Many today are spending more than their
savings, and steadily going deeper into debt as a result. This is an
easy and common pattern to fall into, and one that requires some
planning and discipline to reverse.
The first step is creating a budget. As
unpleasant as this may sound, creating a budget is nothing more than
examining your income and expenditures in order to determine exactly how
much money you have coming in and where you’re spending that money.
1. Question Your Needs And Wants
What do you want? What do you really
need? Evaluate your current financial situation. Take a look at the big
picture. Make two lists – one for needs and one for wants. As you make
the list, ask yourself:
Why do I want it?
How would things be different if I had it?
What other things would change if I had it? (for better or worse)
Which things are truly important to me?
Does this match my values?
2. Set Guidelines
We all have different budgets based on
our needs and wants. But the Building a Budget chart on the next page
shows some guidelines on how much should go toward different expenses.
You may need to make adjustments for a daily latte fix or visits to
family, but remember to subtract amounts from other areas if you do.
3. Track, Trim And Target
Once you start tracking, you may be
surprised to find you spend hundreds of dollars a month on eating out or
other flexible expenses. Some of these are easily trimmed. Cutting back
is usually a better place to start than completely cutting out. Be
realistic. It will help you to be better prepared for unexpected costs.
The SMART Way to Trim Expenses
In finding ways to trim flexible
expenses, it helps to have a goal to save toward each month. Setting
such a goal needs to be SMART:
Specific: Smart goals are
specific enough to suggest action. Example: Save enough to visit Rome
for your wedding anniversary. Not just “save money.”
Measurable: You need to know when
you achieved your goal or how close you are. Example: A trip to Italy
costs $2,000, and you have $800 saved.
Attainable: The steps toward
reaching your goal need to be reasonable and possible. Example: I know I
can save enough money each week to purchase that trip to Italy.
Relevant: The goal needs to make sense.
You don’t want to work toward a goal that doesn’t fit your need.
Example: We would like to stay in four-star hotels in celebration of our
anniversary.
Time-Related: Set a definite target date. Example: I want to go to Italy by next summer.
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