It’s very important to make a budget at the end of the year based on next year’s income and expected expenses. You may not necessarily stick to your budget and adhere to it down to the last detail, but it still serves as a good guidepost.
The budget should reflect both monthly and annual expenses, as well as those that occur on a quarterly and semi annual basis. Some of these expenses are well known in advance, such as rent, insurance, car payments etc…so they shouldn’t come as a surprise.
You should also set aside an emergency amount for unexpected expenses. For although they are by definition unforeseen expenses, they almost always come up. A general rule of thumb is at least 3 months worth of income.
Throughout the year the budget should be adhered to as strictly as possible. This will set the tone. If you’re accustomed to staying on budget, then it becomes easier and easier to stick to your budget throughout the year. If you’re spending more than planned and it’s only February, then you can forget about it! However, if you’ve conditioned yourself to stay on budget, consolidate credit card debt, student loan debt, or general consumer debt at the same time, then you’ll be well on your way to achieving financial freedom.
Not only will you be sticking to your budget, but you should end up with a surplus amount that will enable you to invest the money wisely and to begin (or further ) accumulate your savings.
It’s still early in the year so if you haven’t started to save, then take heart, you still have plenty of time. If not, then what are you waiting for!
George writes for Sobredinero.com, a personal finance site catered to Latinos in the US.