As the new year approaches, it's the perfect time to create a fresh financial plan. A well-crafted budget can help you manage your money effectively, reach your financial goals, and reduce stress about finances.

Here's a guide to help you set up your budget for 2024, taking into account the lessons from the past and any new objectives or changes in your financial situation.

Reflect on the Past Year

Start by reviewing your financial activity from the previous year. What worked well in your budget? Where did you face challenges? Perhaps you underestimated certain expenses or overestimated your income. Use this insight to inform your budgeting decisions for the new year.

1. Review Your Spending
   • Look through your bank statements and categorize your spending. Ask yourself, "Did my spending align with my priorities last year?"
2. Analyze Your Savings
   • Evaluate how much you saved. Consider, "Did I meet my savings goals, and if not, why?"
3. Assess Debt Levels
   • Check how much debt you paid off. Reflect on, "What were the obstacles to paying down debt?"
4. Identify Financial Wins and Challenges
   • Write down your successes and struggles. Ask, "What lessons can I take from these experiences?"
5. Gather Feedback
   • If you share finances with a partner or family, discuss what they think worked well and what didn't.

Evaluate Changes in Income and Expenses

Consider any changes in your income for the upcoming year, such as salary increases, bonuses, or additional income streams. Also, anticipate any new expenses or changes in existing ones, like rent increases or changes in insurance premiums.

1. Forecast Your Income
   • Estimate your expected income for 2024, including any known changes. Ask, "How does my projected income for 2024 compare to last year?"
2. Predict Upcoming Expenses
   • Anticipate any significant expenses that you know will arise. Consider, "Are there any life events coming up that will affect my expenses?"
3. Adjust for Inflation
   • Consider the impact of inflation on your regular expenses. Ask, "How should I adjust my budget categories to account for price increases?"
4. Plan for Financial Shifts
   • Identify any expected changes in your financial life, such as a child starting school. Think, "What financial changes do I need to plan for?"
5. Set Aside for Irregular Expenses
   • Budget for annual or semi-annual expenses like property taxes or insurance premiums. Reflect on, "How can I better prepare for irregular expenses?"

Set Clear Financial Goals

Define what you want to achieve financially in 2024. Your goals might include saving for a down payment on a house, paying off debt, or investing in your education. Ensure these goals are specific, measurable, achievable, relevant, and time-bound (SMART).

1. Define Your Objectives
   • Clearly state what you want to achieve. Ask yourself, "What are my top financial priorities for 2024?"
2. Quantify Your Goals
   • Attach a dollar amount to each goal. Consider, "How much money do I need to accomplish each goal?"
3. Establish Deadlines
   • Set a date for when you want to achieve each goal. Ask, "What are reasonable deadlines for my goals?"
4. Write Down Your Goals
   • Document your goals in a place you'll see regularly. Think, "How can I keep my goals visible and top of mind?"
5. Share Your Goals
   • If appropriate, share your goals with someone who can hold you accountable. Reflect on, "Who can support me in achieving these goals?"

Allocate for Savings and Investments

Decide how much of your income you want to save or invest. The 50/30/20 rule is a simple budgeting guideline that allocates 50% of your income to needs, 30% to wants, and 20% to savings and debt repayment. Adjust these percentages to fit your specific financial situation and goals.

1. Determine Savings Rate
   • Decide on the percentage of your income to save. Ask, "Is my savings rate sufficient to meet my goals?"
2. Choose Investment Vehicles
   • Research and select where to invest your savings. Consider, "Which investment options align with my risk tolerance and time horizon?"
3. Automate Savings
   • Set up automatic transfers to your savings and investment accounts. Think, "How can I make the process of saving and investing seamless?"
4. Review Emergency Fund Adequacy
   • Ensure your emergency fund is sufficient. Ask, "Does my emergency fund need to be adjusted based on my current lifestyle?"
5. Prioritize High-Interest Debt
   • Plan to pay off high-interest debt before allocating excess funds to investments. Reflect on, "How can I balance debt repayment with investing?"

