Budgeting for the New Year
Looking forward to conquering some (financial) mountains in 2019

Looking forward to conquering some (financial) mountains in 2019

In what’s felt like the blink of an eye, it’s already December. It’s a wonderful time of year to - *drumroll*

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Reflect, rebalance, and redo your finances! Looking back on the past year and looking forward to 2019 will be a great way to ensure 2019 starts off on the right footing. I’m sure nearly all of us have goals we want to achieve over the next year, whether it’s paying off student loans, saving up for an emergency fund, a down payment on a house, etc. Evaluating the past year and then budgeting for the next year will be key steps in reaching those goals. Don’t know where your money went this year 💸💸? Well, it’s time to find out.

Reflection
One set of questions I ask myself periodically is:

“Have I been wise and shrewd with my finances?
“Have I been greedy, wasteful, or selfish?”
“What were my biggest expenditures of the year?”
“In what areas did I overspend?”

It’s important to evaluate our spending, especially over the course of an entire year. There is a wonderful reference in Matthew 6:21 that states, “For where your treasure is, there your heart will be also.” Other sayings such as, “Put your money where your mouth is”, also point to the fact that how we spend our money tends to reflect our values and the things we truly care about. It’s one thing to say that you care about housing for the homeless, environmental conservation, or any other cause, and it’s another thing to actually spend time, money, and other resources on those causes.

For example, I care deeply about supporting my local church and the work of international missions. If my bank statements did not reflect this, then that would be a red flag. However, what I have discovered through perusing my past year’s spending, is that I’ve actually spent far too much on food and entertainment. The fact that I’ve spent that much money on eating out, watching movies, going to concerts, etc. reveals some lack of consideration or discipline. Did I really need to buy Chipotle burritos with guac every week? Or watch each of those new movies in theaters? Obviously these are not inherently bad things, but almost anything in excess can become a vice.

So honestly evaluate your spending over the past year - Have you tithed or donated to causes you care about? Did you spend an unnecessary amount on food or clothes or random Amazon purchases? Did you go out too often?

Prepare for the new year
After recognizing what could’ve been improved over the past year, it’s time to prepare for the upcoming year.

Ready to attack 2019 like…

Ready to attack 2019 like…

1. Set a budget for your “weakest” category
Based on whatever spending was a bit out of line, set a budget for that specific category moving forward. I know I’ve mentioned before that it’s better to set an overall spending limit, but I’m simply suggesting to especially limit the spending in your “weakest” category. After looking at my bank account (and stomach, lol) and realizing my overspending habit, I’ve already saved a lot by eating out less frequently.

2. Make sure you understand your impending taxes
This can often end up being a surprise (in a positive or negative sense), so it’s good to prepare early so that you know what to expect. Make sure you understand the tax implications of the following:

  • Income taxes

  • Small business taxes

  • Tax deductions on mortgage or student loans

  • Tax deductions on eligible charitable donations

  • Tax credits on dependents

  • Taxes on short- and long-term capital gains

  • Property taxes

  • Etc.

The list goes on, and it’s smart to do the research ahead of time. It isn’t rocket science, but it’s also not very simple. By the time February rolls around, you want to be prepared to file your taxes in the way that will be the most beneficial. Last year, I made the mistake of providing an itemized tax filing, whereas taking the standard deduction actually would have provided me a greater benefit. Have all of your documentation ready, and review all of your statements to make sure you are giving the most honest, complete, and correct numbers for your taxes.

3. Rebalance your investments as necessary
This year, I made some short-term capital gains on a few trades as well as dividend income. This means I will have to pay short-term capital gains tax on the amount earned. However, I still hold some losing positions, like FB, which is down 35% from its all time high. While I probably won’t sell my entire position, I may opt to sell a few shares in order to reduce my exposure and negate the short-term capitals gains tax I otherwise would have been forced to pay. While you certainly don’t need to overhaul your portfolio (and I generally wouldn’t advise it), it may be an opportune time to rebalance.

4. List out recurring and large expenses
Before setting goals, it’s good to take stock of the fairly predictable expenditures for the upcoming year. For example, I can forecast the following monthly/annual expenses: tithing, gym membership, auto insurance, rent, Amazon Prime membership, and 401K contribution (which is not an expense, but still decreases my cash position). I can also evaluate major expenses that I can reasonably expect, but perhaps with less accuracy. Things like the following: travels, large purchases like a new phone, computer, or TV, any other expensive equipment, etc. You can budget the remaining cash to know how much you can reasonably spend on other things like food, gifts, clothes, etc.

5. Set practical goals
Finally, set clear and practical goals to discipline yourself. Make it a goal to tackle any remaining debt, especially if it’s high interest. If you have outstanding credit card debt (that’s accruing interest against you), then make it a resolution to pay off the full balance by March. If you still have $20K in student loans, promise yourself you’ll do what it takes to save and to earn extra money on the side in order to be totally debt free by year end. If you’re saving up for a down payment on a house or apartment and you’re still $25K short, make it your goal to have that amount saved by the time you’re ready to get pre-qualified.

Make your goals challenging, but reasonable. Don’t be naive about the effort that will be required. Like many other things in life, achieving financial goals is like running a marathon. You have to run at a pace that’s appropriate for your condition. As your conditioning improves, and you’re able to run faster, then do so. It’s perfectly fine to have ambitious goals, but setting goals that are completely out of reach could have the opposite effect. Instead of motivating you, being so far off from the goal could become a big discouragement, ultimately leading to complete failure to make progress. Set goals that are within reach, but will stretch you in order to achieve. Have goal posts (“mini goals” that add up to the ultimate goal) each month or quarter to see how you’re tracking. For example, saving $18K in a year might seem daunting, but forcing yourself to save at least $1,500 a month somehow feels a bit more manageable. Personally, I just use Google sheets to track my progress on investments, large upcoming purchases, 401K, and other goals.

Conclusion
Let’s make 2019 a great year. Get your finances in order so that you can focus on the rest.

-Ezekiel Emunah

Ezekiel EmunahComment