How to Make Sure You Set a Realistic Budget for the Coming Year

Thursday, December 10, 2020, 6:00 AM | Leave Comment

For you to have a great financial plan in the coming year, you need a sound budget.

If you are saving for a dream holiday or just paying off your bills, budgeting is the first step in making your financial targets a possibility.

Although budgeting can be an intimidating task, here are five simple tips to help you create a realistic budget.

  1. Assess Your Income

    Before evaluating your income, gather all your financial documents such as bank statements, investment accounts, pay stubs, and bills. Begin by determining the amount of money you earn after tax every month by creating a comprehensive list of all the money that comes in. Your income sources may include your salary, dividends, interest, child support, alimony, and rental income.

    If you have varying incomes, use an average but the more precise, the better. Since you now know where your money is coming from, you should evaluate where it’s going.

  2. Know Your Expenses

    You have two types of expenses; fixed and variable. Fixed expenses include taxes and recurring bills. Fixed expenses don’t fluctuate every month and include your rent, mortgage, insurance, utilities, and debt payments.

    On the other hand, variable expenses change every month. Variable costs include gas, groceries, clothing, entertainment, eating out, and coffee. You can estimate your expenses by analyzing your bank statements or using an instant insurance cost calculator to estimate your insurance costs in the coming year.

  3. Calculate the Difference

    When your expenses are bigger than your savings, you should either spend less money or make more money. It’s usually much easier to minimize spending than to make more money. Go back and review your budget and figure out what should be reduced. You could buy a few newer clothes or dine out less.

    You should ensure you are saving more than what you are spending.

  4. Figure Out What You Need to Do With the Savings

    When you have savings, you should find out the best thing you can do with it. It would be best if you pay off your high-interest loans with your savings. You can also consolidate the loan at a reduced interest rate to make more savings and settle it faster.

  5. Make It a Routine

    You should create time to review your budget and expenses at least twice a month. This will assist you in tracking your spending and expenses, identifying changes needed in the budget, and ensure you are sticking to your financial objectives.

Follow the above tips to make a realistic budget for the coming year. Although it will take you weeks or months of fixing and adjusting your budget when you find the right method, it’s going to be worth it.

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