Don’t Wait To Draft Your 2025 Annual Budget: 5 Ways To Get Started

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Whether it’s your first budget or you’re a veteran at planning your finances, now’s the time to establish a budget for 2025. A good budget serves as a road map for your finances, helping you to balance your income and expenses and prevent you from overspending and going into debt.

As falling even a little bit behind the curve can create a hole that’s hard to dig out of, take these steps now to get your budget set up before too much of 2025 passes.

Review Your Income and Expenses From the Prior Year

One of the best starting points for creating an accurate budget is your real-world income and expenses from the prior year. Although you won’t likely earn or spend the exact same amounts from year to year, you’re also not likely to have dramatic changes. While you may get a raise or a bonus or perhaps move to an area with higher or lower expenses, your prior year’s budget is generally a good way to get a baseline for your current-year budget.

Make Any Known Adjustments

Although finances can never be predicted with complete accuracy, there are some variables that you can make an educated guess about to set up your new budget. For example, if you normally get a 5% raise every year, you should factor that into your new budget. If you intend to move to a higher- or lower-cost area, plan on adjusting those costs as well.

Since some costs can be easy to overlook, it can help to use a budget template that includes a wide variety of expenses, including some you may not have thought about. For example, if you move into a new home, it’s obvious that your rent or mortgage payment will change, but you might overlook other things like your maintenance costs, insurance, or even food, utility and transportation expenses. Using a sample budget that you can find online — or your budget from your prior year, if you have one — can help avoid this problem. 

Try To Boost Your Savings and Investments

When making an annual budget, it’s a great time to boost your allocation to your savings and investments. If you don’t feel like you’re in a position to increase your savings, try boosting the percentage you save by just 1%. This can help you save more without hardly even noticing it — particularly if you automate your transfers.

Imagine, for example, that you earn $4,000 monthly. If you normally save 5% of your income, or $200, bumping that up to 6% will amount to just $40 per month. That’s a little over a dollar per day. But over the long run, it can actually amount to some significant money.

Review Your Budget Regularly — and Be Flexible

A budget is not a one-and-done project. It’s a living document that must be updated regularly to keep up with the inevitable changes in a person’s financial situation. Inflation alone will constantly drive up costs, so budget categories like food, subscription services, transportation and others need to be constantly monitored. If your income isn’t keeping up with the increase in prices, you’ll need to either find a way to earn more or spend less to keep your budget balanced. 

To help keep your budget balanced, try to build in some flexibility. For example, if you regularly spend $400 per month on groceries, consider budgeting $450 in that category so that you never overspend. This can be a useful strategy for any budget category that is variable, such as utilities or transportation as well. 

Be Realistic

Budgets aren’t worth anything unless they’re realistic. If you’re $30,000 in debt and you only earn $3,000 per month, for example, allocating $2,500/month to pay off your debt in one year is clearly unrealistic. While it’s a noble goal, setting unrealistic expectations leads to disappointment and failure. Setting aside $500 per month for five to six years would give you a much greater chance of actually achieving your goal. 

Similarly, expecting your income to jump 50% per year is, for most people, an unrealistic expectation. If you build a budget around such dramatic jumps in your income, you’re likely to find yourself outspending your income at some point. Ultimately, this could lead to debt and insolvency.

The bottom line is that budgets are only effective if they include realistic numbers on both the income and expense side.

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