6 Steps to Rework Your Budget for the New Year

Want to save more? Break spending habits? You can with these budget changes.

By + More

wise-bread-sabah-karimi- REISED90x90.jpg
Sabah Karimi
The first month of the year is a great time to take a closer look at your budget and review your spending habits. Major life changes such as moving, having a baby or changing jobs may be in the forecast for you this year, and having a realistic budget to work with can make some of those transitions easier to manage.

Whether you want to save more money, take more vacations or just make smarter spending decisions, take some time to make the following budget changes.

1. Recreate your list of expenses and income sources. Let the new year be a fresh start to your finances by creating a new budget from scratch. List all your income sources and expenses, including expenses like working to pay off credit card debt. And remember to list your income based on your take-home pay – if you're making a budget based on your pre-tax wage, you could find yourself deep in debt.

2. Be specific about your goals. Be as specific as possible about your financial goals for the year. Do you want to set aside money for a vacation fund? Save for a new home purchase? Create an emergency fund? Or maybe you have goals that relate to spending less – dining out less, buying fewer luxuries, etc. Write down a list of your top five goals that will make you feel more confident about your financial situation by this time next year. Be specific with dollar amounts, and set a deadline of when you expect to reach your goal – it's easier to save if you have these specifics in mind.

3. Review fee schedules. Nobody likes paying fees. Take a look at your statements to make sure you are aware of all fees, including those charged by banks, credit cards and Internet and cellphone service providers. Contact these companies to see if you can eliminate any of these fees. If not, include them in your budget where appropriate so you have an accurate idea of what your cash flow looks like each month.

4. Work with averages. Since many expenses can fluctuate significantly from month to month, you will need to work with a baseline amount. Go back to last year's budget, and take a look at how much you spent, on average, on housing, food, entertainment and other major categories. Use that average dollar amount as a baseline when creating this year's budget. If one of your goals is to reduce spending this year, try setting a specific goal based on last year's average – like reducing spending by 10 percent.

5. Prepare a debt payoff strategy. If one of your financial goals for the year is to get a better handle on debt, put together a debt payoff strategy that complements your budget. You need to choose a debt payoff amount that will help you get ahead financially by year's end but also one that won't overextend you financially. Be realistic about how much you can set aside to pay down your debt this year, and include those amounts in the expense column of your budget.

6. Automate savings contributions. Automate your savings contributions each month so that a fixed amount of your monthly income goes directly to savings – this makes it easier to stay on track with your savings goals. If your bank offers the option to separate your savings account into several categories, you can designate each account for a specific goal, such as a vacation fund, emergency fund and even car repairs. Separating your savings accounts this way can make it easier to see how close you are to your goal each month.

Sabah Karimi is a contributor to the personal finance blog Wise Bread, where you can learn how to build your first budget in 5 easy steps.