The new year is here, and it’s going to be your year to meet your financial goals. No matter what benchmarks you’ve set for yourself — paying off your credit card debt, settling your student loan debt, saving a certain amount of money or diversifying your investments — the year is fresh, and it’s time to start making good financial decisions for yourself and your family.
How to make a budget for 2020
The biggest flaw in financial plans for most Houston families is that they don’t talk much about their plan or get serious about it. They don’t come up for a plan or set realistic goals for themselves. When thinking about how to make a budget, the most important factor is talking about it with your spouse and even your kids to some extent.
If you have a partner, make sure he or she is working with you each step of the way. When deciding how to make a budget for 2020, it’s vital that both spouses are on the same page when it comes to financial goals and how to meet them. Whatever you plan, get your partner involved too.
Ready to get serious? Here’s how to make a budget that is realistic and meets your financial goals.
Commit your goal to paper
Just having a goal in the back of your mind won’t be enough to meet your 2020 financial goals. You have to put pen to paper and think seriously about what you want your 2020 financial goals to be. When you write them down, you make them real and feel more beholden to them.
For those thinking about how to make a budget, here are some common goals you and your partner might adapt:
- Paying off a credit card: Credit card debt can cost you thousands of dollars in interest. Paying off one or more cards can be a tough task, but it’s a great financial goal for 2020.
- Eliminating student loan debt: Wouldn’t it be great to save a few extra hundred dollars a month that are currently going to old student loan payments? This may be the year you take a big chunk out of your student debt or pay it off completely.
- Chip away at your mortgage: You already make monthly mortgage payments, but you can save thousands in interest payments if you try to pay a little more towards your mortgage.
- Save up a certain amount of money: Building a savings account takes time and dedication, and it can be a lifesaver if you or your partner loses your job.
- Prepare for college tuition payments: Even if your children are still in diapers, it’s never too early to start thinking about their college tuition payments. This may be the year you think seriously about putting money away for them.
- Diversifying your income: Having a savings account and a 401(k) are both great financial tools that will help you save for retirement, but have you thought about investing in the stock market? Savings bonds? There are a ton of ways to invest your money so you and your partner can retire and have a safe income.
Talk with your partner and decide which goals make sense for the two of you. You may decide on a long-term goal and a few shorter ones. Discuss what is realistic for your family’s needs and think about any potential financial obligations that might come up, such as a home repair or surgery. The more you talk about it, the more you and your partner will be committed to reaching your goals together.
Tally up all income and bills
Now comes the fun part: You and your partner need to add up your income and all of your bills. Don’t estimate here. Look at your bimonthly checks — both of your — and add them together. Even if you don’t share a joint checking account, you both need to know how much the other brings in. This is an important step in how to make a budget, so don’t skip it or gloss over it.
Once you’ve added up your income, it’s time to go through and tally your bills. Add up all the major ones like your mortgage and electric bills, and don’t forget smaller ones like monthly streaming services. You can also estimate what you spend on groceries and gas each month and include those totals as well.
Use your bank statements to get the most accurate read on what you’re spending from month to month. It will help keep you honest in your estimations.
Make your long- and short-term goals on your calendar
When your 2020 financial goals are on your calendar, they’re never too far from your mind. Use your calendar to help you visualize when you should be achieving goals. Set up benchmarks to help keep yourself on track. For example, if your goal is to save a certain amount of money, break it up into smaller goals throughout the year.
If you find you’re missing your goals, it may be time to reevaluate how you’re going about meeting them or if you’ve set unseasonable ones for your family.
Decide how to trim your budget
The numbers don’t lie. Now that you have them in front of you, it’s time to take a hard look at your income and what you’re spending it on. You may need to cut back in certain areas, but the two of you will need to decide where to cut or trim when thinking about how to make a budget.
Start by looking at cutting extra bills. Are you paying $10 a month for a streaming service that you’re not really using? Could you cancel one streaming service and alternate between it and another service?
Now look at how much you’re spending on restaurants, activities, hobbies and groceries. How could you cut back or adjust those expenses? If you’re ordering lunch at work every week, could you cut that expense and spend a little more at the grocery store? Even if lunches cost $5 per week, that’s $100 saved at the end of the month.
