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You’ve finished off the leftover turkey and dressing and have shifted gears into holiday shopping mode. As another year comes to a close, it’s a good time to look back on how your budget planning went this past year.

After an assessment, you can begin to find ways to improve your financial well-being in the upcoming year. In order to be prepared for a bright financial future in the New Year, it’s important to set your budget, contribute to your savings, and pay down any high interest debt.

Now is the Time for Budget Planning

Do you know how much you spent this year on utilities, groceries, housing, or entertainment? Once you have an idea of how much you’re spending on certain categories, you can estimate your projected expenses each month and use budget planning to find places to cut expenses.

There are a number of apps that can assist you with tracking and categorizing your spending, but you can also do it on your own by entering your expenses into a spreadsheet. If you use your debit card for most purchases, you can use your online bank statement to help you identify your expenses. Don’t forget to account for the cash you spend if you want a true picture of all your expenses.

When setting your budget, you’ll likely have fixed and recurring expenses for housing, transportation, student loans, utilities, and other similar areas. Then, you’ll need to set an amount for variable expenses like groceries, clothing, and entertainment.

Knowing your income each month will help you set goals. If you have a steady job, you probably have a consistent weekly or monthly income and can use that to start your budget. Your monthly expenses should be less than your available income each month.

If this is not the case, you can review your expenses to identify areas to trim back and reduce your spending each month. Once you’ve created a budget, try to stick to it as best you can each month. That way, you’ll stay on track and not get into a position of having to use credit cards or possibly getting behind on some of your bills.

Save, Save, Save—The Sooner You Start the Better

Even if you’re in your 20’s, it’s never too early to include retirement in your budget planning. If you start with small contributions, you can make it a habit and priority. If your employer offers a 401(k) plan and matches your contributions, take full advantage of the opportunity for free money.

It’s also important to set aside funds for unexpected expenses or emergencies. A good rule of thumb is to have three to six months of income in a savings account that you can access for those unplanned events. Not only will this give you peace of mind knowing that you have your own safety net, but it will help you avoid putting large charges on a credit card that will likely incur high interest fees.

Pay Down High Interest Rate Debt

Whether you’re paying off a student loan, a car, or a credit card balance, it’s always an accomplishment to know you have extra income to go toward something else (like saving).

If you can allocate some extra resources to pay down your debt, it’s generally best to start by tackling the account with the highest interest rate. That might be a credit card balance that seems like it never gets smaller because of the interest that keeps adding up each month.

Another goal you might have is to simply pay something off with a smaller balance just to get that sense of accomplishment and then move that money toward paying down other debt. It might make sense to look at debt consolidation or refinancing where you may benefit from paying off higher rate loans or debt with a lower interest rate personal loan. This is especially helpful with high rate credit cards. See our article on using personal loans to cure those post-holiday credit card blues. You can find other helpful articles and resources at U-fi.com. All of us at U-fi wish you a successful and prosperous new year!

Recent surveys and studies suggest that many young adults lack basic money management skills. Too often, students enter college at a loss for managing their personal finances. College may be the first opportunity you have to experience some independence, and may be the first time you are faced with budgeting and making financial decisions on your own.

One of the simplest, yet most important steps to controlling your finances is budgeting. To start the process, determine your take home income and total expenses. Then break it down to a simple formula:

Income – Expenses = Positive or Negative Outcome

As you can probably guess, you want to end up with a positive outcome. To accomplish this, you need to spend less than you earn. It may sound easy, but it can be difficult. In order to calculate this number, you’ll want to sit down with a list of your monthly expenses. Worksheets like this one can help ensure that you’re accounting for everything – even that daily latte.

Here are some steps to get you on track to creating a budget and taking control of your financial future.

Know your income sources.

This is usually pretty straight forward. It’s typically money you earn from a job, but if you’re a student it can also be money you’re receiving from financial aid sources (grants, scholarships, or loans), money from your parents or other family members. To ensure your funds last the entire semester, you may need to average out your financial aid to a monthly amount.

Identify your expenses by using a daily spending diary.

Fixed monthly expenses like rent, car payments, insurance, and any other expenses you pay every month are easy to identify. The daily spending diary can help you track your variable expenses like food, entertainment, and clothing. After tracking of all of your expenses for a month, you may be surprised at where your money is going.

Figure out needs vs. wants.

When looking at your expenses or potential purchases, it’s important to make a distinction between “needs” and “wants.” There are some things you absolutely need – like housing and food. However, some things may fall into the “wants” category, like frequently eating out.

Find room for improvement.

After you’ve identified all of your expenses, find areas that can be reduced or even eliminated. Remember, you want to spend less than you earn. That goes for credit cards, too. It’s easy to spend what feels like “free money” but that debt can catch up with you quickly with interest.

Stick to it.

The last step, and possibly the most difficult, is to stick to your budget and resist the temptation of unnecessary spending.

After you’ve crafted your budget, stick to it each month, then evaluate how you’re doing. Are you staying within your budget? Are there problem areas you need to address with some of your expenses? You can find more money saving tips here to keep your expenses under control.

After you’ve created your budget, you’ll start to experience the benefits.

  • Ensure you don’t spend money you don’t have
    • Far too many of us spend money we don’t have using credit cards or student loans. A good tip is to only use credit cards when you can pay the balance each month and only use student loans for what you need (not want).
  • Shed light on bad spending habits
    • Building a budget forces you to look at your spending habits. You may find areas where you are spending money on things you don’t really need.
  • Leads to a brighter future
    • Budgeting allows you to position yourself for a more successful future. It’s far easier to “live like a student” when you’re actually a college student as opposed to trying to climb out from under a mountain of debt later.

Budgeting doesn’t mean spending as little money as possible or feeling guilty about every purchase. It’s about knowing your limits and making sure you have control of your finances.