Tax time is here, that time of year when we receive our W-2’s, 1099’s, interest income statements, and other financial forms and prepare to do our tax returns or pay to have them done. Tax preparation may be the only time of year you gather all your financial information together in one place, which makes it a perfect time to take a serious look at where your money is going. In other words, now is a good time to do a first-quarter budget checkup. By assessing your money management skills now, you can make any necessary adjustments to handle your money better in the next quarter, and for the remainder of the year in order to reach your financial goals. If everything is going along smoothly, great! Keep doing what you’re doing. However, if more money seems to be going out the door than is coming in, you may need to make some changes.
If you’re not already running your household on a budget, it’s a great time to start. Budgeting doesn’t have to be complicated or boring, with just a few basic steps you can create a structure that will give your money a framework within which to work. Having basic categories helps you see where your money goes, and where you may need to allocate funds differently. A simple budget would look something like this:
- Write down your total household income for the month
- Deduct fixed expenses such as:
- Rent or mortgage payments (include property taxes and HOA fees if any)
- Insurance payments
- Loan payments
- Utilities (you can get the monthly charges for the last 12 months from your utility company and divide by 12 to reach an average estimated amount)
- Gas and other transportation costs
- Project expenses such as:
- Deduct total fixed and projected expenses from total expected household income
- Adjust as needed to cover expenses and/or reach financial goals
Making your budget work for you now can save you a lot of headaches down the road. For instance, if you know it’s been a while since you put tires on the car, you might want to take a little money every paycheck and set it aside in a special account designated just for auto expenses. When a tire does go flat or you decide its time to buy new ones, your monthly preparation means you don’t have to put those tires on a credit card and pay interest on the balance until you pay them off. Budgets help us plan, let us see where we are making smart money moves, and where we can adjust our spending to make the most of our dollars and reach our financial goals sooner.
Review your insurance costs and investment portfolio as part of your quarterly financial checkup to see if you can save money by adjusting your coverage or reallocating funds. If you’ve had a major life change such as getting married, divorced, or welcoming a new child into the family, you may want to talk to a financial advisor about getting life insurance or changing your will. If you know you will most likely owe taxes at this time next year, consider increasing the amount withheld from your paycheck or set up a separate account to contribute monthly toward the taxes you will owe next year. Checking your credit report and credit score during your quarterly budget checkup is another good idea; if you never check, there may be issues lurking that could adversely affect your financial health. Keep all your financial information organized and in one spot for ease of access for you, and in case someone in your family needs the information to act on your behalf.
One great tool for managing your money responsibly is automated payments. By scheduling automatic bill payments every month you’ll never have to worry about remembering to pay a bill or getting hit with late charges and penalties. If you have monthly credit card payments, you can break those single monthly payments up into bi-monthly or weekly payments to reduce your average daily balance, thereby saving money on the interest charged on that balance. Making weekly payments on credit card or loan balances also offers a sense of satisfaction as you watch the balance shrink every week.
Performing a first-quarter budget checkup doesn’t have to take a lot of time, and it could save you a lot of worry in the future. Whether you use budgeting software, an online spreadsheet, or track your bills using a monthly bill organizer, finding the budget tool that works for you will help make the task of budgeting every month easier.