Preparing Your Budget for the New Year

You’re enjoying the festivities that go along with the holiday season — shopping, caroling, partying, shopping, decorating, baking, and shopping. Somewhere in the back of your mind comes a niggling sensation that you’re missing something. You check the lights, tree, presents, and children snug in their beds — they all look okay. Still, you can help think there’s one important item. Then, as Santa is about to come down the chimney or you’re about to pop the champagne cork, it hits — you need to prepare your budget for the new year.

Just like taking down the Christmas decorations or shredding all the unneeded documents, your household budget needs some cleaning up in preparation for the next year. All you need is a quiet moment and a close examination of the known events of the new year to see what needs to be addressed. Here are a few things to consider during your budget tune-up.

Removal of Dead Categories — There comes a time in the life of every budget where once flourishing categories are no longer used. This may be due to usage of the money it once held or the fact you redistributed the funds to another category. No matter what the case, these dead categories should be weeded out of your budget to make a slimmer and stronger document. And for those categories that are on life support, think of consolidating them into a more active category.

Review of New Expenses — Have you or your spouse decided to go back to school? Does a child need braces? Is there an increase in any fees connected to day care? These are all questions to consider for the new year’s budget, because they affect your bottom line. Go through your records to determine what is coming down the pike in order to plan accordingly during the first round of paychecks.

Examine any Reduction of Pay — Another unfortunate thing to consider is a drop in your pay due to an increase of health benefit payouts at your job. It may not be as bad as it was in the past, but health costs continue to rise and employers are taking more out of their workers pay to compensate. The reduction may only be a few dollars or could be as much as $30 or $40. A reduction such as this in a tight budget can result in problems. Try to determine the pay loss ahead of time if possible.

Review Upcoming Life Changes — Things can change for good or bad over a year period. Maybe you’re going to start a new job or are about to start divorce proceedings with your former spouse. You could have lost your job or gotten seriously sick over the last year, resulting in a large accumulation of debt. These life changes also require an adjustment of budget categories in order to compensate. Review all of your year-ending income and debts to consider how different your budget will look in the new year.