“There are so many online tools and apps now,” says Tana Gildea, CPA and author of The Graduate’s Guide to Money. “It’s just plain silly not to understand how much you spend on eating out, gadgets, entertainment, and stuff.”
As 2015 gets under way, it’s a good idea to take a step back and evaluate whether or not you are using all of the resources available to you to update your budget and ensure that you really are in control of your finances.
Know what matters most to you
In the past, most consumers followed a set financial path. Grow up, get a job, buy a house, start a family, work for 30 years, retire with a pension. The world is different now. Technology has changed how we work, and there are numerous opportunities to design your life around the way you prefer to live.
Rather than following a set formula (one that might not actually prepare you for the realities of today’s economy), it makes sense to start your budget journey with your own values and priorities. “Identify what truly matters and make sure you plan for that first,” says Gildea. “If you rent an expensive apartment, you’ve made the decision that a bunch of income is going to your living space.”
She points out that understanding what matters most to you, and then bringing your budget in line with those values and priorities is a better recipe for success than half-heartedly following a formula.
You can get an idea of what matters to you — as well as whether or not you spend according to your values — by tracking your spending. She suggests Mint.com and Quicken as two ways to track all of your spending. You can easily see the results of where your money is going when you use these tools. Many other budgeting tools also connect with your bank accounts and credit card accounts to help you easily capture where every dollar is going.
“Once you know where it all goes, step back and ask yourself if that is where you honestly want your money to go,” suggests Gildea. “How do you feel about it? If you don’t like that you spend 40 percent of your income on dining out, make a plan to change that.”
Realistically categorize your spending
Today, we have a lot of research out there on behavioral finance. We know that our emotions and psychology get in the way of what we are trying to accomplish. Gildea suggests taking a practical approach to your budget in 2015. “Track the areas that you will actually take action on,” she says. “If having the information is not going to impact behavior, don’t track it.”
Gildea uses the example of car costs. You’ve got car insurance, car repairs, car tags, gas costs, and more. However, what are you going to do change those behaviors? “Even if I am over budget on car insurance, I’m going to pay that cost or fix my brakes or buy gas, so knowing the minutiae isn’t helping me much,” she points out.
While you need to track your spending from the standpoint that you should know how much you have, getting into the tiniest details and sweating them won’t help you change what needs to be done with your money. Instead, Gildea suggests that you start your 2015 budget with the following categories:
- Must do
- Want to do
“You aren’t going to be able to do much in the short-term about must dos like utilities, care repairs, and doctor visits,” says Gildea. “The other categories are under your control so you can decide.”
By re-jiggering the budget to reflect your values and realities in the coming year, you have a little more flexibility in your budget categories, and you can take a slightly different approach to what’s next.
Prepare for the future
There are also plenty of tools that can help you integrate the now with the future. Online calculators can help you estimate how much you need to save to reach a comfortable retirement, allowing you to adjust your behaviors now to benefit the future. You can also use websites like Quizzle to plan for other aspects of your finances.
If you want to save money on your home loan, or find a rewards credit card that better fits your spending style and needs, there are aggregate sites that can help you find the best rates and terms. Another advantage of these consumer credit sites is that you can also see where you stand with your credit. Your credit is an increasingly important part of your financial picture in 2015, and a site like Quizzle can help you stay on top of it, recommending actions to boost your score, and helping you leverage your good habits into lower costs.
Today’s budget is closely integrated with the future. If you want the best results for you and your finances, now is the time to start planning. Budgeting in 2015 is about your entire financial life, not just nitpicking certain categories. Use the tools available, and you will find that you are in a much better place going forward.