Managing Your Money Effectively in 2012

New year financesThe beginning of the New Year is one of the best times to evaluate your financial goals for the upcoming year and incorporate them into a spending plan. Regardless of how much money you make, spending it intentionally will help you reach your goals quickly and more effectively than you could have when spending haphazardly.

To manage your money effectively, start by listing everywhere you are currently spending your money. Do this by gathering recent bills and either recording or estimating your cash expenditures in categories like food and drinks, entertainment, and impulse purchases. When you have an itemized list of your current spending, use this to develop a plan for spending in the future.

You get a regular paycheck, which makes it much easier to create a spending plan. The only information you need to gather is how much each paycheck is and how many you get per month, which you can multiply to find your monthly net income. However, small business owner, you will need to calculate your net income. Do this by subtracting your usual monthly business expenses from your usual monthly business receipts to get your gross income. Then subtract the amount you pay per month in estimated taxes to find your monthly net income.

Take a long, hard look at your monthly net income. This is all yours, and it is completely up to you how you spend it. If you have financial goals, you can make them happen by choosing to spend your money in a way that supports those goals. For example, if you want to work on getting out of debt this year, all you have to do is spend less of your money on things you don’t really need so you have more of it to put toward extra debt payments. Other goals to consider include saving a down payment to buy a house, having more money to spend on gifts for others this year, or allowing yourself to buy more environmentally friendly foods.

Create your household spending plan by first subtracting all of your fixed expenses from your net income. Fixed expenses are things you have to pay every month, and that are always the same amount. These are things like your housing payment, car payment, other debt payments, insurance premiums, cable bills, membership fees, and child support or alimony payments. Then subtract your average expenses that vary from one month to another, but that you have to pay every month. This can include gas for your car and your home’s electricity bill.

The remaining money is yours to allocate however you wish. For example you have $1,000 left each month after paying your necessary expenses, you can decide each month how you want to divide this money to best meet your goals. The only restriction is that your total allocations cannot exceed your remaining income. Keep track of how much you spend in each category during the month so you don’t go over what you planned to spend in that category, leaving you with a perfectly balanced budget.