01/26/2023
6 Tips for Budgeting and Managing Cash In the New Year
- Know Why: A purpose behind every task can make it more meaningful and easier to accomplish. Do you have a problem with overspending? Do you have a big savings goal in the future? Are you retired and on a fixed income? The “why” behind your budgeting endeavors can help get over the emotional and mental hurdle of sitting down to budget.
- Test Different Methods: There are many ways to budget. From excel spreadsheets, to saving receipts and writing in a yellow pad, to using a tool like the “Cash Flow Analysis” on our eMoney website. All of these tools provide a level of automation and control that work differently for different people. There is no single correct way to budget. The goal should be to find a method that works and be ok with switching things up if you are not getting the results you would like.
- Prioritize Needs and Wants: Needs come first in a budget. It is important to identify what these are and make sure there is ample room in the budget for them. Housing, groceries, utilities, taxes, childcare, and phone bills are good examples. When it comes to wants, prioritization is important. If your family values eating out over buying goods, ensure that is reflected in your monthly spending. If you enjoy fashion and travel and dining out does not do it for you, make sure that is reflected as well. With wants, it is not how much goes to each category, but rather, which categories are worth focusing on.
- Automate, automate, automate: As much as possible automate this system. Especially when it comes to your monthly saving and monthly needs, automation can help make a budget more sustainable. Having your mortgage payment and retirement account automatically come out of your account/ paycheck allows for you to take care of needs now and in the future with no action on your part. The less action that is required every month on the important and recurring items, the more attention you can focus to the budgeting of variable wants every month, or something different than budgeting altogether.
- Check In: This is an important step. This is not a weekly action, but perhaps every 3-6 months. What is going well with the budget? Is the system you chose working? Are you staying within the budget? Are fixed expenses like property taxes changing or has inflation increased what you need to allocate for groceries? All of these questions can be looked and minor adjustments can be made without throwing the entire budget out. Budgeting is an important step of managing your finances, but it is important to be flexible. Life changes, unforeseen events occur, expenses change and we need to be able to adapt and change to this.
- Manage Cash Well: Part of budgeting is to forecast expenses and protect savings. Part of a savings plan is to have an emergency fund that equates to 3-6 months of expenses while working and up to 3-4 years of expenses in retirement. It is important to review where this cash is held as you always want your money working as hard as possible on your behalf. A typical checking account interest rate is about .1% today. High yield savings accounts, CDs, and money market funds all offer a competitive rate 3-4% today and allow your money to earn interest.