If you’re going for a new year, new me vibe, you can’t keep the same budgeting tactics you did in the past. Learn some simple ways to budget to get the most out of your income.

It’s a new year — time for a new you, right? Twenty-eight percent of Americans report that they have made a New Year’s resolution for 2020, with 49 percent saying they resolved to save money, and 30 percent saying they resolved to stick to a budget this year.

If you’re reading this, you’ve come to the conclusion that you can’t keep muddling through your financial life with no direction. It’s time to make the most of your money. Here are five steps to create a budget you can stick to.

1. Calculate Your Income

Before you can budget effectively, you need to know what you’re working with. Calculate your total net income, including earnings from your and your spouse or partner’s day job, and any side gigs you might have. Have automatic deductions for employer-sponsored health insurance, 401(k) plans or savings? Include that in your income. Those categories will go into your budget, so that you can make adjustments as needed to save more or account for increases in health insurance or other costs that might be automatically deducted from your pay.

2. Know Your Spending Habits

If you want to learn how to budget, you need to start by getting to know your spending habits.

This is a little bit easier if you’re the kind of person who never uses cash because using debit and credit cards for everything gives you an automatic record of every penny you’ve spent. Go back through your bank and card statements for the past couple of months and take a deep dive into your expenditures. Don’t just look at necessary expenses, like housing, utility bills, food and medical care, but also take note of the things you buy for sheer enjoyment. A common budgeting mistake is not leaving enough — or any — room for fun purchases. Sure, you don’t need that skinny chai latte, but if you enjoy it, and you can afford it, you should treat yourself once in a while. Otherwise, you’ll never stick to your budget over the long term.

Once you know how you’re spending your money, you’ll have a better idea of how to best make adjustments to your spending.

3. Don’t Forget Irregular Expenses

Monthly expenses are easy enough to budget for — you get paid X amount, you pay Y amount in bills and expenses, and hopefully there is some left over for fun money, right? But if you’re dividing your yearly net income by 12 and spending that amount every month, you’re going to run into trouble when you need to pay for home repairs or take your cat to the vet.

Some irregular expenses are unpredictable, like the aforementioned home systems and appliance breakdowns. You can plan for those with a home warranty from American Home Shield® to help defray expenses and an emergency fund to cover any costs that remain. 

Some irregular expenses can be planned for, like Christmas shopping or car inspections. Figure out how much you can expect to spend on these each year and how much you need to save each month to cover them, then set that amount aside.

4. Divide Your Budget into Needs, Wants and Savings

Once you know what your regular and irregular expenses are and how much money you have to work with each month, it’s time to figure out your budget. Your needs include those things that keep you alive and healthy, and enable you to work and keep a roof over your head and food on the table. In addition to mortgage payments, food, clothing, utilities, hygiene products, car payments or public transport costs, and medical care, needs might include parking fees, school costs for children, home warranty premiums, car maintenance and repairs, and therapy sessions.

If money is tight, you might not have much left after you pay for needs. If you do have money left over, give yourself a budget for wants, and use the rest to prioritize paying off debt and saving for emergencies and the future. Pay off high-interest debt, like credit cards, payday loans and rent-to-own debt first, then focus on lower-interest mortgage and student loan debt. Are you floating money into a 401(k)? Great! That can be your savings for retirement. Don’t forget to set aside money regularly for emergencies and for future financial goals, like putting a new roof on the house or taking that vacation to Hawaii.

5. Hold Yourself Accountable

Many people use a monthly budget planner to make adjustments on the fly as unexpected expenses crop up or needs change throughout the year. Others use budgeting apps to track spending. Still others use a budgeting method like the 50/30/20 method, the envelope method or the zero-based budget. If you’re disciplined enough, you can use the one-card method, putting everything on a single credit card and paying it off in full each month, but you have to be able to stop yourself from spending more than you’ve budgeted. No matter what your method, review your budget at the end of each month and make adjustments to next month’s budget as needed.

A budget can help you gain control of your finances and lead you to long-term financial freedom and flexibility.