Pop, fizz, clink. The big New Year celebration may be over in a toast of champagne. But the same can’t be said about achieving your new year’s resolutions. If you expect to improve your finances in 2020, you’ll have to roll up your sleeves and commit to healthy financial habits all year long.
When it comes to New Year’s resolutions, commitment isn’t easy. Nearly 80 percent of all goal-setters give up by mid-February. But you might not face the same fate if you have a budget in your hand.
A budget is a financial plan of attack that helps with a variety of goals. Whether you want to improve your credit history or save up for a rainy day, here are three reasons why a budget will help.
1. It Helps You Spend within Your Means
“I’ll put it on credit” becomes a mantra of overspenders during the holiday season. But continuing to say these words in the new year could land your finances in hot water.
You’re promising your ability to pay everything back on future cash that may or may not be available. You’ll also pay more than what you use, as most financial products come with interest and finance charges that bump up the cost of borrowing.
For these reasons, the people at CreditFresh recommend using a personal loan or line of credit carefully. Generally, you should only request a personal loan or line of credit in an emergency when your savings fall short of unexpected expenses.
This tends to mean things like surprise hospital visits, unavoidable funeral costs, or unforeseen furnace repairs. What it does not cover is routine expenses or splurge items you can’t afford.
A budget identifies the limits of your spending, so you don’t accidentally charge more than you can afford.
2. It Helps You Pay Your Bills on Time
There come serious consequences if you make a habit of missing due dates—or payments altogether! Delinquencies can lead to having your services shut off, and your credit score may drop if your late payments get reported to a credit bureau.
A budget is a way of organizing your money, so you pay these bills before any other spending.
By listing your bills, you’ll also be more aware of upcoming due dates. Program them into your phone to receive reminders to pay. Or, better yet, set up automatic payments with the bank to make sure you never miss a due date again.
3. It Helps You Save More
The budgeting process airs your financial dirty laundry. You’ll spot any bad spending habits that waste your money by tracking your outgoing expenses.
Targeting these in the new year will help you free up cash that you can then put towards savings.
The more savings you set aside, the better. But don’t sacrifice all the joy in life to boost your emergency fund. When it comes to your finances, balance is key.
According to the percentage budget, roughly 20 percent of your income should go towards savings. This leaves 50 percent for bills and 30 percent for fun things.
You may tweak this to better fit your financial situation, but don’t be afraid to reward yourself — within reason. An occasional treat can help you justify all the other sacrifices you make.
Transforming the way you manage your money won’t be easy. Like any big change, it takes determination and patience to see results. But as long as you have a budget, it won’t be as hard as it could be. This spending plan helps you understand your money better in the new year.