The new year is nearly upon us, bringing with it the blank canvas onto which we project our new year’s resolutions. While previously we have been content to limit our resolutions to lifestyle changes such as quitting smoking or starting to exercise, 2023 brings new challenges to households – financial ones, as a cost-of-living crisis maintains its grip on the UK’s bank accounts.
Budgeting is never easy to do but is a necessary evil for managing in spite of the economic landscape. If your new year’s resolution is to save more money, what should you do in order to create an effective new year’s budget?
Evaluate Income Against Outgoings
The central mechanism behind a working budget, however lenient or austere, is the interrelationship between your income and your outgoings. Simple as this may sound, it is the first hurdle – and one at which many people fall. Before you make any grand decisions regarding your finances, you should first build as comprehensive a picture as possible of your financial situation over an average month.
Your income would comprise your wage and any ancillary earnings, whether from gifts or from selling personal items. Your outgoings are much more complex, comprising everything from grocery shops to utility bills and even debt repayments. In laying the data out, you might immediately notice some costs that do not need to be as high as they are – giving you a head-start in maximising the effectiveness of your budget.
Make Deal-Hunting a Habit
Unfortunately, resolving to create a budget does not absolve you of the need to make certain large-scale expenditures. These might present in the form of an emergency like a boiler failure, or regarding a necessary purchase – for example, a new family vehicle.
While these larger costs are often inevitable, this does not mean that they cannot be engaged with in some way. This is a good opportunity to start forming a deal-hunting ‘habit’, to ensure you are getting the best possible price for the present situation. To take the car example, you might be in a position where a lease car deal is more financially viable than an outright purchase. This could also give you the opportunity to choose a newer, more energy-efficient vehicle, thus saving on running and maintenance costs.
Set Goals
A budget can only be truly effective if it is written around a set of tangible goals for you to work towards. Many people make the mistake of simply resolving to ‘save more’ – a nebulous statement with no clear criteria, no end goal and no stakes. Instead, you should have clear ideas of what your budget is aiming to achieve.
A good example would be if you were starting a family and hoping to get on the property ladder. This might give you between six and nine months to raise the deposit for a three-bedroomed property in your area – giving you a value and timescale to work with. With this information, you can set realistic sub-goals regarding how much you save and where those savings are kept. Objective and tangible goals, simply put, are key to financial success in the new year.