New Year’s Financial Resolutions - Good Money Habits

New Year, new you? If by now, you’ve already consigned some of your new year’s resolutions to the ashcan of good intentions, don’t give up hope.

The year stretches out before us, and now’s the time to stick to one financial resolution that could really save you money in 2022 – it’s time to look closely at setting a yearly budget.

Through keeping an eye on your income and expenses, and changing spending habits, your bank balance may thank you.

What is an annual budget?

An annual budget lays out and tracks your income and expenses over a 12 month period. In other words, you’re simply keeping a close watch on how much money comes in through what you earn, and how much goes out through what you spend.

In most cases, we can be relatively confident about what we’ll earn over the course of a year, but for many people, projecting what we’ll have to spend becomes more difficult. The good thing is, there are large or regular expenses we can track and plan for throughout the year, which should help you avoid nasty surprises (Car and Home insurance, anyone?) and plan your budget so you’re saving money for the things you want in life.

How to set up an annual budget

Step 1: Record your income

Whether you’re full time, part time or casual, or on a salary or hourly rate, we first need to record a picture of what you expect to earn this year. If you don’t have a regular income, just go with an average amount from the last few years. Record:

• how much you expect to earn;
• where it’s going to be coming from (if you have multiple income sources); and
• when you expect to be paid.

Don’t forget to include all income sources – this could be from wages, government entitlements, or investment income.

Step 2: Add up your expenses

Your expenses will usually fall into one of three categories, and these are fixed, debt and unexpected. Be as thorough as you can – it can help to go through old bank statements or bills to see when you can expect these expenses to arise over the course of the year.

Fixed expenses are cyclical and can include, but aren’t limited to:

• rent or mortgage payments
• electricity, gas and phone bills
• council rates
• household expenses, like food and groceries
• medical costs and insurance
• transport costs, like car registration or public transport
• family costs, like baby products, child care, school fees and sporting activities
• subscriptions - streaming services, pay TV, etc

Debt expenses are ongoing repayments for your major life commitments. They can include, but aren’t limited to:

• personal loan repayments
• credit card payments
• mortgage repayments
• Buy now, pay later services, like Afterpay

Unexpected expenses are those lovely things you hope won’t crop up, but often do. They can include, but definitely aren’t limited to:

• car repairs and services
• medical bills
• extra school costs
• pet costs

Step 3: Set your spending limit

After recording your income and expenses, you should hopefully notice that your income amount out-weighs your expenses. If this isn’t the case, you may need to reconsider some of your expenses as a priority.

The difference between your income and expenses is your spending money for the year. While your expenses take care of your needs for the year, your spending money is for your ‘wants’ – things like entertainment, dining out and hobbies.

It helps to make a plan for what you want to do with this money as part of your annual budget, and how much of it you are willing to spend VS save. This is called setting a spending limit. By agreeing with yourself on an amount you are willing to spend, you can ensure that you’ll have money left over to save for the bigger things you want to do in life.

Step 4: Set your Savings Goal

While a yearly budget is great, there are some goals in life that take planning beyond the confines of a 12-month calendar. Saving for something big like a housing deposit, new car or the holiday of a lifetime can take time, so by setting yourself a large savings goal, you’re likely to stick to your spending limit each year and continue putting money aside.

Use our Savings Goal Calculator

The scale of your savings goal may mean that each year, you need to revisit your spending limit and adjust your budget accordingly. This is good practice.

What’s more, even if you don’t have a significant savings goal in mind, saving a little money each year as a safety net could prove useful, should the unexpected arise. Changes in income or sudden large unexpected expenses are much easier to handle if you’ve built yourself a savings buffer to weather the storm.

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How to stop spending money

The key to developing a healthy, ongoing ability to plan your annual budget is to understand that plans can change – there are things in life beyond our control. It’s important to understand that when change occurs, it’s okay to adjust your budget without being too hard on yourself. What’s more, if you have a blow-out and mow through your spending limit, that’s okay too. Don’t throw in the budgeting towel when life happens – double down and let your budget be your friend.

• Understand Your Spending Triggers: While we all spend more than we should from time to time, there may be a way you can be more aware to the types of influences or patterns that precede a blow-out. The world we live in is designed to encourage spending in a myriad of ways, and spending money online and offline has never been easier. Your spending may be influenced by time of day, the environment you find yourself in, your mood, the type of lifestyle you lead or even the people you surround yourself with.
• Stick to Cash: Since the invent of the credit and debit card, through to mobile NFC technology and online payments, the process of spending has become frictionless. It’s now too easy to part yourself from your money. By limiting the amount of online shopping you do, and using debit and credit cards less, you can maintain a physical relationship to the income you’ve earned, and stop being tempted to spend money you may not have.
• Give every dollar a job: a clever way you can limit your overspending is to try and ‘zero-out’ your accounts. What we mean by this is assigning a job to every dollar you’ve earned when your pay hits your bank account. You can open multiple accounts, and straight away assign your regular income into buckets – a designated amount into an account for each expense type, some into an account for spending money, and some into a high interest savings account for your savings goal. Doing this can help you get a visual sense that all of your money is assigned to a task that needs doing, making you less likely to give in to temptation to spend.