5 ways to improve your budget in 2012

December 02, 2011

| MoneyRates.com Senior Financial Analyst, CFA

With an election looming, fiscal responsibility is bound to be a big theme in 2012. But don't expect Washington to make any progress towards balancing the budget--few politicians want to tackle that sort of thorny issue in an election year, after all.

You, however, can have a much better year with your personal budget. If you've had a tough time controlling your spending in the past, there are good reasons why things could be different in 2012.

Here are five reasons why you should win the battle over your budget in 2012:

1. Debt is out of style

Think the slow economy means consumers are doing less to reduce debt? Think again. According to Federal Reserve figures, overall U.S. consumer debt is down 4.3 percent since 2008. Americans are making strides against credit card debt in particular, as this has dropped by 17.5 percent since 2008. Racking up credit card bills is simply not the rage it was in 2007.

2. The time to save is now

If you can join your fellow Americans in paying down debt, 2012 would be a good time to do it, because if you are like most people, you may need to catch up on saving too. After all, preparing for retirement requires not just paying down debt, but also building up your retirement savings accounts. Data from the U.S. Bureau of Economic Analysis show that personal savings rates have been anemic in recent years, reaching no higher than 6.2 percent since the early 1990s. In decades prior to that, personal savings rates routinely exceeded 7 percent, and often reached double digits.

3. Inflation is nipping at your wages

Spending control will probably be the key to balancing your household budget, because most people are not getting bailed out by strong wage gains. According to the Bureau of Labor Statistics, total civilian compensation rose by only 2 percent in the year ending in September. Inflation rose 3.9 percent in the same time--a figure compensation growth hasn't reached since 2003. This means that if you don't reign in your habits, 2012 could be a difficult year.

4. New tools can help

Internet technology is being applied to help consumers in a variety of new ways. Mobile applications allow you to scan an item before you reach the checkout counter, to make sure you are getting the best price available. Competing daily deals sites are generating a higher volume of bargains, and online aggregators compile deals from around the country for you non-stop. As long as you use Internet shopping tools to save on things you already planned to buy, rather than to prompt impulse purchases, they can give your 2012 budget an edge.

5. Frugal is chic

Face it--there was a long time when conspicuous consumption was a dominant ethos among American consumers. However, the pressure to keep up with the Joneses is eased considerably when the Joneses are unemployed and about to be kicked out of their foreclosed house. Spendthrift politicians and fat cat bankers have become objects of contempt, so wear your frugality with pride in 2012.

In short, now is the time to ramp up the intensity on your budgeting. In a year when you are going to hear a lot of hot air about budgets, the best way to find refuge is by taking charge of your own.

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