You could also think about more extreme savings options. Do you really need two cars right now or could you invest in more fuel-efficient vehicles? Are there any work-from-home options available for your jobs? If your kids go to a private school, could they switch to a public school? Not all of these options will work for every family, but they’re worth discussing.
Commit to your budget
You have you goal, and you’ve trimmed your spending. You have new spending limits for expenses, and now it’s time for you and your partner to get on the same page when it comes to who will pay what and when deposits need to be made. This will eliminate the problem of “I thought you were paying that” or “Weren’t you going to deposit that?” down the line. Decide who is responsible for certain bills and come up with a reoccuring day each month when savings deposits need to be made.
Meet with a financial planner
You probably have a ton of questions when it comes to your finances. As you’re thinking about how to make a budget, you may want to schedule some time to meet with a financial planner who can help you make serious financial plans for your future and think realistically about what you’ll need to save for retirement and beyond.
A financial planner can help answer questions about your finances and offer suggestions on smart ways to save money. Should you focus on paying off student debt now instead of saving more or is it better? What are some smart investments to make now? A financial planner can provide a roadmap on how to make a budget.
Tips for sticking to your budget in 2020
Now that you have thought out how to make a budget and committed to it, all that’s left is to stick to it. Easier said than done, right? Sticking with a budget can be challenging, but you can hold yourself accountable for your spending.
Don’t lose the momentum now that you’ve done the hard work on how to make a budget. Here are some tips on sticking to your budget.
Set up a budgeting system
Every household has a different way for saving money and sticking to their budget. Here are a few popular ones:
- 50/30/20: This budget method involves breaking up your income into three percentage groups. Spend 50% on your bills, 30% on fun expenses and 20% on savings. When you divide up your income like this, then you know immediately how much you have to spend each month.
- Envelope system: Out of sight and out of mind. In the old days, you would put money for savings in an envelope where it was out of your wallet. Now with online banking, you can do the same thing with savings account connected to your checking account. Set up monthly payments that take money out of your checking account and deposit it in your savings account. You don’t have to do the work, and when you don’t see the money, you won’t think about it.
You and your partner can also come up with your own way to budget, Just make sure you both know what it is, how it will work and who is responsible for doing what.
Use a budgeting app
You don’t have to keep doing mental math in your head to stay on track with your budget. There are tons of great apps out there that will connect to your bank accounts and track what you spend and where you spend it. These apps present a map of your spendings, and they’ll keep you honest about where your money is going.
Switch to cash or debt payments
Credit cards can be great, but the buy-now-pay-later mentality can mess with your budget and make you feel like you have your finances under control. Until you get the bill, that is.
You don’t have to cancel your credit cards entirely — it’s good to have them backup — but consider switching to cash and debit cards for the majority of your purchases from grocery store trips to gas station pumps. Cash and debit cards make you more honest with your spending. If you don’t have enough money on hand or in your account, then you won’t make the purchase. If you’re the kind of person who makes impulse purchases, this will help you keep your funds in check.
Start leaving your credit cards at home, and when your paycheck hits your account, swing by an ATM and take out cash for the next two weeks. Not only will this help keep your spending in check, but it will also keep your credit card bills down.
You may not earn a lot of points on your credit card, but it’ll be worth it when your credit card bill drops and your savings account is bulging.
Save money at the grocery store
Grocery bills are one of the biggest for Houston families, but you can cut them down and save some green.
First, look for generic foods when possible. Most big grocery chains have their own store brands, and for most basic items, you’d never know the difference. Generic items can cost far less than a name-brand one, and that alone can reduce your grocery bill by $10, depending on how much you buy.
You can also cut down on restaurant and lunch expenses by reinvesting some of that money into your monthly grocery budget. Rather buy order out, make lunches at home. Pick up an extra loaf of bread or a box of pasta and make lunches over the weekend. The added cost to your grocery bill will be miniscule compared to what you’ll save on restaurant lunches.
If you’re the type of person who likes to stop at Starbucks a few times a week, invest in some good coffee and creamer at the grocery store instead. It will cost a fraction of those almost-daily coffee stops, and you can save time since you don’t have to stop and wait in line at Starbucks.
If you’re thinking about how to make a budget, now is the time to get on track. Commit this year, and you’ll be amazed and what you can accomplish by next December.