Friday, October 22, 2010

Do We Budget Now? Set Some Goals First

Budgets are hard to follow.

Or so says popular belief, but I disagree.

Budgets are not hard to follow if you have a good reason for following them. I know how much I struggled to stay on budget when I was doing it just for the sake of doing it. I was much better when I had a goal.

I will be honest, I am not the goals super woman. I can mercurial (look that up, it's a good word) about my finances -- intensely interested one week, then not at all the next. So, it takes me a while to set real goals that motivate me to save or stick to my budget.

Last week, I asked you to think about your priorities and come up with a financial mission statement. Your financial mission statement should help you make decisions about your money -- everything you do should be in step with your mission.

So, before you start with the budget, what would you like to accomplish?

If you're a debt hater like me and reading these posts, you probably want to pay off your consumer debt! Good! Of course! But, uh, how exactly do you do that? If you knew, you probably wouldn't be reading this.

You need to figure out EXACTLY how much you owe, to whom and what the interest rates are and add it all up. Now, how soon do you want to pay it off? Tomorrow? Yeah, nice try. Start with a debt repayment calculator (there are many online, just Google it).

A good calculator will take into account how much you owe and the interest rates, then show you how long it will take to pay off if you only pay the minimums. You should be able to change the variables. Say, you want to pay it off in six months, the calculator should tell you how much money you'd have to pay monthly to accomplish that. Or if you knew you could afford to pay a certain dollar amount monthly, the calculator will tell you how long it will take to erase the debt paying that amount.

An example: Let's say you have $10,000 in credit card debt at 12%. You are 28 and want to pay it off before you turn 30. You punch your numbers into the calculator and, just like that, you have a goal! If you pay $470 a month on your consumer debt, you'll pay it off in less than two years!

What makes a good financial goal?
A good goal, any goal, should be S.M.A.R.T.:
Specific: I want to completely pay off my consumer debt before my 30th birthday in 2012.
Measurable: I know I'll be done when I pay all $10,000.
Achievable: I can afford to pay off my debt if I manage my money properly.
Realistic: I have steady income and enough money available for bills, savings and spending money.
Timely: I can definitely do it in two years if I always pay $470 a month or more.

The same thing works for saving to buy something. What do you want and why? When do you want to buy it? How much money will you have to put aside each week or month to make that happen? Do you actually have that money available each week or month? What changes could you make to have that money available?

When you know what you're trying to accomplish, you plan your budget around it (which is why I still haven't gotten to the nuts and bolts of a budget). It'll keep you honest and make it easier to track your progress -- as you get closer to your goals, you're more motivated to stick with it (trust me! Watching my debt fall and my savings rise, as slowly as it happened, helped me suck it up when I just wanted to blow a wad a cash. I had a REASON to be good!).

Now, once you sit down and create a budget, you may realize that some of your goals are not realistic. That's ok! When you know what you're working with, you can fix them so that they are.

Each little bit, builds on the last. Next, week, I promise, we'll build your budget -- the budget that's going to lead you through 2010 and into 2011 with a clear financial picture and plan!


Debt Hater
is a personal finance blogger who paid off nearly $16,000 in credit card debt (not including a car loan!) in four years, just like she planned. You can visit her blog at

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