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Figure out your goals
Try to be very precise and realistic, and make sure you can afford your goals. Perhaps you’re single and want to save so you can have a down payment on a home. Make a list of monthly expenses and see how much you can realistically afford to put away in savings each month. If you are married and have a family, sit down with everyone and discuss your personal goals. What if you are wanting to go on a big family trip to Europe one day? Instead of it being “one day” make a plan and make it happen. Set it for three years away and know exactly what the trip costs so you all know how much you each need to save.
Put your goals in groups: Short-term, Medium, Long-term, and Bonus
Short-term goals include what you have in mind to plan for in 3-5 years. For example, buying a new car, saving for a down payment on a house, vacations, planning on having more children and saving for things like private school are goals you can realistically achieve in a short period of time. Medium-term goals are things you plan to meet within a span of 10 years. Home improvements, saving for college, updating your furniture, or a big vacation can be considered as medium budget goals. Long-term goals are more into your future, like after 10 or 20 years. Examples could be starting your own business, retirement, medical expenses, or even planning for nursing home care. Bonus goals are something you would like to achieve but can’t at the moment because of your financial situation. They can be reachable if your financial situation changes, like living in another country for a year, or maybe planning that trip exploring the US in a mobile home during your retirement.
Calculate the annual cost of each goal
Once you have your financial goals broken down, now it’s time to estimate the actual costs of each goal. Decide what it takes to save and plan. Some goals you can achieve faster, like the $3,000 down payment of your car. Make sure anything extra you end up making goes towards one of your goals.
An emergency fund should also be included in your budget, as you never know when car trouble strikes or medical bills arise. Saving at least 2-6 months of your monthly income is wise. Your financial goals should include lifetime expectations. Like if you are planning on being mortgage free by the time you’re 60, it’s good to start 15-10 years ahead of time, not a year before.
Now it’s time to budget
By analyzing your income, you can see how much you expect to earn from the coming year. Make a list of where your wages come from: your job, your spouse’s job, child support payments. Then make a budget for the income you plan on receiving on an ongoing basis. Remember to base your budget on the amount you take home, not your gross pay. After you figure that out, list your expenses that you have to pay each month, such as housing, food, utilities, car payments, insurance, transportation, loan and credit repayment, and other monthly bills you may have. Taking a month or two to carefully track how your money is spent will give you a clear picture of where your money is going. Say you order a lot of takeout or spend a lot of money on beauty care. Cutting down on at least one of those expenses can help tremendously. It helps to carry a small notebook to keep track of the money your spending. Also, apps like Mint can also track and show you where your money is going. Quicken can also help with budgeting and has programs that can create a budget for you based on the income and spending from your past, as well as help you track and monitor any investments you may have.
Fine-tune your budget
Determine what money comes in and goes out, and then look over each amount. Does it look accurate? Some expenses vary month to month, and you’ll have to adjust them to your budget. For example, if you pay a lump sum payment of your car insurance every six months instead of every month, you can fit that into say your July and January monthly expenses. Or the tuition for school is due at the beginning of every semester, so you would save the amount you would need to pay for that and adjust accordingly. If you get certain bonuses from your job or expect a pay raise, put the change of income in the month you expect to receive it.
Work your goals into your budget
Look at the goals you listed before and determine how much you need to start setting aside. If you notice your current income isn’t enough to to cover your goals, try to see where you can make cutbacks. If you want to save $200 a month for a vacation, try not to spend too much on clothes or fast food. If you want to conquer some goals quicker, consider taking on a second job or looking for a new job that consistently pays more. Remember to always try to stick to your budget by keeping track of the money you are spending, and don’t overspend.
After a year, revise your budget based on what has changed, and determine how you did. Did you end up saving any money? If it turns out you didn’t spend as much or you ended up earning more money, then make sure to look over your finances and see if you have any outstanding bills that need to be paid. If any extra money is left over, try investing it towards future goals.