Budget Planning and Goal Setting
In simple terms, budgeting means creating a plan to cover your expenses with what you have. A good budget puts you in control of your money. When money gets tight, it can be a good time to look at your finances and determine what changes need to be made. You can accomplish this by looking at your current and long term goals and make SMART changes.
SMART goals may be:
- Specific… pay off $2500 in credit card debt
- Measurable… pay $65 plus finance charges each month towards credit card debt
- Attainable… achieve this by cutting down on monthly entertainment expenses
- Realistic… instead of buying entertainment, use the library and attend free community events
- Time- limited… pay off debt in 3.25 years
After you establish your SMART goals, it’s time to evaluate your net worth. In order to determine your net worth, simply subtract what you owe from what you own. This gives you the big picture, without the ups and downs of weekly finance. To calculate your net worth, try using this worksheet.
Now that you know where you are going and where you stand, you need a plan on how to get from here to there. This is your budget. There is no one right way to budget. It could be a piece of paper with a line down the middle or personal budgeting software. It just has to work for you and your family so that you will use it. As part of any budgeting process, you want to understand your cash flow. Cash flow tracks your inflows and outflows over a period of time. It indicates your future ability to pay your bills. A simple worksheet such as the Monthly Cash Flow shown can help you predict your future income and expenses.
In these 4 steps, you can control your money instead of it controlling you. By setting goals, establishing net worth, creating a budget, and understanding your cash flow you are deciding where your money goes.
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