4 Budget Setting Tips for 2021

Budgeting is, of course, not rocket science, but the more strategic you are in your approach, the more successful you're likely to be. Keeping that in mind, here are some tips for setting up an effective, easy-to-follow budget for 2021.

1. Are you aware of how much you actually spend?

It may seem like you spend $500 a month on groceries, and $350 a month on entertainment. But are you sure? Without accurate numbers, your budget won't help you much. In other words, rather than guess at your spending, make sure it is accurate. Find out how much various bill categories cost you in the past year by searching through your bank account and credit card statements, and then use those concrete figures to set up your budget for next year.

2. Establish your savings goals for the year.

There are a few ways outlining your goals can make your budget more effective. Maybe you hope to save enough money to buy your first home in the next few years so that you will have an emergency fund. It will give you a monthly saving amount to incorporate into your calculations. Secondly, it will allow you to know how much fat you need to trim in order to meet your objectives. If you are not saving enough money at present, you should consider changing your spending habits.

3. You should factor in expenses that do not occur on a regular basis.

There are bills that recur every month, such as rent, car payments, and cellphones. Nonrecurring bills, however, such as an annual insurance payment or professional license renewal, can throw a budget off course. To avoid an unpleasant surprise, set aside the monthly cost for those one-off expenses.

4. Spend only a portion of your paycheck

Some people will have a hard time finding a place for every dollar they earn while budgeting. For example, if your monthly take-home pay is $3,000, you might think that you can stick with a budget of $3,000. However, that adds a lot of pressure on you. What happens when a friend comes into town at the last minute and you need extra groceries? What happens when winter is exceptionally cold and heating bills increase? Give yourself breathing room.