Budget Check Up: Tax Time is the Right Time

Keeping on top of your budget

Every year, about 140 million households file their federal tax returns.1 For many, the process involves digging through shoe boxes or manila folders full of receipts; gathering mortgage, retirement, and investment account statements; as well as relying on computer software to take advantage of every tax break the code permits.
Gathering all the receipts and invoices gets to be a headache and a stack of numbers that no one wants to see.
Tax preparation may be the only time of year many households gather all their financial information in one place. That makes it the perfect time to take a critical look at how much money is coming in and where it’s all going, as scary as it can be. Tax preparation is the perfect place to start innovating the household budget by doing a comprehensive “Budget check-up.”

A Six Step Process

A thorough budget checkup involves six steps.

1. Creating Some Categories.

Start by dividing expenses into general categories. Some suggestions: home, auto, food, household, debt, clothes, pets, entertainment, and charity. Especially track savings and investments. (It also may be helpful to create subcategories) Housing, for example, can be divided into mortgage, taxes, insurance, utilities, and maintenance.

2. Following the Money.

Go through all the receipts and statements gathered to prepare taxes and get a better understanding of where the money went the last year. The categorization makes this step significantly more bearable. Track everything. Be as specific as possible. Don’t forget to account for the cost of a latte on the way to work each day (this is sometimes the hardest one to keep an eye on).

3. Projecting Expenses Forward.

Knowing how much was spent per-budget-category can provide a useful starting point for projecting future expenses, and hopefully improving thereon. Go through each category. Are expenses likely to rise in the coming year? If so, by how much? Asking these types of questions are how to get at the basis of a budget for the coming year.

4. Determining Expected Income.

Evaluation of expected income is the next critical step to determining what needs to change.

5. Doing the Math.

It’s time for the moment of truth. Subtract projected expenses from expected income. If expenses exceed income, it may be necessary to consider. Prioritize categories and look to reduce those with the lowest importance until the budget is balanced. We at Harvest Investment Services would love to connect you with an advisor to help in this process.

6. Sticking to It.

If it’s not in the budget, don’t spend it. If it’s an emergency, make adjustments elsewhere.

Tax time can provide an excellent opportunity for the budgeting process. You have a chance to give your household budget a thorough checkup and cleanup. In taking control of your money, you will find that you are better equipped to accomplish financial goals and financial growth. Connect with an advisor today to expand this opportunity.

1. IRS, 2019

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