2021 Spending Review and New Year Budget ‘Reset’

* This article was originally published on December 12, 2018. It has been updated for 2021.

We’ve only got a little more than two weeks left in 2021 — but it’s not over yet. For many, now is the time to set resolutions and get a fresh start in the New Year. After an interesting couple of years, it’s also the perfect time to review your 2021 spending and reset your budget for 2022, especially if you haven’t checked in on your cash-flow plan in a while. 

Bu(dge)t Why Now?

Doing a budget review and reset now can allow you to learn from your decisions — both good and bad — this past year and start 2022 with a strategic stance on budgeting, saving, and spending. 

With so much going on this time of year, it can be tempting to set your budget review and reset on the back burner. But before you do that, think of how much has changed in the past year. Did you start a new job, receive a raise, or earn a promotion? Experience an equity compensation event or another windfall? Gotten married or added a new member to your family? Relocated?

A year is a long time to reflect on, but wouldn’t it be nice to have a fresh financial start to go along with the “New Year, new you”? Plus, the holiday season and associated spending make this an especially great time for a refresh.

Don’t put your budget review and reset into your resolution bucket. Why? Resolutions tend to change year after year, but your budget deserves your attention more than just once a year. (That’s why I’ll be offering budget planning meetings during two windows each year, starting in 2022. If we identify cash flow as an important area for you to focus on, stay tuned for your invitation in February and August!) And, while it might seem tedious, you stand to gain quite a few benefits.

In addition to reviewing your life changes from the past year, you also have the chance to look back on any financial decisions with less-than-ideal results. You can also look back on mistakes and areas in which you could’ve — or wished you would’ve — saved rather than spent. 

You can then learn from your 2021 choices and use them as a basis for setting goals. Then comes the opportunity to make plans for how you’ll use your money as a tool that gets you where you want to be in the year to come. And as you add it into your routine year after year, you gain more experience on your situation and decisions, allowing you to grow in your finance savvy over time.

But now that you know where a budget review and reset can take you, where do you begin?

The Budget Review

The good thing is that you have a wealth of tools to draw from. Begin by grabbing a fresh copy of our Budget Plan Worksheet or asking us for the link to yours. Then gather your 2021 data. You can start with annual financial information: Think tax returns and any other once-per-year income or expenditures — from your holiday spending totals and annual charity donations to your end-of-year bonus and your homeowners or renters insurance. The next set of resources you can go to include your biannual and quarterly information, like auto insurance bills and retirement plan statements. Then gather monthly information like your credit card and bank account statements as well as utility and entertainment bills. Last but certainly not least, grab your most recent pay stub and any other receipts.

Of course, if you don’t have this information handy, you can estimate the whole of 2021 based on the information you have from recent months — but be sure to leave some extra wiggle room as you budget just in case those numbers are less than accurate.

Use this information to fill out the blue “Current” side of the worksheet for a quantitative glance back at 2021. Don’t worry about going through the steps in order as you look back. Just add in the line items useful for your situation. And don’t forget that you can remove irrelevant lines and add others where you need them as well as rename any lines to better suit you.

Next, go for a qualitative view. Think of where you are today as a result of your last year of spending and where you’d like to go from here. Did you spend more on your needs than you expected? This might be a sign to account for inflation in 2022. Were you able to save more than you thought you could based on your 2021 budget? You may be able to invest a portion or even treat yourself to something special next year. Did you make it a point to stick to a budget for wants but underspent in the category by a large amount? You may want to dedicate more to your savings for 2022 so you’re not missing opportunities to earn interest on those funds. Or you might choose to better align your spending with your values, dedicating more dollars to what’s meaningful for you.

The reset

Once you know where you’ve been, you can better strategize where you’d like to go next. This is what the green “Proposed” side of the worksheet is for. But this time through, be sure to go in order. Consider what your gross income will be for 2022, and add it to the “Your Gross Income” section in Step 1. Then take out “Your Taxes” in Step 2. If you’d like a hand with these areas, just ask us for a paycheck projection for 2022. If you took advantage of your year-end tax projection invitation, we can get this your way pretty quickly.

After that, pay yourself first by directing funds to “Your Savings” in Step 3.

While many of “Your Core Expenses” in Step 4 won’t change, you may want to increase the amounts you dedicate to some of these needs for the coming year as these expenses tend to increase slightly each year due to inflation. The same will probably be true for some of your transportation, utility, and food expenses in “Your Other Expenses” down in Step 5. But this last step also includes areas with the most wiggle room. 

The “Entertainment/Travel/Other” section is the perfect place to include the goals you’d like to achieve in 2022 and beyond that you’ll pay for via cash flow. I suggest you use this section to figure how much you’ll have to set aside each month to reach them. 

Step 5 is also where you’ll include your budget for your “wants” category for 2022. You may decide to set certain monthly budgets for dining out, going to the theatre, grabbing your gourmet coffee in the morning, enjoying the occasional shopping spree, or treating yourself for staying on track. 

You could budget every penny — or leave a little “slush fund” at the bottom for additional wants and needs that arise as the year passes.

Another way to approach these is to direct a certain amount to a “future wants” or “incidentals” category. This way, the money will be there when you need it — without you having to pull cash from an already dedicated category and so you don’t risk an impulse purchase just because you have “extra” money. 

With either method, a little extra pocket change can come in handy when you least expect it.

Now What?

Even with a great budget in place, one important piece is the ability to roll with the punches. What does that mean? Your budget is not set in stone. You can “borrow” from one category by reducing spending, then add those dollars to another category to make your bottom line work for you. Just because you establish your cash-flow plan toward the end of one year doesn’t mean you can’t adjust and update it throughout the next. In fact, you should! This way, if something comes up that you weren’t aware of as you were budgeting, you don’t have to miss out on the opportunity. 

Lives and finances change, and your budget should flex to match. Think of it as a how-to guide for using your money as a tool to get you where you want to go — whether that’s saving more to reach medium-term goals, amping up your long-term investments, or looking for new ways to make your money align with your values. 

The most important part of creating a budget is sticking to it so your review and reset work is not for naught. To do this, it’s necessary to track your spending and check in on how you’re doing regularly, making adjustments where necessary. 

As you review your budget now and on a regular basis going forward, don’t hesitate to make changes. You may find yourself making money moves out of necessity or desire, and that’s OK! Remember, your budget is only a guide, not an absolute rulebook. Don’t forget that you can schedule a quick budget check-in with yours truly if you get stuck. Or let us know that your money is on your mind so we can invite you to a longer February or August budget setup or cash-flow check-in. 

When you make it a point to review and reset your budget annually — with periodic check-ins and adjustments — you can learn from past mistakes and improve with each passing year. Plus, a little work now can help you become a better budgeter, investor, and spender.