How to Create a Budget for the New Year That You Will Stick To

The new year is an ideal time to think about how to better manage your money. As December flows into January, New Year’s resolutions inevitably abound, and money is key to all kinds of goals. The best way to make your resolutions more actionable might be through a budget that accounts for all your spending and earning. The below tips on how to create a budget for the new year can smooth out your finances next year and beyond.

How to Create a Budget for the New Year

Taking control of your finances in the new year means assessing your financial situation from top to bottom. It also means determining how to feasibly save money, cover your expenses, and get as close to debt-free as possible. Below are some steps you can take to achieve these goals as you create your New Year’s budget.

1. Identify and List All Your Expenses and Debts

As the new year approaches, you should review all your bank and credit card statements for the previous year. Then, add your recurring expenses to a spreadsheet where you can see the amount you spend on them per month. For fixed expenses such as rent, you’ll list the same number every month. For variable expenses such as utilities, your costs will vary. You’ll record debts as fixed expenses, but once you’ve paid them off, you can stop recording them.

In the new year, you’ll record every date on which you pay your expenses and the amount that you’ve paid. You’ll only change the amount each month for variable expenses. Your fixed expenses should give you a good rough estimate of how much you absolutely need to set aside each month.

2. Eliminate Unnecessary Expenses

Surely, at least one item on your expense list is something you can forgo. If you do so, you’ll save more money in the new year. Maybe you’ll notice a subscription you no longer use. Or maybe you’ll decide to start working out at home instead of at the gym. All such decisions free up your personal budget for anything else you need to cover. 

3. Create a Budget That Challenges You

With extra expenses cut and your projected expenses written down, you can go ahead and create your budget. Try to keep your budget caps on the lower side. Sure, staying within your limits might feel challenging, but when absolutely necessary, you can go over low limits. Conversely, you can’t quite go over high limits that represent the absolute most money you could spend. 

Your budget should comprise a short-term monthly spending and saving spreadsheet alongside a long-term plan for paying off debt. You should record each instance of you earning or spending money in your monthly spreadsheet. Every time you make payments according to your long-term debt plan, you should record them in your monthly sheet too.

4. Incorporate an Emergency Fund

All good budgets should leave room for you to set aside 10 to 15 percent of your monthly income for an emergency fund. You can stop contributing to this fund once it equals three to six months of your living expenses. The higher the percentage of your income you funnel toward your emergency fund, the sooner you can stop doing so at all.

5. Add Categories for Expected but Unpredictable Needs

As you review your budget, you’ll likely ask yourself, “How can I account for this one financial need I can’t avoid?” One idea: Add extra categories for all fluctuating but expected needs. For example, if you own a car, you know repairs are inevitable, but you can’t quite determine when they’ll happen or how much they’ll cost. If you put a certain percentage of your money per month into your savings account, you can prepare for this unpredictable but certain need.

10 Goals for a New Year Budget

As you determine how to create a budget for the new year, you’ll want to set certain key goals for yourself. These goals should be actionable and realistic, and you should be able to easily start acting on them. Here are 10 great example goals you can incorporate into your budget. Better yet, try making these goals standalone New Year’s resolutions of their own.

1. Track All Your Income and Expenses

The only way to actually stick to your budget is to track your spending and earning. You can enlist the help of a budgeting app to do so. However, these apps can accidentally exclude certain transactions, so you may fare better if you use a manual spreadsheet. 

If you use your own spreadsheet, you should create one column each for the transaction date, title, budget category (including earnings), and amount. You should also create cells with the total amount you’ve spent in each category per month alongside a reminder of your budget cap. This way, you both track your spending and know when to curb it. 

2. Distinguish Needs from Wants

You need to pay rent, utilities, and student debt. You also need money for groceries. But you don’t need to go to restaurants or subscribe to a premium streaming service. Of course, life is no fun without the ability to afford certain wants, but budgeting means knowing your spending limits for these items. Prioritize your needs, then use what’s left of your budget to cover any nice-to-haves. 

3. Gradually Scale Back Your Spending

Even if you identify something as a want rather than a need, going cold-turkey on it is easier said than done. A compromise might be to slowly curb your spending in that category. For example, if you spend $200 on clothes per month, you could aim to spend only $150 next month, then $100 the month after. Keep gradually cutting back at this number until it either reaches zero or a small cap that fits your budget.

4. Leave Room for Unexpected Spending

Your emergency budget is useful for keeping yourself afloat if you lose any of your income sources. It’s not something you should tap into for unexpected weekend trips or nights out. Instead, leave a bit of wiggle room in your budget for last-moment spending of this sort. This way, you can still enjoy things while meeting all your financial goals and affording your bills.

5. Keep Your Budget in Place for the Entire New Year

You’ll save more than you actually need to if you set your budget caps lower, and extra savings can only be a good thing. Of course, lower budget caps mean greater challenges staying on track, which, in turn, might have you feeling tempted to break your budget. Instead, set a New Year’s resolution now to adhere to your budget all year long. Keep at it no matter how tough it feels, and you’ll likely reach your goals before you know it.

6. Create a Budget With Other People

Sticking to a budget all by your lonesome can be tough. When you have other friends dead-set on financial goals similar to yours in the new year, you might have an easier time sticking to your own budget. And if you share expenses with other people – say, a spouse or a roommate – you might want to jointly budget with them. With other people involved in your budget, you might feel less weight on your shoulders with every little purchase. 

7. Save a Small Amount Every Month

Maybe your income is enough to cover your expenses and little, if anything, more. In that case, setting aside even a small amount of money every month is useful. You can funnel this money into investments that could multiply the amount of money you initially put down. If you were to keep that money in your checking account or spend it, you would sacrifice long-term earning opportunities. These opportunities can help you pay off your debts in the long run.

8. Dine Out Less Often

Going to restaurants is a big part of social life, but it can also be expensive. Think about it – most restaurant meals cost several times more than what you’d spend to make them on your own. And that’s before tax and tip. So although entirely avoiding dining out isn’t quite possible, try to minimize it. You can always invite friends over and cook for them. 

9. Take Advantage of Credit Card Rewards

Learning how to get cash back from a credit card can help you stick to almost any budget. Your cash back will accrue at a set rate every time you make a purchase on a rewards credit card. Strategic spending may yield the best results, as many credit cards offer higher rewards rates when you spend on certain categories. Use your card the right way for statement credits that lower your credit card debt and make staying on budget easier.

10. Refinance Your Debts

Nobody likes debt, but you can always make your debts more bearable through refinancing. Contact the entity behind your debt to see if you can arrange new payment terms or interest rates that lessen your monthly burden. This way, you’ll keep working toward your ultimate goal – paying off debt – while having more room to stick to your budget. And the extra money you keep when you pay less debt can go a long way.  

How to Earn More Money for a Better Budget

Many, if not most, budgeting best practices focus on saving money. Earning money, though, is just as important, but it can be hard to see as an effective tactic if you live on a fixed income. With the MoneyMash guide to making money quickly, you can earn more money now – and have more room to excel at the above saving tips.