Wednesday, January 2, 2013

Goal Setting - The Money Addition

 Today in my budgeting series I'm going to talk about setting goals. I shared my 2013 goals in this post. But I want to take a minute to talk about different kinds of budget related goals.

Here are a few examples of some budget/financial goals you could set:

- stay in budget
- pay of debt
- save an emergency fund
- buy a car
- spend $200 less a month on groceries
- go on vacation
- build a deck on the house

All of these goals are great, but setting them is only the first step. Actually achieving your goals doesn't haven't to be hard. All you have to do is set up a simple plan and follow it.

Here is how I would plan for the goals listed above.

1. Stay in budget. The first step in this goal is creating a realistic budget. I'm going to dedicate an entire post to writing a budget soon. But for now remember that realistic is the keyword in budgeting. For example, if you spend $800 a month on groceries now then you shouldn't budget only $200. Be realistic, but I'll talk more about that later.

2. Pay off debt. This is an awesome goal but you need to break it down farther. For example if you have $50,000 in student loans, $15,000 in a car loan and $5,000 in credit card debt then you have $70,000 in debt total. Now if your goal is "pay off debt" and you just throw money at your $70,000 hole without any sort of plan - you'll feel like you're not getting anywhere fast. If you make a more specific goal like - pay off $5,000 in debt this year - then it's simple to divide $5,000 by 12 and see that you need to pay $417 a month in order to reach you'll goal.You have $5,000 in credit card debt so by the end of the year you could have your credit card debt wiped out. When you write out your budget each month you'll know that you'll need to assign $417 per month to your credit card debt in order to stay on track. Obviously you eventually want to pay all $70,000 of it off, but you need to divide your pie into bite size pieces so it is much easier to chew.

3. Save an emergency fund, buy a car, go on vacation and build a deck are all similar goals. They all require saving. A tip for saving money is add it as a line in your budget just like an expense. Don't wait to save your "leftover" money at the end of each month. You need have a plan. Say you want to go on a $2,000 vacation in August. You have 8 months to save. Therefore when you write out each months budget, you need to assign $250 for vacation. When you go to pay your bills, you transfer $250 to your savings account (or wherever you are keeping it) so it's safe and sound and won't be spent till vacation time. Savings needs to be a priority if you want to see your money gain any traction.

4. Save $200 a month on your grocery budget. In order to achieve this goal you need to change some of your habits. If you go to the store without a list, then you should try writing out what you want to buy before you go so that you can avoid impulse buys. (Some helpful tips when writing your shopping list can be found here.) If you are use to eating a lot of prepackaged meals then maybe you need to start cooking more from scratch. Generally a homemade pizza is much cheaper than a frozen pizza. Possibly you should start taking cash when you grocery shop instead of plastic. Coupons are also another option for cutting grocery expenses. Whatever is causing you to spend so much now needs to change in order for you to reach your goal in the future.

There you have it. My opinion/tips on money related goal setting. If you have any questions or maybe a different goal scenario you'd like my thoughts on; just let me know in the comments.

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