It’s a brand-new year — and the perfect time to review your budget as you look forward to the year ahead. This is your opportunity to consider the financial goals you have for the year and make sure that your budget aligns with them.

You might not be able to predict everything that will happen throughout the year, but you can consider what you want for your finances this year and see how those objectives align with your current budget. If there are any places that don’t match up, you can take this opportunity to update your budget.

And if you don’t currently have a budget, now is a good time to create one! The process is similar — look at your financial plans and goals for the year and develop a realistic plan to meet them.

Are you ready to get started? Just follow these four steps.

Budgeting Step 1: Start With Last Year’s Numbers

The easiest way to create your annual budget is to start with your financial information from last year. If you kept a budget last year, use it to get a general idea of your average monthly expenses. 

If possible, pull your spending data from several months and average it. You’ll get a more realistic picture of your typical expenses for the whole year, especially if you make sure to include months with higher spending (like the holidays).

If you didn’t keep a budget last year, that’s OK. Just pull up some of your monthly statements from your bank and/or credit card accounts. Use those numbers to understand the average cost of your typical monthly transactions.

Last year’s numbers are a good starting point, but remember, they aren’t necessarily a perfect representation of what you can expect this year. Inflation, career decisions, rising utility costs, and changes in your family or household are just a few of the factors that can cause your finances to look different in the new year.

Budgeting Step 2: Make Your Goals for This Year

Once you have a basic idea of your income and spending, it’s time to consider your goals for the year ahead. Maybe they’re fairly similar to last year’s goals. For example, if you just want to keep saving for retirement, building your emergency fund, and maintaining your current lifestyle, you might not need to make very many changes to your budget.

However, maybe you have some exciting new goals that are significantly different from last year’s. If you’re planning to have a baby or change careers, for example, you’ll probably need to make some big changes to your budget to accommodate those goals. If you’re going to retire this year, that’s another significant change that can impact your budget. 

So think about what you want to accomplish financially this year. There aren’t right or wrong answers — what matters most is making goals that align with your values. If it’s important to you to become debt-free, then paying off your loans would probably be one of your biggest priorities. 

On the other hand, you might have different things that are more important to you, like taking a dream vacation or feeding your family with organic groceries. Be honest with yourself (and your partner, if you have one), and set goals that are realistic and aligned with your core values.

Budgeting Step 3: Look at Your Monthly Needs

Now that you’ve got your basic budget numbers and your new goals, it’s time to see how they match up. Does last year’s budget accommodate your goals for this year? If so, you can probably just stick with the monthly and weekly budgeting numbers you used last year.

If your goals for this year don’t match last year’s budget, however, then it’s time to make some changes. Look at the annual cost of your goals and then divide it by 12. Now you know how much money you need to allocate each month to reach those goals. 

family sitting on dock

Once you know how much your new goals will cost you each month, compare that amount with your monthly budget from last year. Do you have enough wiggle room in the old numbers to accommodate these new expenses? If so, just add your new goals as line items in your budget for this year.

But if you can’t afford your new goals using your budget from last year (and you don’t anticipate any significant changes in your income), then you might have to make some tough decisions. This is why it’s crucial to set goals that match your values. If your financial goals aren’t really in line with your priorities, you might have a hard time making the necessary adjustments to your budget.

When your goals are truly important to you, however, it’s easier to find ways to make them happen. If building your emergency fund or saving for a down payment are things that you really want, you’ll probably find it easier to put some of your discretionary spending money toward those new goals.

Budgeting Step 4: Develop a Plan for Weekly Spending

Once you have your monthly budget planned out, you can break it down into weekly spending numbers, if you’d like. This step is really more of a personal preference. Some people find it easier to stay on track if they think about their income and expenses in terms of each week. Other people dislike that level of granularity and do better with a monthly budget.

If you aren’t sure which approach works better for you, start with a weekly budget. If you find it easy to take time each week to record and analyze your transactions, then keep going! But if you feel yourself dreading the weekly check-in with your finances, try tracking your budget on a monthly basis instead.

Are You Looking for Personalized Financial Advice?

Making a budget is an excellent way to start getting a handle on your finances. Once you feel confident that your expenses are consistently in line with your income, you can start thinking about long-term goals. Whether you want to save for a home or start planning for retirement, a financial planner can help you develop a comprehensive approach to meet your goals. 

Here at Guiding Wealth, we’re committed to offering services that align with your goals. So if you’re not quite ready for our traditional financial planning and wealth management services, consider purchasing a one-time financial plan instead. 

A one-time plan allows you to better understand your money and get a solid foundation you can build on as you move forward on your own. We offer one-time plans for specific goals, like buying a home or planning for a baby, along with a comprehensive option that covers multiple goals and your big-picture financial situation. Find out more about our one-time plans and get on the waitlist today.