02 Jan budgeting 101 for 2021
A recent poll of 1,000 adults on bestlifeonline.com found that the second-ranked New Year’s Resolution was to save money/get out of debt. (First, as usual, was to exercise more/lose weight.) Nearly one-quarter of respondents noted that saving money or getting out of debt is their top goal for 2021. The year 2020 showed us the importance of saving money and getting out of debt.
If you are one of the people who made these resolutions, where do you even begin?
You must start with a budget – there is simply no other way. You can’t save money, spend less, or get out of debt if you don’t know how much you are bringing in or spending. According to daveramsey.com, nearly 60% of households do not use a budget – so if you have not used a budget to date, don’t feel bad. I tried multiple budgeting tools and finally landed with EveryDollar, which you can download in the app store. While the free version is perfectly fine, the paid version links to your bank account and uploads any transaction that has gone through your bank (you will need to enter cash transactions separately). Before the beginning of each month, sit down and enter your expected income and all of your expected expenses for the month. The EveryDollar app has a number of categories but you can add as many as you would like. If you are married, it’s imperative that you do this activity with your spouse, every month.
Some of the entries will be pretty easy – you should know how much your mortgage or rent is. Some may be harder, such as the amount spent on groceries. You will likely find that things that you didn’t think about when you budget for the first time will come up during the month. You will also find that you are way off on some categories. It will take about three months of budgeting until you are pretty close with your estimations. When you overspend in one category, you will need to see where you can cut expenses to make up for the overspending.
If your income is greater than your projected expenses, that is fabulous! Take that extra and either start your initial emergency fund (if it is less than $1,000) or start paying down debt (more to come on that later). The amount you save or put towards debt should be included in your expenses so that your income and expenses net out to zero in the EveryDollar app (or whatever tool you are using) – meaning that you have given every one of your dollars an assignment, whether it is to be spent, or to be saved.
If your income is lower than your projected expenses, you have some work to do. There are no other options but to increase your income, to reduce your expenses, or a combination. Can you take on an extra part-time job? Delivery jobs are booming right now with COVID-19 and can bring in excellent money. Can you get rid of that huge cable bill, spend less on clothing, or stop buying that coffee each day?
Starting to budget, and doing it regularly, is key to getting your financial house in order. It’s hard work, but it is so worth it. Reach out if you need help! Wouldn’t it be nice to look back at the end of 2021 and feel a sense of peace about your financial situation? You can do it if you start now.