Starting the year off strong – 3 tips for setting a good budget

Can you believe it’s 2016 already? With the new year upon us, it’s important to start the year off strong. If you’re like most people, you probably set New Year’s Resolutions. Besides losing weight, a common resolution is to get out of debt, but it’s hard to reach debt freedom if you don’t know where your money’s going. That’s why it’s so important to do household budgeting. Sadly, many families don’t have one. A household budget is one of the building blocks of financial success. It can help you achieve your long-term goals like homeownership and retirement. Without further ado, let’s look at the top three tips for setting a good budget for the new year.

Tracking Your Spending

Saving more money is a common goal, but it’s often easier said than done. With so many temptations to spend, it can be easy to give in to impulse purchases. The facts speak for themselves: about half of Canadians are living paycheque-to-paycheque. That’s why it’s so important to track your spending. Tracking your spending can be an eye-opening experience;
$4 a day on a Starbucks coffee may not seem like a lot, but when you realize you’re spending $120 a month, it can be a real wake-up call. This can cause you adjust your spending accordingly. Tracking your spending to the penny in every single expense category can be a pain, so instead focus on categories where you’re likely to overspend, such as clothing, entertainment and restaurants.

Paying Yourself First

Although it’s important to live and spend for today, it’s also important to save for your future self. Although retirement may seem a long ways away, it will be here before you know it. When you’re young, you have time on your side. Start saving as early as possible and achieve financial goals like homeownership sooner. Pay yourself first by automatically depositing money into your savings account before you’re tempted to spend it. In The Wealthy Barber Returns, David Chilton recommends saving 10 per cent of your income. If you can’t afford that right off the bat, don’t worry — start smaller and work your way up to that.

Avoiding Lifestyle Inflation

With a new year often comes new money. Whether it’s a bonus or a raise at work, what you do with this extra money can make or break your financial success for the next year.

While it’s OK to enjoy some of your money, it’s equally important to make savings a priority and not fall victim to something called “lifestyle inflation.” Lifestyle inflation describes how your spending typically goes up with your pay. When they get promoted, most people get a nicer house or a fancier car. When your pay goes up, make sure you allocate some of that pay raise to savings. The more the better (your future self will thank you).

There you have it, three tips for starting the new year off right. If you don’t have a budget, what are you waiting for? There are many tools out there. The sooner you have a budget, the closer you can be to achieving your goals. For more tips on budgeting and saving, feel free to check out this Blog, where you can find a wealth of information.

Best of luck in 2016!