Anna’s Budget Tips-Budgeting for the New Year

Happy 2013! There’s nothing quite like the start of a new year to give you a renewed sense of hope, purpose and motivation to accomplish just about anything. Tap into the power of this season and get your family budget in shape for the new year. A little effort now could really pay off by the time we’re saying hello to 2014.

Identify Your Goals

I find it helpful when setting a budget to decide what I most want to accomplish financially and then focus on how to make it happen. It could be establishing an emergency fund that would cover three, six or twelve months’ worth of expenses. You might want to live off of ninety percent of your income so that the other ten percent can go into savings. Or maybe you’d like to set aside a certain dollar amount for a down payment on a house, to pay off debt, to take a vacation or for a college fund.

One Month at a Time

If you’re shooting for a certain dollar amount to save over the course of the year, divide that figure by twelve to find a monthly amount you plan to save. You might consider dividing it by eleven, which will mean you’ll have your savings taken care of by November and can allocate that amount to the extra costs that crop up during the holidays.

Find Places to Save

Once you know what you’re hoping to save each month or, looking at it another way, what you can spend each month, take a look at your expenses to see how they stack up against that number. If there’s a large discrepancy (for example, you need to live on $3000 per month but you normally spend $5000) it might be time to make some tough choices. To make up a large gap it’s worth considering downsizing to a smaller or less expensive home, trying to find a higher paying job or making drastic cuts in spending.

However, if you find you could accomplish your goals by spending a few hundred dollars less each month, you can likely accomplish this by just being more mindful about where your money is going. I find that food represents the largest opportunity for savings for my family. If we set a budget and stick to it, we can shave a few hundred dollars off of our grocery and eating out expenses…without going hungry of course. What works best for us is to set a monthly limit and when it’s gone it’s gone. That might mean a few nights of eating whatever is in the back of the pantry, but it helps us save and we tend to waste less food. It’s also great motivation to be creative with what we have and think outside the grocery store. This was how we discovered how easy and delicious homemade flour tortillas are!

Other areas where you might identify potential savings include:

• Entertainment (cable/satellite, movie rentals and subscriptions, movie and concert tickets)
• Shopping (clothes, household items, electronic gadgets)
• Travel (gas, hotel stays, flights)

Search for Big Savings

While you’re trying to shave a few dollars off the grocery expenses and looking for ways to cut the cable bill, don’t overlook some of your larger expenses. Could you save by refinancing your mortgage or auto loan or consolidating credit card debt? By switching providers for your homeowners, auto and health insurance? It can take some time and effort to shop around and apply for these financial services, but making a few changes could have a large impact on your expenses.

Anna Platz writes for the popular personal finance blog, Good Cents Savings, which helps you save money, stick to a budget, and live well on less. She is also the mother of a four year old daughter who is worth every penny!