Start a Budget

For a lot of folks, the first step to setting a budget is often the hardest, because you have to stare your ‘bad’ habits right in the face (for example, your daily double-mocha-whipped-yumminess). But once you get a handle on where your money is going, you can set realistic goals for spending (and saving). So, take a deep breath and dive right in.

Get to Know Your Spending Habits

Before you set your goals, you need to understand how much money you have to work with. 

Track your spending: take note of your spending habits for at least the last (or next) 90 days. Pulling in that much history will help account for any unusual bumps in spending, such as for travel, or for holiday or birthday gifts. Don’t forget to add-in banking fees. Those little dings can add-up. Always use a free ATM, and set-up your checking account with Overdraft Protection and/or Courtesy Pay so you don’t end up with a fee from the payee because your check/payment bounced.

Track your income: if you’re salaried, there’s probably not be much variance from month-to-month, but if you’re an hourly employee or self-employed, calculate an average salary to use when creating your budget. If you’re planning your spending based on that average, and then saving any extra, you can pull from that savings when you’re income dips below the average and add to it when it rises above.

Evaluate and Set Goals

Once you feel comfortable tracking your finances and you have a clear picture of your spending habits, it’s time to establish your goals. Do you want to set more aside for an emergency fund? Save-up for a down payment on a car? Pay-off credit card debt? Really think about what you want to accomplish in the next 3, 6, and 12 months and beyond, but make sure your goals are realistic and doable! You don’t want to set a goal of paying off your $5,000 credit card balance in 3 months if you can only afford to pay $400 a month. Below are a few common financial goals, and tips on how to approach them.

Reduce credit card debt: often the best strategy is to simply stop adding to the balance. Paying a lot toward that balance, and then using the card when you don’t have enough for your living expenses, is counter-productive. Better would be to not add to the balance, and pay a smaller amount toward that balance each month.

Create an emergency fund: if you don’t have anything, or don’t have enough, socked away for a rainy day, creating an emergency fund should be at the top of your ‘goals’ list. While your goal should be to have 6 months’ worth of expenses saved, that number can feel overwhelming. Start small…but start somewhere. Even a few hundred dollars will help when unexpected car repairs, tax bills, or home repairs come up.

Save for a large purchase: much like creating an emergency fund, regular budget-friendly deposits into your savings account will help you to reach your goals without having to tap into those funds for monthly expenses. Naming that savings account can give you extra motivation not to touch those funds because you’re not just spending dollars, you’re spending your ‘New Car’ dollars.

Track and Adjust

Once your budget and goals are in place, the real work begins as you continue your tracking efforts and spending analysis. Expenses will fluctuate, especially during the holidays and when things like unexpected car repairs creep up. Maybe you can find a little more wiggle-room one month by skipping going out, and you can use those extra funds when expenses suddenly rise. Flexibility is key, so be prepared to make adjustments as you go. Again, software can make this task so much easier, especially if it’s tied to your existing checking account. Budgeting is an ongoing process of tweaks and adjustments, but hitting your financial goals makes it all worthwhile.