Before a budget, before a program, before you try that new personal finance system that only costs 7 easy payments of $19.95, you're going to need to have:
GOALS
Personally, I don't think there is anyway we, as a couple, would make this whole budget thing happen without them. Seriously.
The age old saying, "That money is burning a hole in your pocket!" is so true.
When money is in my hands, I just want to spend it. If it's in my checking account, I want to spend it. When it's in my savings account, I want to spend it.
And seriously, I can rationalize anything. Bryan's even better than me. We so often connive against our budget and try to find ways to escape it's difficult grasp.
Do you recognize the feeling? Spending money totally feels good. Retail therapy can totally be effective. There's just that remorse later when you have to pay your rent and you can't or you get your credit card bill and realize you can't pay it off. That's worse than the spending was good.
Our solution for this attitude of spending? Well, having a goal or two works just great for us!
Here's how it works:
Step 1: What's your goal?
- Make it challenging
- Make it reachable
- Make it wise
Maybe your goal will be completely out of necessity, as in, you have to change something or you're not going to be able to eat. Maybe, you just want some discipline in your life and you've decided to reign in your spending habits as a result. Maybe you want to have more money lying around for a rainy day. I don't know what you're motivation is, I just know you need a challenging, reachable, wise goal to accomplish what you want.
Step 2: What's your time line?
Again, maybe your time line will be based on necessity, as in, you're going to have a baby, and it's definitely going to come in 7 months, so that's gotta be your time line. Otherwise, use the guidelines from above-is it challenging? is it do-able? is it wise?
A year is a nice amount of time to work with, but maybe it needs to be two years because there's a lot to accomplish. Maybe you just want to go as fast as possible.
If you have no idea where to start, a helpful way to figure out your time line take your goal and divide it by how much you can afford to put towards that goal. We'll talk more about this later, but think about making temporary sacrifices in order to reach your goals. If you make some sacrifices and live below your means, you'll be able to reach your goal a lot quicker.
Example:
Goal (pay off vehicle): $5,000.00
Extra money to put towards that goal each month: $275.00
Time line: about 18 months
I like a bit more of a challenge, so a more challenging way to figure out a time line is to divide your goal by your time line.
Example:
Goal (pay off vehicle): $5,000.00
Time line (12 months): about $417.00
It pushes me to be a little more creative and figure out how I can come up with that extra money each month.
In Conclusion:
In my opinion, goals are even more important than a budget for this reason: there is no way that we would stick to our budget with out goals. If I don't have a designated job for the money that magically gets direct deposited into our account every two weeks, my mind considers it discretionary. And if in my mind our money is discretionary it would be really easy for me to forget about the bills each month, especially when I would love to go shopping for clothes or decorations or that super-cute-must-have-item at Target.
On the contrary, we have set goals for our finances and those goals motivate us to actually spend less than what we can afford. Amazing, huh?
One of my favorite blogs, Money Saving Mom, also recently posted a great blog on setting goals, you can check it out here.
So set your goal(s) today! You could even post your goal in the comments so you have some accountability, here are our financial goals for 2010!
Next week: The Hardest Part about Managing your Money
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