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Whether it’s going to the gym, eating healthier, or trying to read more, we all try to set some kind of New Year’s resolution each year. But this year, why not consider something different? Instead of the typical resolution, try and plan out your financial budget for 2025. 

The key to creating a budget is to take the process step-by-step, dedicating time to each and every stage. Below are seven steps you should follow when planning out your budget for 2025.

1. Set Explicit and Realistic Goals

Before putting any dollar amount down on paper, you need to identify what your financial goals are for the coming year. Are you saving for a down payment towards your first home? Or hoping to cut unnecessary spending and put that money into a savings account? Without a clear goal in mind, odds are much higher that you’ll struggle to both maintain and measure your budget. 

Be sure that each goal you have is a SMART goal. That is, each goal should be Specific, Measurable, Achievable, Realistic, and Time-bound. Here’s an example of a SMART goal tied to purchasing a new car.

• Specific: You should know the full cost of the car, as well as the make, model, and location of where you’ll be purchasing it.
• Measurable: Monitor your savings account to check in on your progress towards purchasing the car. Have a plan in place to put money aside each month towards this purchase.
• Achievable: Be honest with how much you can spend on a car, as well as how much money you’ll be able to save towards the purchase.
• Realistic: Make sure the car you are interested in is one that will work best for you and your family’s lifestyle, as well as one that also is reasonably priced in relation to your budget.
• Time-bound: Have a set date for when you intend to purchase your new car.

2. Track Your Income & Expenses

Once you have your goals set and defined, you’ll need to look at your income and expenses.

Start by looking at your monthly income, which is all the money you earn within a given month. This likely comes from your salary if you’re employed, but can also include income from side gigs, any portfolios you may have, and earned interest.

When you have your income accounted for, you’ll want to look at your monthly expenses. These can likely be broken down into two categories: necessary expenses and unnecessary expenses. Necessary expenses include bills, groceries, insurance payments, and any payments you may need to make toward any loans you have. Unnecessary expenses would be the “extra” purchases you make each month—the few meals you may buy out or any kind of entertainment, like a movie or concert ticket. 

From here, you can compare how much money you’re earning each month against what you’re spending. You will be able to identify how much money you can put aside into savings or re-evaluate your spending habits and work towards improving or changing them.

3. Use the 50/30/20 Rule

When looking at your expenses, see how you are applying the 50/30/20 rule. Simply put, this guideline recommends that you spend 50% of your income on necessities like bills, groceries, and loan payments, 30% on entertainment or any other discretionary spending, and 20% towards savings. 

The 50/30/20 rule is a tried and true method to help ensure your money is going towards what’s most important month after month. By following this rule, you will keep your spending honest while still building savings.

4. Automate Savings and Bills

Trying to stick to a budget is a process that requires your attention. As such, you’ll want to do what you can to make other factors as easy as possible. Automating some of your money to go towards bills and savings is a great way to do exactly that.

With American Heritage’s American Heritage’s Mobile Teller app Teller app, you can automate a portion of your funds to go directly into a savings account or separate checking account. In doing this, you can ensure you’re hitting your savings goals while still meeting your monthly obligations. 

When automating your bills, be sure to always update your card information whenever you receive a new credit or debit card. You’ll avoid any late fees and potential disruptions of service. This can typically be done online on your bill provider’s website, or in a mobile app if the company has one.

5. Review and Adjust Your Finances Monthly

While you’ll have framework of your annual finances and goals, you’ll need to revisit your plan each month to account for any changes or curveballs that life has thrown your way. Bills and the costs of groceries, among other things, will increase or decrease over the course of the year, requiring you to adjust your monthly financial plan. 

Set aside a specific date each month to look at your finances and bills. Have you been able to save the amount of money you’d like each month, or are you not quite meeting your goal? Has the cost of any of your bills greatly increased or decreased recently? Monthly check-ins with your finances will ensure that you’re staying on course to meet your budget’s goals.

6. Set Up an Emergency Fund

When planning your annual budget, be sure to account for an emergency fund. An emergency fund is money set aside that you can use in case of an emergency, such as a major home repair, layoff, or a medical emergency.

You can determine the amount for your amount for your emergency fund fund by calculating your cost of living for three to six months. This should include your monthly rent or mortgage payment, bills, groceries, and any other regular expenses. Of course, this should all be tied to your own level of comfort—you may opt to have an emergency fund for a full year, or you might be more comfortable with less. 

An emergency fund will work best in a savings account, as opposed to a checking account where you may feel more tempted to spend it. Depending on the amount of money you’ll have saved, consider a High-Yield Savings Account Savings Account, where you’ll earn a higher interest on your savings.

7. Cut Unnecessary Expenses

When you reevaluate your finances each month, be on the lookout for any unnecessary expenses. While these charges may seem small, they can add up and ultimately detract from the financial goals you’re seeking to achieve. 

Are you paying for any services you rarely or no longer use? Are you spending too much each month on entertainment? Look for any charges you can scale back or cut out entirely. From there, readjust to put that money towards your bills, your savings, or your emergency fund.

Setting Yourself Up for Success

When planning your personal budget for the new year, you aren’t alone. We’re proud to offer a variety of budgeting worksheets, calculator tools, and other resources in our Learning Center Center. Our blog also puts forth a new post each week on various topics, including budgeting and savings. 

While preparing your annual budget may seem complicated initially, the more attention you take in the beginning and to revisit it each month, the more successful you will be.