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The first of the year is the perfect time for new beginnings. You get a fresh start to do whatever you’ve always dreamed of and to be the person you always wanted to be.
Though I’ve never been much for new year’s resolutions, there’s something about January that fills me with hope. Maybe it’s the mere fact that I survived another stressful holiday season! Ha!
Now that the new year is right around the corner, it’s time to put together our monthly budget for January.
Why I Use a Budget
Unless you’re a frugal lifestyle enthusiast (like me!), you probably don’t like budgeting. But living on a budget is the only way to keep your spending under control and build the life you love.
Before I started making a budget every month, I never knew if we’d have enough money to pay all the bills that were due. It’s crazy to think about how it feels to live paycheck to paycheck. Can you buy a few extra groceries this week? Or do you need to save that money for the electric bill?
A budget doesn’t make all of your financial troubles disappear, but it sure gets you going in the right direction.
We still have plenty of debt. There’s car payments, credit card bills and student loans that we’re juggling. Andrew and I have made a lot of progress on our journey to financial independence, and couldn’t have managed all of our expenses without the help of a budget.
It’s like training wheels for our personal finances. It helps to keep us balanced when spending money throughout the month.
Making a Monthly Budget
The best way to budget is by using a zero-based budget. I was first introduced to this idea years ago by personal finance guru Dave Ramsey. Basically, your goal is to have your income minus your expenses equal zero.
By making a plan for every single penny you make, you maximize your income and get the best bang for your buck.
For instance, let’s say you earn $3,000 a month. That means you want everything you spend, save or give to add up to $3,000. When you give every dollar a job to do, it’s easier to stay focused on your money goals because you know exactly what your money is doing.
Note: If you’re married or have a significant other, it’s important that you both work together on your finances. To make a budget that works, you have to talk about money!
To set up a zero-based budget, here’s what to do:
1. Write down your monthly income on a sheet of paper, in a spreadsheet, or enter it into an easy-to-use budgeting app like Mint or Every Dollar. Remember: this is ALL of your income, including your paychecks, side hustles, child support and any other cash you take in during the month.
2. Make a list of your monthly expenses. This should include your regular monthly bills like rent, cable, phones and gas for the car. And don’t forget to check the calendar to see if you need to budget money for birthday gifts or another social event.
3. If it’s your first time making a budget, write down your seasonal expenses like car registration renewal fees, property taxes, auto insurance and Christmas. To really make your budget work, you’ll need to set aside a little cash each month for these irregular expenses so they don’t bust your budget when they come due.
4. Subtract your expenses from your income to see if it equals zero. If it does, congrats! You’ve just finished you zero-based budget. If not, you’ll need to make some adjustments. For instance, if you’re spending more than you make, you’ll need to cut back expenses or increase your income by selling stuff around the house or starting a side-gig. If you’re one of the lucky ones who has money left over, you’ve got to assign it to a category. You could add it to your emergency fund, invest it in your retirement account or donate it to charity. Whatever you do, your income minus your expenses must equal zero.
After your budget is in place, all that’s left is for you to keep track of your expenses throughout the month. By tracking your expenses, you’ll know if your spending lines up with your budget and you can make adjustments if needed.
7 Things to Add to Your January Budget
January is here and we want to start the new year off right. When setting up our budget after the craziness of the holiday season, it’s easy to overlook things. Don’t forget these expenses that might come up in January:
- New planners and calendars: I’m a huge fan of the Bullet Journal. I call it my “magic book” and it keeps me organized and on track.
- Fitness membership: January is known for it’s physical fitness goals! If getting in shape was one of your new year’s resolutions, don’t forget to budget for it.
- New hobbies: Learning a new skill or taking up a hobby is a common goal of the new year, and you can make it happen by setting aside money in your budget to pay for it.
- Tax costs: Whether you’re hiring a professional tax advisor or taking the DIY route, you’ll need to make room in your budget to cover those costs.
- Increased utility bills: Baby, it’s cold outside! The days are long and dark, so we’re using the lights more. Plus, the cold weather has the furnace working overtime, which is sure to increase your utility bills.
- Next Christmas: It’s never too early to start saving for the next Christmas season. Setting up a Christmas savings account now will go a long way to saving your sanity (and your budget!) next December.
- Spring break fund: Even though the days are dark and cold, spring will be here before you know it. It’s time to put money way into a spring break fund to create some guilt-free family memories.