Research has shown that as many as half of Americans make resolutions at the beginning of each new year. Among the top resolutions are goals to budget better and avoid overspending and debt. Unfortunately, 1 in 3 people abandon their resolutions by the beginning of March, and about half of them stray from their goals by mid-year.
If better budgeting was on your to-do list for 2013, don’t let your resolution slip through the cracks. Tackle your spending now by taking time to plan a realistic budget that accounts for unexpected expenses and those that may not come until much later in the year.
Most consumers approach budgets on a month-to-month basis. Typically, you pay your credit card bills monthly, send in your utility payments monthly and pay your mortgage on a monthly basis. Certain expenses are set in stone, and serve as the foundation of your budget, but when you fail to account for incidental expenses or repay debts, it’s easy to get into financial trouble.
After listing all of your monthly expenses, make a plan to pay-down your debt. After paying your normal recurring expenses, you should plan to pay down high-interest debts first. If you do not have enough extra money to pay extra toward your debts, cut back on recreational spending or find a way to generate more income until credit line debts and loans for depreciating assets are paid-in-full. Debt continues to accrue interest over time, so putting off repaying it just means you’ll pay more in the long run.
The holidays and other budget-busters
It’s no secret that the holidays can bring financial woes to even the most responsible budget-planner. Nearly everyone plans for gift purchases, which often account for the largest portion of holiday spending. However, few take into account the costs associated with other holiday expenditures, such as indoor and outdoor decorating, wrapping paper and baking supplies. If you plan to decorate your home or business for the holidays, why wait until the height of the buying season to make your purchases? Instead, look for a Christmas tree sale during the off-season, and buy wrapping paper at deep discounts in the summer. If you purchase in advance, you could score your holiday loot for as much as 70 percent off the usual retail value.
The holiday season isn’t the only budget-buster. Other events – such as birthdays and vacations – are notoriously difficult to budget for. If possible, set aside a separate savings account dedicated solely to special occasions. Make a plan for contributing to this account throughout the year, and resolve to never dip into your savings, retirement or checking accounts to compensate for budget shortcomings. Better yet, offer the gift of time. If you’ve got a relative with a huge garden, offer a day of weeding as your gift.
Plan for the future
Planning for the long-term is an important part of financial independence. Saving is essential to people at all stages of life. The earlier you start saving, the better off you will be when you hit retirement age. It is never too late to save, although starting early allows you to take advantage of the power of compound interest. If you do not already have a retirement account, open one. If your employer matches contributions to your 401(k), start making the maximum contribution you can afford. Over time, you’ll create a sizable nest egg for yourself and you will have enough money set aside to live comfortably in the future.