Every year proves to be financially tumultuous, and the one approaching shouldn’t be any different. With the supposed fiscal cliff in the United States, and constant uncertainties in Europe, 2013 is already shaping up to be an interesting year. If you haven’t been financially responsible in the past then now is the time to start. We have so many factors outside of our control: Government decision making, interest rate movements, health of the real estate market, job outlooks, unemployment rates, etc. All you can do is manage the factors that are within your control, and budgeting your finances is one of those.
Budgeting is the cornerstone of personal finance. The most basic concept of living a financially responsible life is to spend less than you make, this will ensure that you will never go into debt. While the concept is easy, putting into use can be a bit more difficult. Some of us have one job and one source of income, others have several sources. What’s more is that some people have fluctuating income levels, or seasonal income, which makes it even more difficult to budget out. Then you have other considerations like investment income and portfolio mix which adds another layer of complexity to the situation.
While the revenue portion of your budget is important, let’s not forget about the expense side. Expenses are hard to forecast because they can often change each month. Perhaps you pay your insurance annually, or semi-annually, you need to consider the amount to set aside each month along the way. Also, smaller expenses tend to fly under the radar, that daily cup of coffee and newspaper realistically adds up over an entire year, but it’s not something that people think about.
The outcome of your revenue and expense budget is the net income left over at the end. I stress the importance of budgeting, and the outcome specifically because it’s the amount you have to invest, save, and spend. Spending can be fun, but it also does little to bring you towards financial security. Investing is important if you want to outpace inflation, but that doesn’t mean it’s where to place all of your money, after all there is risk involved. A simple savings account will provide an interest bearing place to stash your money, and easy access savings are a an option for those who need to remain financially liquid.
Regardless of your method for budgeting, 2013 is going to be a year full of shocks and surprises. That being said, stabilize your own finances and keep working towards financial independance.