Every fall, companies start to plan for their following year. What are their financial goals going to be in the new year? What are their major projects and product initiatives going to be? How many people will they need to achieve their goals?
As with companies, people begin to make plans for their new year. What are their New Year’s resolutions going to be? What big expenses do they foresee? Will this be the year to finally buy that new car? Is there a new baby on the way? Not only do we want to start the fun planning such as dreaming of a vacation to take and major purchases to make, you also want to consider the requirements on your time, energy, and money.
Every year, over the Christmas break it is time for me to wrap up our families current year budget/expense report and plan for the following year. I love this process. I love analyzing the data to see how we did and what changes we should make for the next year. Sometimes it’s really stressful because you know it’s going to be a hard year. Sometimes it’s really fun because you know your budget should allow you to buy that “new to you” car you’ve been wanting for a couple of years. If you don’t already have a budget set up or are not tracking your expenses, I recommend you start with that first. See my post here for an article on that.
This is a great process to review the current year results and start budgeting for the new year:
- Make sure that all of your expenses are documented and summarized. See this post for suggestions on how to start tracking your expenses, if you are not already doing this.
- Look at the average of your monthly expenses compared to your monthly income. Average the 12 months so that you take out some of the variability. Variability can occur in different ways. For example, a bill that is due on the first or last day of the month, may not always come out of your account on the exact same day and therefore it can look like you had no payment one month and two payments the next month. Averaging over 12 months helps to take out that variability.
- Compare your monthly average to what you had budgeted in every expense category. Were you over or under in each category?
- Create your budget for the next year based on this comparison. If you expect your spending to be same for the category, keep it the same. If you know you will be spending more money in one category, increase that amount to what you think it will be.
- Total up your projected income and subtracted out your budgeted expenses. Do you have a positive or negative result of this subtraction? If it’s negative, make sure you go back and adjust your budget to get to a value of close to zero. Your goal should be zero, but it’s only a budget and doesn’t have to be exact.
- During the first week of January, go back and update all of your December expenses to make sure the previous month is completely wrapped up and double check that your budget still makes sense compared to your spending. If your Christmas gifts and holiday travel didn’t hit your expenses when you did the original review, you may need to adjust some categories.
- Enjoy your new year and start working towards achieving your budget. As situations change, you can review your budget and adjust as necessary. The other option, if your situation changes, is to just make yourself notes so you can remember why your expenses don’t align with your budget (such as an unexpected purchase of a new car when your old one died may require more expenses than you were expecting).
Along with reviewing your spending and income, what other things are you going to plan for in the new year? What New Year’s resolution do plan to have? Is there a new business or educational training that you want to start? Are you dreaming of a vacation or a new car? Share how your plan for the new year in the comments.