Most of us kick off the new year with lofty ambitions: Eat healthy, get in shape and be more successful in life and work within the next 365 days. Those are great goals, but nothing is easier or more impactful to your well-being than starting the year with a new budget. Here, a few simple steps that’ll ensure your bank account remains as healthy in 2016 as you plan to be.
Start A Safety-Net Fund
Set a goal of having 6 to 9 months' worth of expenses in an emergency fund. Yes, that can be a daunting proposition, so we suggest you start small by squirreling away a realistic amount—10 percent of your earnings is a good benchmark—each month. This stash would cover job loss, unexpected expenses (car repair) and emergencies.
Assess Your Indulgences
While you don’t need a $4 latte each day, it might be the only thing that starts your morning off right. That’s OK. Don't try to eliminate the indulgences that make life worth living. Pinpoint those and budget for them. If you love going to dinner with your friends, for example, allow a few of those dinners each month, but be disciplined and don't exceed the limit. If you love going out to dinner and ordering Thai takeout, pick the one that makes you happiest and drop the other. The easiest way to kick this off is to print out a few recent bank statements and highlight the non-need-based purchases that didn’t bring you joy. Those should be eliminated in the new year.
Set One Goal
If you have any debt at all, your goal should be to reduce or eliminate it. Any financial expert will tell you that being debt-free is the biggest priority when it comes to building or rebuilding your financial strength. If you don't have debt, your goal might be to boost your emergency fund, save for a specific purchase (house, car, vacation) or increase your investment portfolio.
Every year we're caught unawares by our car registration fees (particularly because they tend to include a few unpaid parking tickets—oops). But registration is an annual expense. There’s no reason for surprise. January is a good time to take a look ahead and note on your calendar when you'll get hit with those predictable expenses (and make a plan to cover them). Holiday travel, season changes that require wardrobe updates and car maintenance are all potential for out-of-the-ordinary spending.
Optimize Your Credit Cards
Most credit cards offer some sort of benefit to the user, whether it be mileage, cash back or other rewards. Take a look at the cards you’re using and determine whether or not you're getting the most bang for your buck. (Remember, the benefits of any card are negated by finance charges, so be sure to pay off balances monthly.)
Understand The Value Of A Dollar
If you're paid hourly, it’s easy to calculate how much you worked to afford a purchase. If you are on a full-time salary, it can be more difficult to look at expenses this way. To start off the year with a better understanding of how much you are paid, take your annual income and divide it by 2000 (assuming you work 40 hours per week). Keep this hourly rate in mind whenever you spend in 2016 and we guarantee you’ll rein it in; realizing you had to work 20 hours to pay for a dress you’ll wear once will likely stop you from buying it.
Don’t Spend Every Cent
This is a tough one for most of us: The monthly budget you determine shouldn't net you in the red or zero out your account. If it does, and this includes whatever you're saving each month, you need to rethink your spending. While it's never fun to tighten the belt, you'd be surprised how many ways there are to do it. For example, though you may have sworn allegiance to your stylist, you don’t need to spend $100-plus on a haircut if you’re just getting a trim. In a pinch, designer makeup can be replaced with drugstore versions. Coupon apps can be used to save money on groceries and everyday purchases, and Groupon-like sites are a great way to save on fitness classes.