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5 steps to start a budgeting strategy that sticks.

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Here’s how to get a strong head start on your budgeting new year’s resolution.

It’s the holiday season: a time to reflect on the year’s successes, celebrate with loved ones, and give gifts. While a serious activity like budgeting may seem like something that’s easier to put off until next year, you can get an easy head start now. Here’s how.

Step 1: What’s your monthly income?

It all starts with how much you make. Whether you get paid bi-monthly, monthly or every two weeks, add it all up so you know how much you’re making each month.

If your income isn’t steady (you work seasonal jobs, are a freelancer or small business owner, for example), take a look at the month this past year when you earned the least. Use that number as your baseline.

Step 2: Figure out what you can’t (or really shouldn’t) live without.

The second step is to figure out how much your necessities cost every month. This includes categories like:

  • Mortgage/rent

  • Groceries

  • Transportation to/from work

  • Utilities, like water bill, heating/cooling costs

  • Installment debt (e.g., student loans and car payments)

  • Insurance

  • Any medical expenses not covered through insurance

  • Child care

  • Pet costs

Add those all up.

Step 3: Figure out what you have (or don’t have) left.

If the number in Step 2 is bigger than the number in Step 1, you probably already know it, as you may find you’re having trouble paying for your necessities. And if you’re using credit cards to cover your expenses, this step’s findings may come as a surprise. If you’re in this situation, don’t worry. Just think about changes you need to make to make it work, like:

  • Are there other sources of income you could tap into to supplement your current income (g., driving for a ridesharing company, selling things you don’t need online or in a yard sale)?

  • Are there things you can do to reduce your expenses (g., move to a more inexpensive location, downsize to a smaller home, refinancing your mortgage, or shop at a more inexpensive grocery store)?

If the number in Step 2 is smaller than the number in Step 1, you’re at least afloat, which is a good place to be.

Step 4: See what you can save and set it aside.

Assuming you have money left over for this step, set aside as much of it as you think you can for savings. Even if the monthly amount isn’t much, using it to start a monthly savings plan will help you avoid the temptation to spend all the money you earn. In fact, it may be a good idea to have your bank automatically transfer a fixed amount each month from your checking account to your savings account. That way, you don’t even have to think about it.

Step 5: If you have any money left, consider it fun money.

If you’ve reached this step with money left over, this is the money you can really play around with. Think about how you spend for fun: restaurants, movies, concerts, shopping and the like. Then, if you’d like, you can create categories of those fun expenditures that add up to the amount you’ve figured you have left over in this step.

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