Budget for the New Year

Happy New Year, and welcome to 2013!

For most of us, the holidays are over- we are back at work, and probably not all that sad to get back to a normal routine. We’ve eaten too much, and spent even more. It’s time to hit the gym, start cooking regular healthy meals, and generally lay low to avoid additional expenses for January to help make up for December.

So what else can you do to get your year started off right?

Budget

Many people take a fresh look at their budget at the beginning of the year. The biggest regular monthly costs are usually roughly in this order:

Mortgage payments or rent
Auto payments and gas
Groceries and food
Bills and utilities

If you use a budgeting system. like Mint.com, you probably keep a pretty good eye on these numbers every month- and if you are like a lot of other people or families out there, that “bills and utilities” item can seem a little bit like the disobedient teenager in your otherwise harmonious financial home.

This line item always seems like it is higher than it is supposed to be, and for most people causes the most trouble for budgeting. So what can you do to plan better for the upcoming year, and regularly stay within your budget?

Out with the old

Now is a good time to call up and cancel any extra products or services that you don’t use, or that you may have gotten for free for the first few months but are now paying monthly for. This mostly applies to cable and satellite subscriptions. Check your bill to see if you are being charged extra for items like DVR’s, HD receivers, Blockbuster/Netflix subscriptions, or additional cable boxes. Are these things that you really need? If you decide to keep them, make sure you know what they will cost you every month and be sure to make a note to add that to your budget.

Check your gas/electricity plans

How long have you been with the same provider? Do you remember when you signed up, or when you most recently renewed your service? Many people make the mistake of assuming that once their contract period is up, they will simply continue paying the same rates they have been paying as long as they don’t cancel. For many providers, this is NOT the case. Many providers transition their customers to variable rate plans at the end of a contract if no action is taken by the customer. What this means for you is usually wildly varying bills over the course of the year, or simply really high bills. These plans are typically sold to customers by advertising super low initial rates, but eventually these rates are cranked up over time. Either call your provider to see what kind of plan you’re on, or take a look at your most recent bill or your account online.

If you’ve been rolled to a variable rate plan, it is time to make a change! Go to WhiteFence.com and enter your address to find better rates for your address. If you are still on a fixed rate plan and your are still within your contract period, double check to see when it will be up and set yourself a reminder to call the company and renew your fixed rate contract, or to find a new one.

Check your phone/internet/cable/satellite plans

Make sure you know when your contract period is up with these providers. The grand majority of plans offered by these providers either have scheduled rate increases after the first few months of the contract, or they stipulate that when the initial contract period is up, “regular pricing” will apply. You may have to dig to find the fine print for your contract, but when it comes to proper budgeting, it is information you’ll need to have.

You may want to set a reminder to find a new provider if your plan will increase when the contract is up. There’s always a trade off- the “activation fees” and any new equipment might offset any savings you may get by switching, so make sure to do the math. There is usually an activation fee of some sort, and possibly a one time equipment fee when it comes to cable/satellite service and internet service. If you haven’t bundled your services and your contracts are staggered so that one ends before the other (maybe your internet contract ends before your cable service contract), you may want to just pay month to month at a slightly higher rate for the one that ends first. That way, when they have both ended, you can sign a contract for bundled services and pay less overall. Check rates for bundles from different providers here.

Create a new budget

If you have been using a budgeting system, you may be able to look back and see what you have historically spent on bills and utilities over the last year. Using this average might be the best option for creating a realistic budget, especially if your electricity or gas bill fluctuates a lot over the course of the year. That way, months where you spend less than the average can be set up to roll over this “budget credit” to the next month, so that way when the really big bills come your way, you’ve already built up room for them. If the big bills are on their way now, like for natural gas, it may seem like you’re over your budget for another month or two, but it will even out when your spending decreases over the summer.

In situations where you have already entered or are about to enter a later part of a contract, your historical averages may no longer be appropriate, and you may have to reevaluate your budget. Setting a budget for an introductory rate will only hurt you later when the “regular pricing” starts to apply, and you are consistently outside of the budget you have created.

Use the information from your service contracts to get a realistic idea of what you will be paying, and look at your historical data to see what you have actually paid over the past year. Armed with this information, you should be able to set up a realistic budget that will help you stay on target for the next year.