Every New Year, many of us resolve to eat healthier and exercise more. However, what many do not get to realize is that keeping our finances healthy is perhaps the most important resolution we can make to live through the year comfortably. As such, all of our actions throughout the year should support this resolution – and here are some tips on how to organize your annual budget.
- Gather last year’s worth of fixed expenses. Fixed expenses are defined as expenses that remain constant through the year. A good example of this kind of expense is rent or mortgage. As such, most of the payments for these will likely come from your bank account. Now that online bill payments are available, it should be rather easy to track the monthly costs that you paid – car instalment, utilities, and gasoline. Although the last two are not as fixed, you can take the 12-month average to have an idea of the annual expense.
- Ø Gather last year’s worth of flexible expenses. When it comes to flexible expenses, these cover the costs of eating out, throwing birthday parties or buying gifts, clothing and shopping, as well as travel. As opposed to fixed expenses, the flexible ones do not occur regularly, but may dent your bank accounts as these may come as a one-time-big-time spending. For example, you may not be travelling regularly, but when you do – you go all in and spend more.
- Gather last year’s worth of tax payments. First and foremost, you should be aware of the amount you paid for the different kinds of taxes for the previous year. This way, you can try and incorporate this in your budget this year.
- Think of how much you’ll potentially earn during the year. While we can never be 100% certain about how your employment may change during the year, it is still a good idea to use your current earnings as a benchmark on how much you will be earning – so you know how much money you have with you. Include your salary, any overtime payments, commissions, incentives and bonuses. If you have cash-in stock options as well, then add it up.
- Think of how much you need to save. An excellent financial plan should guide you on how much you need to allocate to ensure that you get to save more than what you are spending. Think of your retirement plans and how much you will want to contribute. If you are planning to pay off your house or car, think of how you will make your plan adapt to it