3 steps to better budgeting in the new year

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If your finances didn't turn out the way you'd like last year, then it's the perfect time to take greater control of your financial future. Taking just three simple steps will get you started on the path to success.†

Step one: Where are you right now?

Use a spending diary to track your expenses for at least a month or two. As you record your expenses, look for patterns.

Step two: What are your goals?

You're much more likely to achieve goals that are specific, measurable, adjustable, realistic, and time-oriented. These are often referred to as SMART goals.

To get started, choose several financial goals. Consider creating goals for the short term (one year), mid-term (one to four years), and long term (five or more years). Once you've identified your goals, break them down into manageable chunks, such as monthly amounts to save.

Step three: What's your plan to get there?

A spending plan is your blueprint for day-to-day personal finances.† Start with your income. List all of your income sources, and add them up.

Move on to your expenses. Use your spending diary to determine how you've been spending your money. Categorize expenses as one of these three: fixed (such as a mortgage or car payment), flexible (these costs tend to vary month to month, such as food, clothing, and utilities), and periodic (insurance and taxes). This will help you get a better grasp of your monthly cash flow.

Compare your total income with your total expenses. If your income is more than your expenses, that's good! However, if your income is less than your expenses, it's time to make some changes. That means going back to your spending diary and expense categories to see if there are any additional changes that can be made.

After you've created a spending plan, track your expenses, pay your bills on time, balance your accounts monthly, and regularly review your goals. If your budget no longer fits your goals, make adjustments.

Get a list of some of the most common “spending leaks” to help you save money, a budgeting spreadsheet, and more advice at†stcumoney.org

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