Plan for Debt Repayment

If you have debt, incorporate a repayment plan into your budget. Determine how much you can realistically pay each month and consider using strategies like the debt snowball or avalanche methods.

1. List All Debts
   • Write down all debts, interest rates, and minimum payments. Ask, "Which debts are costing me the most in interest?"
2. Choose a Repayment Strategy
   • Decide on a debt repayment method, like the snowball or avalanche method. Consider, "Which debt repayment strategy will keep me motivated?"
3. Set Repayment Milestones
   • Create milestones for debt repayment to track progress. Think, "What mini-goals can I set to make repayment manageable?"
4. Allocate Funds for Repayment
   • Determine how much of your budget to allocate to debt repayment. Ask, "How can I maximize my debt repayments within my budget?"
5. Consider Debt Consolidation
   • If you have multiple high-interest debts, consider if debt consolidation is right for you. Reflect on, "Could consolidating my debts save me money on interest?"

Create Spending Categories

Divide your expenses into categories such as housing, food, transportation, and entertainment. Use your spending history to set realistic limits for each category.

1. Identify Necessary Expenses
   • Determine your non-negotiable expenses. Ask, "What are my essential monthly expenses?"
2. Set Limits for Discretionary Spending
   • Decide on spending limits for non-essential items. Consider, "What is a realistic budget for discretionary expenses?"
3. Adjust Based on Past Spending
   • Use last year's spending to inform this year's budget. Think, "Where can I adjust my spending based on last year's habits?"
4. Plan for Seasonal Expenses
   • Account for changes in spending throughout the year. Ask, "How do my expenses change with the seasons, and how can I plan for this?"
5. Leave Room for Fun
   • Ensure your budget includes some money for enjoyment. Reflect on, "How can I balance enjoying the present while planning for the future?"

Incorporate Flexibility

Life is unpredictable, so it's important to build flexibility into your budget. Set aside a portion of your income for unexpected expenses to avoid going off track when surprises arise.

1. Create a 'Miscellaneous' Category
   • Set aside a portion of your budget for unexpected expenses. Ask, "Do I have enough wiggle room in my budget for surprises?"
2. Review and Adjust Monthly
   • Plan to review your budget monthly and make adjustments. Consider, "What process will I use to review and adjust my budget regularly?"
3. Build a Buffer
   • Include a buffer in your savings to cover budget overruns. Think, "How much of a buffer do I need to feel secure?"
4. Anticipate Large Purchases
   • Save for large purchases over time rather than incurring debt. Ask, "What large purchases do I anticipate, and how can I save for them?"
5. Practice Mindful Spending
   • Make spending decisions based on value rather than impulse. Reflect on, "How can I ensure my spending aligns with my values?"

Use Budgeting Tools

Take advantage of budgeting apps or software to help you manage your budget. These tools can track your spending, remind you of bill payments, and help you stay on course.

1. Select a Budgeting Tool
   • Choose a budgeting app or tool that fits your needs. Ask, "Which tool will help me track my spending and stay organized?"
2. Set Up Notifications
   • Use notifications to remind you of bill payments and budget check-ins. Consider, "How can notifications keep me on track?"
3. Link Accounts
   • If possible, link your bank accounts to your budgeting tool for real-time updates. Think, "How can linking my accounts simplify budget management?"
4. Customize Categories
   • Tailor the categories in your budgeting

Review and Adjust Regularly

Commit to reviewing your budget regularly throughout the year. This will help you stay on track with your financial goals and make adjustments as needed.

Celebrate Successes

Don't forget to celebrate when you reach your financial milestones. Recognizing your achievements can provide motivation to stick with your budget and continue working towards your goals.

Olemera Financial Services – Personal Financial Planners South Africa

By following these steps, you can create a budget for 2024 that helps you manage your money effectively and achieve your financial goals. Remember, a budget isn't a restriction but a plan for how to best use your resources to get where you want to go.

Our professional and experienced financial planners in Johannesburg can help you develop a personal financial plan which includes a carefully constructed budget for you to follow. Contact us and let us set you up for financial success.