Let me be clear. I am not a fan of New Year’s Resolutions. Every time I have ever attempted one it has never worked out. I think there is a reason for this. I think when you set yourself up for something BIG and NEW it gets in your head, feels unattainable. This is the opposite of helpful.
What I do believe in is fresh starts. The chance to do something you have done but stopped doing again, but this time get it right.
Once upon a time you had a budget. You managed it, you balanced it weekly or monthly, and it was fine. But something happened. You were laid off, sick, out of town, overworked. Any number of things could have thrown you off your budget. But once upon a time you had it and it worked so this is not big or new, this is just something that you stopped doing and need to do again.
I raise the issue of budgets now because it is tax season. You are looking at least year’s finances with a kind of intensity that probably won’t commit to it again. This is your chance! You have the bills, you have the income information, you can take this time while you are preparing your tax refund and create a brand new budget and really commit to it.
When putting together your budget it is important that you remember the following:
1. In my experience the toughest part of putting together a budget is that we are mighty ambitious. I know I am. We think that we can really stretch that grocery dollar or spend only 25 bucks on gas in a two week period.. Most of us can’t do that, you are probably one of us. You have to be realistic about your financial situation. If you spend $50.00 every two weeks getting to work and back you need to account for that. Don’t plan on spending less, plan on spending what you NEED to. This will help you create a budget that you can live with and that won’t have you feeling like you are stuck home eating ramen and watching network television all the time.
2. Sweat the small stuff here. It is amazing how quickly our money disappears on little things. I cannot count the number of times I have been in a bankruptcy consultation and was told by a client that three days after they were paid they had no money, than looked at their income and expense schedule to find they had almost $300.00 in excess income. When I have the client bring their bank statements in, where the money is going is pretty clear. 9 times out of 10 it is fast food or the bodega down the street. Other times it is going to the movies, an $11.00 movie ticket here, a $5.00 coffee there. It all adds up to big bucks. My solution is tell the client to take out $20.00 in cash as soon as they get paid. That is their coffee, snacks, deli/bodega money for the week and they can’t spend a dime more. It is isn’t good for your wallet or your waistline to spend much more.
3. If I have said this once, I have said it a thousand times, you must adjust your exemptions. A tax refund is the government returning money to you that they have been holding to pay your tax bill at the end of the year. They held too much so they are paying you back WITHOUT interest. You just have the government an INTEREST FREE LOAN! Would you credit card company do that? NEVER! So why should you?
Go to payroll and adjust your exemptions to take the amount you are entitled. If you are a single person, take single one, if you are married, take married 2. This means that you will have more money in your paycheck to put into your own savings account and earn interest on. Better yet, if your company doesn’t have a 401K program, put that money in an IRA and use it to create a deduction on that tax return!
So long as you are responsible, it is highly unlikely that you will owe money by taking your exemptions. Just make sure you are taking what you are entitled to and not more. In a perfect world, your tax refund should have you owing the government $0.00 and them giving you $0.00 back.
Now…if you are a bad saver, you may need to go about this a different way. I have clients who have told me that if they have this money they will spend it. My recommendation is automatic savings. We live in the tech age. You can save without even thinking about it. Consider an auto savings mechanism right to your IRA or contact your bank about one month rolling CDs (Ally offers excellent rates and a rolling option). This means you can have the CD last a month and re-up with more money put into it as you go. This will keep you from touching the savings and still allow YOU to be the one that earns interest.
4. Remember that if you are paid bi-weekly/weekly that you have two extra paychecks a year than you are probably accounting for. Usually one over the summertime and one in the late fall. This means there is two extra paychecks worth of unallocated funds that should go right into your savings account! What is better than a built in savings mechanism.
The best part about doing your budget now is that there are about a million online tools to help you. My personal favorite is Mint. Mint has a website and a mobile app so if you are in or out your budget is right there with you, telling you what you should and should not do. Did I mention it is free? My favorite price.
So gather your tax documents, choose how you want to do your budget, be it an old school ledger or the thoroughly modern Mint and put together a budget.
This is the kind of fresh start your finances really need.
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