While budgeting is something many people do frequently, from month to month and year to year, 2021 is different, as we enter the second year of a global pandemic. The COVID-19 pandemic has had a dramatic effect on what we do, where we go and how we spend and manage money.
Budgeting 101: How To Create a Budget You Can Live With
From month to month, in this new and uncertain time, budgeting requirements may change more quickly than before. Unsure how soon we can return to a semblance of normal life, the fate of many businesses, and thus the economy, remains up in the air. To stay ahead of financial and lifestyle fluctuations, it’s important for people to rethink how they spend and budget. Here we offer nine ways you might want to adjust your budget and approach your finances in this new year ahead.
Last updated: Jan. 12, 2021
Create a Monthly Budget
The COVID-19 pandemic has shown us all how quickly life can change, and finances are no exception. Rather than setting a tried and true budget for the year or one that stays the same each month, consider creating a monthly budget that allows you the flexibility to change as your life and finances do. Each month you can assess whether all the things you did or didn’t spend money on are worth repeating the next month, and look for ways to save money, too.
Or Even Create a Micro Budget
Whittling down your budget even further, some experts recommend a micro-budget that is as small as one week, or per paycheck, so approximately every two weeks. Alise Kraus, president of the Financial Planning Association of the East Bay, tells Mint that budgeting by paycheck “…allows you to see what’s left over and what you have to save in advance, for the next time your tires blow out.” This can also help you to set more accurate monthly budgets.
Use Budgeting Tools
Budgeting may not come naturally to everyone. Thankfully there are tools for that, and many more Americans are taking advantage of them. According to Clutch.co, 56% of Americans surveyed said they used budget tools or help from others, including finance and budgeting apps, templates and even financial advisor services. These tools can simplify the process and make you more likely to achieve your financial goals.
New Year, New You: How To Set Realistic Financial Goals for 2021
Prepare For One-Off Expenses
While most of us have consistent bills that recur every month like clockwork, there are also expenses that might only pop up once a year, like professional fees or an insurance payment. Try to anticipate what those will be, break the annual cost of that bill into monthly installments and set aside money every month until that bill is due.
Find Out: How To Bounce Back Financially in 2021
Pay Off One Debt or Cancel Something
When you have multiple small debts or bills for things you might not use/need every month, you can build a sense of financial competence and satisfaction, according to The New York Times, by paying off one small debt or canceling a service you don’t use. Pick a credit card with a small balance or a subscription you really don’t need and get rid of it. You’ll feel accomplished and be financially one step ahead, too.
Get Started: 11 Steps for Paying Off Credit Card Debt in 2021
Save Money You Used To Spend Before COVID-19
The pandemic has changed our access to many things we used to spend money on: gyms, movie theaters, dining out, museums, a night out at the club and even gas. That is money you can be saving, which could add up rather quickly. Either review prior years’ expenditures or estimate how much you are saving and sock it away in an emergency fund or other savings account.
Set a Yearly Savings Goal
It’s a lot easier to save money when you have a concrete goal to plan for. Maybe you’re saving toward a down payment on a home, a new car or a vacation when it’s safe to travel. Decide how much you’d like to have saved by the end of the year so you can break it down into a monthly goal. That will help you prioritize what spending, beyond the essentials, you can allocate in your budget.
Don’t Budget Yourself Into a Corner
It’s tempting to budget yourself down to the last dollar that you bring in each month. You take home $4,000, you budget for $4,000. But what about unexpected expenses? While it’s ideal to have an emergency fund for that reason, not everyone can or does, so leaving yourself some wiggle room in the budget is a good idea when possible.
One of the few upsides to the COVID-19 pandemic is supremely low mortgage interest rates. If you already have a mortgage, but want to lock in a lower interest rate or change any of the terms of your existing mortgage, now might just be the best time to do that. Doing so could potentially free up extra cash each month that can change your budget, as well.
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This article originally appeared on GOBankingRates.com: All the Ways You Should Adjust Your Budget for 2021