As 2021 draws to a close, it’s a good idea to review your budget for the year. It may not sound like the most fun way to end the year, but the time spent reviewing your budget can reap rich rewards going forward. When 2022 comes round, you’ll be able to start the year with a solid plan to improve your finances.
Before diving into the review process, here’s a look at the benefits of reviewing your budget.
The biggest benefit of reviewing your budget for 2021 is that it helps you make more informed financial decisions for 2022. Think of your end-of-the-year budget review as an annual financial health checkup. The results of the review will tell you what you need to do more of to improve your financial health and what setbacks to watch out for.
First of all, your review will tell you if you’ve made progress on your financial goals through the year or whether you’re back where you started. You may feel like you’ve made pretty good progress during the year. But have you really? There’s no way to actually know for sure unless you review your budget. Maybe you missed a loan or credit card payment that derailed your progress. Or those emergency vehicle repairs may have made a huge dent in your savings. Small things add up over the year.
A budget review gives you a wholistic picture of your finances and shows if you have accomplished what you hoped to.
Reviewing your budget is a two-step process.
These are some things you’ll need to do to get started:
Your answers to these questions will make it easier to identify what you did right during the year and what mistakes you may have made. This will help you set a better financial plan for 2022.
This is where the rubber meets the road. Now you can use the information gleaned during your review to set your budget for 2022.
Your 2022 budget should address all of these issues:
#1- Consider adding another income stream or explore other opportunities to increase your net worth faster in 2022. This could offer several benefits especially in terms of a lower debt-to-income ratio, which can give your credit score a big boost.
#2- Did you make all your loan payments on time in 2021? If you did, great. Keep doing what you’ve been doing.
#3- Did you miss any loan repayments? Did you forget the deadline or did you not have enough money to clear the payment? If remembering deadlines is a problem, it’s worth taking the time to set up autopay. Not only will your payments go out on time but you’ll also get a rate discount, which will help you save on interest. If you missed a payment because you couldn’t afford it, you need to look for ways to increase your income to make the payments affordable. Alternatively, you could consider refinancing and lowering the monthly payments in 2022.
#3- If you managed to save money regularly every month in 2021, consider increasing your loan payments in 2022. This helps you clear your loan earlier. You’ll also save a substantial amount in accrued interest over the shorter loan term. Even better if you can increase your monthly income. That will free up more cash that you can put towards the monthly loan repayments.
#4- If you spotted any inaccurate or incomplete entries in your report, file a dispute and get the errors corrected as they could be damaging your credit score.
#5- If your credit score has improved, consider refinancing your loans. Your higher credit score will qualify you for a lower interest rate, saving you a significant amount in accrued interest.
#6- Take a closer look at what you spent your money on during the year and identify areas where you can cut down your expenses. The more money you free up, the more you can put towards clearing your debt faster. The relief you’ll feel when you’re debt-free is unparalleled.
Reviewing your budget for 2021 doesn’t have to ruin your Holidays. If you start now, you’ll have ample time to complete the review and also decide on a plan of action for 2022.
We hoped you enjoyed this article! Remember, you canand potentially lower your monthly student loan payments and save money.