Every year, about 140 million households file their federal tax returns. For many, the process involves digging through shoe boxes or manila folders full of receipts, and gathering mortgage, retirement, and investment account statements.1
It seems a shame not to make the most of all that effort as tax preparation may be the only time of year many households gather all their financial information in one place. This it a perfect time to take a critical look at how much money you are bringing in and where it’s all going. In other words, this is a great time to give your household budget a checkup.
Six-Step Budget Checkup Process
A thorough budget checkup involves six steps:
1. Create Categories
Start by dividing expenses into useful categories. Some possibilities: home, auto, food, household, debt, clothes, pets, entertainment, and charity. Don’t forget savings and investments. It may also be helpful to create subcategories. Housing, for example, can be divided into mortgage, taxes, insurance, utilities, and maintenance.
2. Track Expenses
Go through all your receipts and statements you gathered to prepare your taxes and get a better understanding of where your money went last year. Track everything. Be as specific as possible, and don’t forget to account for little expenses, like the cost of a latte on your way to work.
3. Project Expenses Forward
Knowing how much was spent per budget category can provide a useful template for projecting future expenses. Go through each category. Are expenses likely to rise in the coming year? If so, by how much? The results of this projection will form the basis of a budget for the coming year.
4. Determine Expected Income
Add together all sources of income. Make sure to use net income.
5. Subtract Expenses from Income
It’s time for the moment of truth. Subtract projected expenses from expected income. If expenses exceed income, it may be necessary to consider changes to your discretionary expenses. Prioritize categories and look to reduce those with the lowest importance until the budget is balanced.
6. Stick to Your Budget
If it’s not in your budget, don’t spend it. If it’s an emergency, make adjustments elsewhere.
Tax time can provide an excellent opportunity to give your household budget a thorough checkup. In taking control of your money, you may find you are able to devote more of it to the pursuit of your financial goals. If it’s time to create a budget with a financial professional, reach out to the experienced Emerj360 Team at 1-833-637-5360.
Download the Free Budgeting Guide
Having a budget in place is a great way to keep your spending in check and make sure your savings are on track for the future. A budget can even help you determine your long-term financial goals and create a path to work towards those goals. Download our free budgeting guide to take your budget to the next level.
Source:
IRS.gov, 2023
