Your financial planner: Cleaning up the bills after the holidays and setting up the year
Now that we are a few weeks into January and the hustle and bustle of the holidays is over, many are left with some clean up and bills from the holiday season. This is a good time to reassess any outstanding debt and spend some time working with your financial budget and set a budget for the upcoming year.
To get started, simply list all of your income sources —-your monthly salary after taxes and then itemize your expenses — from your checking account, credit cards and known cash purchases for the past month. With these two numbers, you have the information you need to start putting together a strategy towards creating a budget.
Next, do the same exercise for the prior month. Why do this twice? Simply to identify any anomalies that may occur in a month. Many people expand this timeframe to a longer time to identify these anomalies and to understand cyclical expenses that need to be included in an annual budget.
In speaking to clients who go through this process, many are surprised at how quickly small expenses add up to sizable sums. It is also important to understand what you are spending your money on. This is a life check to make sure that your priorities and spending are aligned. The key is to take the time to do this exercise and continue to make this a consistent process.
With this process completed, you now have the data and information to start educating yourself on your spending habits. Look at what you spend your money on--housing, medical expenses, food, insurance and discretionary items. Some spending is required-- non-discretionary expenses. Sometimes there isn’t much that can be done on these items in the short term, like rent or a mortgage expense, but others like auto insurance may be able to be reduced by getting quotes that will cover your needs. Other expenses, which are discretionary, can be reviewed and determined if they are really needed or even wanted. If you are looking to free up money to save, this is often a great place to start.
After you have educated yourself on where you money goes, you can start to strategize on some budget goals. There are many goals that you can start to strategize on accomplishing. They include: assessing debt reduction, future known expenses, emergency funds, and so forth...
Once you have a clear identification of which goals you wish to achieve, you can map a dollar amount to them. This can be on a weekly, monthly or longer timeframe. The larger the goal, normally the longer it takes to save off budget reallocation.
There many benefits of doing this exercise not only once, but as a habit through time. At the basic level, budgets can help you keep your finances on tract. Budgeting helps to make sure you don’t spend money on a lot of frivolous items. Budgets help you plan for future needs such as retirement and other important things. Doing these actives can yield a more fruitful retirement, less overall stress in your life, and align priorities in your life.
There are many tools that you can use in this process. There are budgeting calculators online, apps for your phones, and excel spreadsheets already built starting with simple budgets and more complex modeling. The key is to get started!
If this is something that is important to you and something you tell yourself year after year you are going to do, then don’t let January turn into October!
Peter Hartwick of Personal Financial Group, Inc. received his Bachelor of Science in Electrical Engineering from the University of Colorado – Boulder and he holds the Master of Science also in Electrical Engineering Management from the University of Colorado.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through Personal Financial Group, a Registered Investment Advisor. Personal Financial Group, Paramount Private Wealth and LPL Financial are separate entities.
“The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no assurance that the techniques and strategies discussed are suitable for all individuals or will yield positive outcomes.”
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This story was originally published January 20, 2016 at 4:02 PM with the headline "Your financial planner: Cleaning up the bills after the holidays and setting up the year."