If 2020 has taught us anything, it has taught us that we should be prepared for anything. The events that unfolded during this year have also shed light on the places we may have financial vulnerability (and strengths, hopefully). This financial picture flows between both our personal and professional lives – especially as business owners and entrepreneurs. Many lessons can be taken away from the turmoil that ensued after the pandemic of 2020, and one certainly is the importance of budgeting.
Here are some numbers to consider and highlight the issue:
- NerdWallet reported that the average (pre-pandemic) American household racked up credit card debt of approximately $7,000 in 2019.
- That same report estimates that over the past ten years, medical expenses have grown at a rate of 33%, while median income growth has only been at a rate of 30% – making budgeting more challenging.
- NerdWallet goes on to detail the challenges facing parents. The cost of daycare and child-related expenses can, in some cases, exceed the salary of the working parent, creating a large gap in income and making budgeting ever-more important.
So, times are tough, it seems. And, as the cost of living rises and incomes don’t always follow the same trajectory, it is more important than ever to master that budget for both your personal finances and your business projections.
Your 2-Part Guide To Mastering Your 2021 Budget
First things first: Tips to lock down your personal budget. Your personal budget can slowly get out of control if not routinely reviewed. It’s important to keep a good handle on your income vs. expenses ratio and know the answers to key questions like:
- How much income do I need to cover my monthly bills?
- What are my variable and fixed expenses?
- What are my saving goals?
- Will I be prepared for an emergency (car issue, health problem, job layoff)?
- What large expenses do I need (or want) to plan for in the future (college tuition, vacation, vacation home)?
Once you’ve outlined the answers to these questions, you’ll be ready to set your budget. You can define what you have to pay, how much you pay to your savings and the things that are “nice to haves.”
A few important notes about spending creep should be noted:
- Eating out too often can blow up your budget.
- Paying for apps, memberships and technology tools that you don’t use.
- Paying higher interest rates than the average on credit cards, mortgages and car loans can expand your budget unnecessarily.