After what we’ve all experienced in 2020, many are dreading the thought of budgeting in 2021. With COVID-19 still affecting the population worldwide, how can we even begin to plan for the months ahead?

While you’ll need to be a bit more flexible than usual with your budget — flexibility is one thing 2020 taught us — it’s worth having some kind of plan set in place. Not planning ahead financially in an uncertain future can be far worse.

With just under two weeks to go in 2020, it’s time to start planning your budget for the upcoming year. Here’s how you can do that.

Rethink your budgeting system

First, let’s talk about the budgeting system you used this year. Did it work for you? Was it still working when you had to make changes because of the coronavirus, or did you… well, abandon your budget when things got tough?

If you did, that’s totally understandable! Budgets can be tricky to keep up with as is. And if you aren’t using a system that works with your money personality, it can be really easy to stop budgeting. 

Is that you? Instead of using pen and paper or spreadsheets, give BudgetingBlocks™️ a try. Taking inspiration from those building block sets we played with as kids, BudgetingBlocks™️ is an interactive budgeting system that allows you to actually see where your money is going. 

Look at how COVID-19 affected your finances

Got your budgeting system set? Good. As a quick refresher, your budget basically looks at the money you’re bringing in (income) and the money you’re spending (expenses). If those two amounts have changed because of COVID-19, then your budget should change, too.

For example, if your work hours have been reduced, look at how your income was affected this year. Instead of bringing in $5,000 per month working full-time, you’re averaging $2,500 to $3,000 with reduced hours instead. 

Similarly, how have your expenses changed? If you’re working from home, you might have noticed a big drop in your commuting/transportation budget category. But with more time spent at home, maybe your energy bills have risen. Now that you know what to expect, make note of all these changes so you can make a plan for your 2021 budget.

Revisit and adjust your budget categories

Speaking of budget categories, it may be time to review the categories you’ve used in 2020 to understand where and how you’ve been spending your money. Start with fixed monthly expenses that are essential, like rent or mortgage, utilities, groceries, insurance, and debt repayment. These are top priority.

Consider creating a separate but similar category that organizes essential expenses that aren’t due each month. Property taxes, vehicle renewal fees, or insurance premiums that need to be paid once a year or once a quarter can go in this category.

Your second tier of expenses might include “fun” money: money that you spend on entertainment, personal care, clothings, or hobbies. Which of these can you reduce or eliminate in order to work with a new income? 

Remember that many items in your budget’s “fun” category are on hold or shut down because of the pandemic anyway, like dining out, going to the movies, or a monthly gym membership. You can relocate those expenses to other categories that are more important right now, like bills or emergency savings, instead.

Check in with your goals

Have your financial goals changed in 2020? Let’s say one of your short-term goals was to save money for a summer vacation. Or a medium-term goal was to save up for a new vehicle within the next few years, and a long-term goal was to start a business. I’m betting at least one, if not all of those goals, was shelved because of COVID-19.

Now is the time to revisit these goals so you can make your 2021 budget work for you. Maybe your short-term goal for vacations was swapped to renovate and upgrade your home instead. Or you’d rather save up for retirement long-term and put your goal for starting a business on hold.

If you set up automatic deposits into savings or checking accounts for your goals, remember to adjust the amounts or reroute them into other accounts based on the changes that you make.

Take it slow

Feeling stressed about getting your budget in order for 2021? Take a break and come back to your budget when you’re ready. It doesn’t have to be perfect, nor does it need to be completely done when the clock strikes midnight on January 1st. 

Thinking about worst-case scenarios certainly isn’t fun, but preparing your finances can help if tough financial times hit in the months to come. Your future self will thank you. If you’d like to get your budget figured out for 2021, you can always check out our FREE budgeting challenge that walks you through a different way to approach your budget (hint: we don’t start with numbers!).