This is the first part in a series on Creating a Better Budget
“Budget” – It’s one of those words that evokes an emotional response for many. Emotions like dread, frustration, panic, anxiety, guilt, or maybe just a bad case of the cold sweats. Establishing and using a budget does not have to be this way, in fact it can (and should) be a powerful tool for building wealth.
What Is a Budget?
If you think about it, everything you accomplish happens because you have the two critical elements in place – a Goal and a Plan. Your goal could be simple (mow the lawn, get out of bed by 6) or much larger (retire by 55, run a marathon, travel the world). Your plan to get to the goal may also be simple (set your alarm clock before you go to bed) or complex (a rigorous 6-month training plan getting ready for your marathon).
A budget is nothing more than a plan for your money. And just like the examples above, your plan should be designed to help you achieve your financial goals.
What a Budget Isn’t
A budget is not a magic bullet and it won’t achieve your goals for you. It’s a plan, and nothing more.
Just like the best training plan on earth won’t get me ready for the Boston Marathon unless I get off my rear end and work the plan, a budget will not solve your financial problems or move you closer to your goals unless you get off your rear and work the plan.
What are Your Goals?
Why on earth would I get out of bed well before the sun is up, lace up my running shoes and head out the door for an early morning run? I’ve done this, and I can tell you it is NOT because I love running. I don’t. At all. I really really like to sleep in too. The answer to the question is because I had some goals I wanted to accomplish like getting into shape for a marathon and shedding a few pounds along the way.
The goal shapes the plan and gives it direction. The goal also gives you motivation to execute the plan.
You have to start with your financial goals to build the best plan (budget).
What are your financial goals?
- Get out of debt
- Build an emergency fund
- Buy a home
- Take a trip
- Be your own boss
- Retire early / retire well
- Be able to give more to those in need
All of us have different goals for our financial life, big and small. Moreover, your goals will change over time and so will your plan.
Better Budget Step #1 – Define Your Financial Goals
Can you tell me specifically what your goals are? If you are married, does your spouse have the same goals?
This first step is the critical foundation for a good plan. Take a little time and write down your goals. Talk to your spouse about them. Prioritize them and agree to them.
Some of my current financial goals are:
- Increase my cash reserves (emergency fund) to $30k by 12/31/2012
- Pay off my mortgage by 6/30/2017
- Increase savings for car replacement (hopefully in 2014)
- Develop additional sources of income beyond my primary job
If you read my About page, you know that the main reason I started this blog is to get my financial house in better shape. That means that I am working these steps as well and am re-thinking my financial goals. I will share the full list with you once it is complete.
So there is Step #1: Define Your Goals. What are some of your financial goals?
Stay tuned for Part 2 of the series on choosing the right expense categories.