Resolutions 2014: 6 Steps to Budget Your Way to Your Financial Goals
January 1, 2014
by Maryalene LaPonsie
Are you part of the 54 percent of Americans who are making financial resolutions in 2014?
According to the Fidelity 2014 New Year Financial Resolutions Study, more than half of Americans will make financial resolutions and of those, these are the top goals:
- Save more money – 54 percent.
- Pay off debt – 24 percent.
- Spend less money – 19 percent.
- Develop a long-term-goal plan – 13 percent.
- Make/stick to a budget – 12 percent.
- Pay down credit card debt – 8 percent.
While only 12 percent of those making financial resolutions are planning to make and stick to a budget, I have a little secret for you. Making and sticking to a budget can help you achieve any and all of the above resolutions.
Regardless of whether you want to save more, spend less or finally take that trip to Tahiti, a budget can get you there.
Step 1: Set your goals
The first step in the budget process is simple. Ask yourself: What do you want your money to do for you? Here are some ideas to get the wheels turning.
- Do you want it to buy you a vacation?
- Do you want it to buy you a house?
- Do you want it as a security blanket in the bank?
- Or would you merely be happy if it would pay the bills each month with a little left over?
Budgeting can help with each and every one of these goals. In addition, by having a concrete goal, you increase your chances of sticking to your budget. Some people even create dream or vision boards with photos representing their goal to motivate themselves.
Step 2: Track your expenses
Next, you need to get a handle on where you are already spending your money. This step is important for two reasons.
- It can help identify leaks in your budget, such as the $100 you’re spending on fast-food breakfasts each morning.
- It can help you make a realistic budget. If you are currently spending $800 a month on groceries, budgeting for $500 is probably setting yourself up for failure.
Step 3: Write it down
Now that you’ve tracked your expenses, you can use those amounts as a guide to create a written budget. Whether you use an online tool, Excel spreadsheet or a notebook and pen is up to you, but you want to have your budget recorded in a location where it can be easily accessed and changed as needed.
My personal advice is to always estimate your income low and your expenses high. It’s better to reach the end of the month and find you have extra money in the bank than to come up short.
In addition, make sure you put a name to every dollar. Maybe you finish with the monthly bills and have $200 left over. Don’t leave that as a catch-all slush fund; decide what you’re going to do with it. Maybe $100 will go into an online savings account, $50 will be an extra debt payment, and $50 will be mad money.
Step 4: Monitor your progress
Once you have it written down, don’t ignore your budget. Make a point to compare your actual expenses with your budget on a regular basis, such as each payday.
If you’re using PowerWallet, it’ll be easy to quickly see how much you’ve spent so far in each category for the month. Then, you can make adjustments as necessary. For example, if you’re budgeting $50 for clothing and have spent $75, you’ll need to not only stop buying clothes, but also make an adjustment elsewhere in your budget to make up for the extra $25.
On the flip side, maybe it’s the last week of the month, and you haven’t spent a dime of your entertainment budget. In that case, it’s time to make a date and go have some fun!
Step 5: Get a coach
Maybe you’re feeling overwhelmed. A budgeting coach can help. You can start with the National Foundation for Credit Counseling and the Association of Independent Consumer Credit Counseling Agencies. But never deal with any credit counseling organization without checking the Better Business Bureau and your state’s attorney general’s office for consumer complaints, as well as online complaint sites. Find out if a fee is charged. You should be able to get budgeting help for free.
As an alternative, you can ask a money-savvy friend for help. In either case, having someone walk with you step-by-step through the budgeting process can help make more sense of how to create a realistic spending plan for your money.
Step 6: Stay flexible
Finally, your budget is a living document. Unlike your rotisserie oven, you shouldn’t set it and forget it.
You should be regularly evaluating it and making changes as necessary. Always blowing through the food budget? You may need to increase that and consider where else you can cut back. In addition, as your income or expenses change or as you meet goals and identify new ones, your budget should be adjusted to reflect your new circumstances.
Ultimately, your budget is not about restricting your money; it’s about empowering it. A good budget finally puts you in control of your dollars and allows you to dictate where your money is going rather than letting your bank account get nickel-and-dimed by what may amount to silly, incidental purchases.