Cut Back
Once you have been able to analyze your spending, you should immediately look for ways that you can cut back. Normally, there are many areas where you can cut back your spending. By doing some research online, you may be able to find ways that you can cut back on your monthly bills by negotiating better deals or finding more affordable solutions. You could also find some discretionary categories, such as eating out, which will be simple to cut down on.
Think About Non-Recurring Expenses
While it is easy to include fixed items, such as rent and car payments, into the budget. The less-recurring expenses are tricky. These items, which may only happen a few times per year, need to be remembered and included. This will ensure you are prepared for the expenses when they arise.
Create a Strategy for the Year
When you are creating a budget, you need to focus on what your goals are for the year. Your personal financial goals can vary significantly from one year to the next. In one year, you may be focused on trying to pay down credit card debt. The next year, you may need to save up money for a down payment for a home. Whatever your goal is for the year, it should be properly identified in the budget.
Remember a Rainy Day Fund
Depending on your personal situation, you also may need to dedicate part of your budget to building up a rainy day fund. All people need to make sure that they have money set aside to pay for financial emergencies. Ideally, you should have at least three to six months of living expenses set aside. If you do not have this reserve set up already, building it up should be a top priority for your budget.
Contingency
While you can plan for many different expenses during the year, you also need to realize that there are going to be expenses that come up that you will not be able to predict at a time. Because of this, you need to make sure that you have some form of contingency plan set up each month. Ideally, you should have an additional monthly contingency expense that is at least five to ten percent of your total monthly expenses.
Get Others Involved
Ultimately, if you are going to try to set up a good budget, you also need to make sure that you have the support from your family and friends. One of the biggest reasons why people struggle with staying on track with your budget is because of pressure when it comes to spending. However, if you are clear with your family and friends that you do not want to spend as much money going forward, you could get the support you need.
