New Year, New Budget
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Creating a budget is a powerful way to start the year with a fresh sense of control and direction over your finances. Whether you’re looking to save more, spend less, or get out of debt, a well-thought-out budget can set you up for success. As your trusted financial partner, we’re here to help you make sure your budget is on track for success. Follow this guide to create a new budget for the New Year.
Start with Reflection
Before jumping straight into numbers, it’s important to take some time to reflect on the past year’s financial habits. What worked? What didn’t? Analyzing last year’s spending and saving trends can help you identify patterns such as overspending on dining out or making frequent impulsive purchases. Pinpointing these areas can help guide your budget decisions and keep you aware of any habits you may want to change. Here are a few key questions to ask yourself during your reflection:
- Where did I spend the most money last year?
- What expenses are necessary, and which ones are avoidable?
- Did I reach my savings or debt-reduction goals?
- Were there any financial surprises?
Reflecting on these questions can give you a clearer perspective on your financial standing, allowing you to make a realistic budget for the upcoming year.
Set Clear Financial Goals
Setting clear, actionable goals for the new year can make your budget more focused and motivating. Think about what you want to accomplish financially over the next year. Here are a few examples of specific goals you might set:
- Build an Emergency Fund: To be on the safe side, you should aim to save three to six months’ worth of expenses to cover unforeseen situations. We are proud to offer several products to help you start your emergency fund, including our Super Saver Certificate. With a minimum deposit of $100, you can enjoy a 15-month term certificate that allows you to earn higher dividends on your deposits.
- Paying Down Debt: If you’re trying to pay down debt this coming year, it’s important to decide on a realistic amount you’d like to put toward paying down your balances each month.
- Saving for Big Purchases: Planning a vacation or considering a down payment for a new house? When planning your new budget, be sure to set a monthly savings target to go toward your larger purchases this year.
Investing for the Future: If you haven’t started, you may want to consider setting aside a portion of your monthly income toward investments such as your retirement fund. The sooner you start saving, the more time your money will have to earn interest.
Keeping these goals in mind will give your budget purpose and direction. Write them down and be sure to regularly revisit them to ensure you are on track.
Calculate Your Monthly Income
A successful budget starts with an accurate understanding of your monthly income. List all sources, including your main job, any freelance work, side jobs, or passive income. If your income varies, calculate an average based on the past few months or use the lowest income month as a baseline to be conservative. Knowing your monthly income helps you determine how much you can realistically allocate toward expenses, savings, and other financial goals.
List Your Monthly Expenses
Next, you’ll need to create a list of all your monthly expenses. This step includes fixed expenses, such as rent or mortgage, utilities, loan payments and subscriptions. You’ll also list variable expenses like groceries, dining out and entertainment. You can look through your bank and credit card statements to ensure you capture all of your spending categories.
Use the 50/30/20 Rule
A popular budgeting method is the 50/30/20 rule. This rule divides your income into three categories:
- 50% for Needs: Needs are your expenses that you must pay such as rent, utilities, groceries and transportation.
- 30% for Wants: Wants are non-essential expenses like dining out, entertainment, or shopping
- 20% for Savings and Debt Repayment: 20% of your income should be allocated for building an emergency fund, investing, saving or paying down debt.
You can use this rule as a guideline to take your monthly income and divide it accordingly.
Track Your Spending Regularly
Tracking your spending is essential to stay on top of your budget and avoid overspending. There are many ways to do this, from traditional pen-and-paper methods to various budgeting apps. We are proud to offer Financial Tools, a specialized service that allows you to see a consolidated view of your finances, helping you to monitor and manage all of your accounts in one place.
Set aside time each week to log your expenses, compare them to your budget, and adjust if needed. Consistent tracking will make you more mindful of your spending and help you catch any overspending before it becomes a problem.
Adjust and Adapt
Budgets aren’t meant to be rigid. Life circumstances change, and so should your budget. If you receive a raise, for example, you may want to consider increasing your savings or paying more towards the balances on your debt. On the other hand, if you face unexpected expenses, adjust your budget to accommodate it without dipping into high-interest debt. Reviewing your budget every month allows you to stay flexible and keep your financial goals on track.
The Bottom Line
A new year brings a fresh opportunity to set yourself up for financial success. Building a budget is one of the most powerful tools for taking control of your finances and achieving your goals. By reflecting on past habits, setting clear goals, and following a structured plan, you can create a budget that supports both your current needs and future dreams. If you’re ready to kick off your new year with a brand-new budget, we are here to help:
- Open a savings account online or make an appointment to visit your local branch
- Read our blog for more tips for creating an effective budget
- Take advantage of our financial education modules and earn while you learn about topics such as budgeting, taxes, and much more
Read our other blog articles to help you gain the financial knowledge you need to succeed.