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New Year's Budgeting

New Year's Budgeting

December 28, 2020

Many challenges await the New Year and I don’t just mean accidentally writing 2020 for the next month and having to scribble it out. Fortunately, everyone stayed right in line with their budgets for the holiday season and there is no stress coming into the New Year, right? If this doesn’t sound like you, let’s kick off the New Year with some simple budgeting advice.

The first step of budgeting is very simple. Take your income and subtract your expenses. If you have money left over, great. You can easily use that to pay down debts or bolster your savings. If you find your expenses exceed your income, things get a little trickier.

The best way to eliminate expenses is identify what is discretionary. If you have season tickets to the local sports team, they may feel like a need but are certainly a want. If your cable bill has trended up over the past few years, cut out some primetime programming and ask yourself how often you actually watch it. Now may be the time to cancel that membership to the wine of the month club someone gave you as a give five years ago and you just kept paying for.

The point is, after getting accustomed to living with certain amenities, even the most glaringly discretionary often begin feeling like needs and not wants. This makes it much more difficult to cut the fat when the time comes. Often times those in need of a budget the most also need to pay down debt. Removing the discretionary expenses is the surest way to free up the money needed to begin paying down the highest interest debt first.

Once you have paid off the debt, you will feel like you have more money each month. Don’t look at it like extra cash, but rather an opportunity to finally get ahead. You have now transitioned into the savings game. Saving outside of automatic withdrawals can be difficult. It’s just too tempting to spend the money you see in your bank account and with plastic replacing cash is even easier to part with it.

The key to saving your cash is to start with simple goals. You may need an emergency fund. Rule of thumb says to save up to six months of bills in case something happens. If you’re all set in that department, try picking an item you would normally charge to a credit card on impulse and instead save for it. Sure, you may not get it today but it will feel much better when you can enjoy it without having to stress out about the debt incurred to get it.

Whether you have a lot of debt, a little bit of debt, or just have trouble saving your discretionary income, nearly everyone struggles with budgeting to some extent. Cut out the fat, prioritize your spending and set simple savings targets. Make 2021 your most fiscally responsible year yet.

This article is meant to be general in nature and is not intended, and should not be construed as personal financial advice.  Please consult your financial advisor prior to making financial decisions. Gary Parsons is a Financial Advisor with U-Vest Financial®, a separate entity from Waddell & Reed and can be reached at 850.300.7055. Waddell & Reed, Inc., Member SIPC.  (12/20)