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 budget can help put things in perspective.
Here’s a handy guide on how to manage your New Year budget.
Break it down
An annual budget can be a bit daunting, so it’s best to 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. 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.
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 shares, don’t forget to include any dividends you may receive 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.
Set your goals
Once you know what you earn and spend, you’ll want to factor in your savings goals. So if you’re trying to save a deposit for a home loan, put down how much you’d like to have by the end of the year, and divide this by 12 to give you a monthly savings target. You can then add this amount to your budget. If you plan to set this amount aside in a savings account, you may also earn interest on it, so don’t forget to add that in. You can work out what this may be by using our savings calculator. If you’re planning to take the leap and buy a home this year, you’ll need to add your expected home loan repayments into your budget as well.
Once you’ve completed all these steps, it's important to stand 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, it may be challenging for you to stick to your budget.
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.
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.