Budgeting 101.3 – Setting Goals

Facebooktwittermail
Looking in wallet to see if budget goals are set
An important part of budgeting is setting goals.

If you’ve stuck with our ‘budget that works’ blog series this long, you’re already looking at a nearly completed budget: In part one of this series, we went over tracking your income and expenses, and in part two, we looked at your net income and broke your expenses down into two categories. In this installment, you’ll set budgeting goals.

The Fifth Budget Step – Set Goals

Setting up a budgeting goal is the whole point of getting organized and making a budget in the first place, right? Well, now that you know what your budget is, you can make that goal a reality. Most budgeting goals revolve around saving more money, but your individual budgeting goal will depend on whether or not your budget is currently positive or negative.

If your budget is positive:

  • Your goal could involve paying off your loans faster, beefing up your emergency or retirement fund, cutting more of your spending or saving up for a special purchase.

If you’d like to save up for a special purchase (like a trip or a new vehicle), or you’d like to add to your emergency fund, I recommend making a new category in your budget specifically for it (called, for example, “trip,” or “emergency fund”). That way, you’ll know you need to set aside ‘x’ amount of dollars per month, or week, to reach your goal–and that’s that.

If your budget is negative:

  • Your budgeting goal will probably look similar to the positive budgeting goals, but you’ll have to remove some spending, first.

When some people start budgeting, they want to curb their spending in one specific area, or, in other words, lessen or remove one of their secondary expenses. For example, if you think you’re spending too much money each money on cups of coffee, in making a budget, you can specifically see how much you spent on coffee last month. If you want to spend, let’s say, half that amount on coffee next month, you can set up a separate expense category for coffee, and set a limit on it.

However–it’s probably best not to completely try and remove secondary expenses as a goal, unless you’re trying to quit a habit, like smoking or drinking. If you remove all of your cups of coffee, for example, it can result in binge-like behavior. It may be more helpful to try and lower your budget for coffee a bit each month, instead.

Now that you have set some budgetary goals it’s time for our next budgeting blog in this series: automate and polish your budget.

 

Facebooktwittermail

Published by

Tom S.

Tom is a 2006 graduate of UW Madison, currently residing in Verona with his wife and 2 girls. He has been passionate about writing ever since he was 15 years old, and displays that same enthusiasm in his work today. When he’s not sharing insightful financial wisdom, you can find Tom chilling on the Union Terrace, enjoying craft beer at the Great Dane, or hiking at Governor Nelson State Park. In the Fall he loves to take his family to Badger Football games!