As you step into the New Year and consider what you want to achieve, a good place to start is to look at your household budget. Whatever your goals, a well-planned budget can help put things in perspective.
Here’s a handy 5 step guide on how to manage your New Year budget.
1. Break it down
Setting an annual budget can be a bit daunting, so start by breaking it down into more manageable chunks. If you’re paid monthly, for example, it makes sense to break down your budget into 12 detailed monthly plans. You'll then need to break down your expenses and other income into monthly increments. Don't just include the things you pay each month - add in the big bills you pay once a year. For example, if you pay your car registration yearly, divide the amount by 12 so you know how much you need to save each month.
2. Understand your spending and earnings
The most important part of any budget planning is understanding what you earn and what you spend. It sounds simple, but you may be surprised to find little pockets of money going in and out that are easy to overlook.
For your income, your salary is of course the starting point. But if you have other income, like family payments, or shares, don’t forget to add those in your budget.
It can be harder to keep track of what you spend, but perhaps start with the big bills, like car registration, electricity bills and loans. For everyday expenses, try keeping track of everything you spend over a week or two. It’s easy to forget to add in that extra coffee each day, but this way you can see exactly where your money goes. This handy budget planner from MoneySmart may be helpful in making sure you don’t miss anything.
3. Set your goals
Once you know what you earn and spend, you’ll want to factor in your savings goals. For example, if you're trying to save for a deposit to buy a home, put down how much you’d need to have by the end of the year, and divide this by 12 to give you a monthly savings target. Remember to add in the interest you could potentially earn over time by putting the required amount aside in a savings account, you can work out what this might look like by using our savings calculator here. It is also a good idea to add your expected home loan repayments into your budget if you're planning to take a leap and buy a home this year. For more effective home deposit saving strategies click here.
4. Be realistic
Once you’ve completed all these steps, it's important to step back and view your budget through a realistic lens. If you’re planning to cut down your spending so you can save more, ensure your plans are achievable. If there’s no room for that unexpected expense or occasional movie night, it may be challenging for you to stick to your budget.
5. Check back
Once you’ve completed your budget, don’t just put it in a drawer. Check back at least once a month to make sure you’re keeping on track and making any necessary adjustments.
Creating a yearly budget can feel like an overwhelming task, but it's well worth the effort. It won’t be long before the end of the year rolls by again and you’ll be able to reap the rewards.
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This article provides you with factual information only, and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser. Neither Pepper nor its related bodies, nor their directors, employees or agents accept any responsibility for loss or liability which may arise from accessing or reliance on any of the information contained in this article. For information about whether a Pepper loan may be suitable for you, call Pepper on 13 73 77.